TaxTMI Updates e-Newsletter
Mar 30,2023

Value of taxable supply - Inclusion of wages, EPF and ESI in consideration - Assessment under Section 74(5) of APGST Act, 2017 - Right to personal hearing - Natural justice - Remand for fresh hearing and reassessment

Right to personal hearing - Natural justice - Remand for fresh hearing - Whether the assessment order ought to be sustained despite the petitioner's contention of inadequate opportunity of personal hearing - HELD THAT: - The Court found that although some hearing dates were fixed and communications recorded, the petitioner (75 years old) could not effectively avail the opportunities alleged due to age and ill-health and, having regard to the large tax, interest and penalty involved and the substantive nature of the objections raised, the adjudicating authority ought to have afforded further opportunity for personal hearing. The Court therefore declined to examine the merits and directed that the impugned Assessment Order be set aside and the matter remitted to the 3rd respondent to provide a personal hearing and pass a fresh assessment in accordance with law. The Court imposed a condition precedent to remand that the petitioner deposit 50% of the tax component specified in the impugned order within six weeks, failing which the order granting relief would stand vacated. [Paras 8, 9, 10, 11]

Impugned Assessment Order dated 10.11.2022 set aside and matter remitted for fresh hearing and reassessment on condition that the petitioner deposits 50% of the tax component within six weeks; order to be treated as cancelled if deposit is not made.

Value of taxable supply - Inclusion of wages, EPF and ESI in consideration - Section 15(2) of APGST Act, 2017 - Whether amounts paid as wages, EPF and ESI form part of the taxable value was not finally adjudicated and is to be considered afresh - HELD THAT: - The Court expressly refrained from deciding the substantive controversy on whether the payments towards wages, EPF and ESI constitute part of the taxable consideration for supply of manpower services. While the parties advanced opposing contentions (relying inter alia on the construction of consideration and Section 15(2) of the Act), the Court remitted the question to the adjudicating authority to decide after affording the petitioner personal hearing and following law and rules. The final determination on inclusion or exclusion of those components is left to the reassessment. [Paras 3, 9, 10]

Merits on inclusion of wages, EPF and ESI in taxable value not decided; remanded to the 3rd respondent for fresh adjudication after hearing.

Final Conclusion: The assessment order dated 10.11.2022 is set aside on procedural grounds of inadequate effective personal hearing; the matter is remitted to the assessing authority to afford personal hearing and pass a fresh assessment in accordance with law, subject to the petitioner depositing 50% of the tax component within six weeks, and the substantive question regarding inclusion of wages, EPF and ESI in taxable value is left open for fresh consideration.

Power of Appellate Authority under Section 107(11) to modify an order and its limits - introduction of a fresh ground of denial of refund by an appellate authority - denial of refund of integrated tax on the basis that the supplier is an intermediary - export of services and distinct person/establishment test (Condition (v) of Section 2(6) of the CGST Act) - violation of principles of natural justice for want of opportunity to meet a new case

Introduction of a fresh ground of denial of refund by an appellate authority - power of Appellate Authority under Section 107(11) to modify an order and its limits - Whether the Appellate Authority could, in appellate proceedings, sua sponte introduce and decide a completely new ground for denial of refund which was not the subject matter of the adjudication or the show cause notice. - HELD THAT: - The Court observed that the impugned order proceeded to deny the refund on an entirely new basis - that the petitioner was an intermediary - a ground which was not part of the show cause notice nor projected by the Revenue before the Adjudicating Authority. The order does not demonstrate that the Appellate Authority examined the question whether it had competence to expand the scope of controversy by introducing a fresh ground. Given the absence of prior notice to the petitioner and the lack of consideration on the question of jurisdiction to entertain a new case, the Court considered it inappropriate to decide the legal question finally in the first instance. The Court therefore directed the Appellate Authority, in the first instance, to consider whether it has authority to set up a new case against the assessee and to proceed only after affording the appellant an opportunity to meet such case. [Paras 14, 15, 17]

The matter is remanded to the Appellate Authority to decide afresh, including the question whether it had jurisdiction to introduce and decide a new ground not earlier raised, after affording the petitioner an opportunity to be heard.

Export of services and distinct person/establishment test (Condition (v) of Section 2(6) of the CGST Act) - Whether Condition (v) of Section 2(6) of the CGST Act, regarding distinct persons/establishments for export of services, was satisfied between the petitioner and its overseas clients. - HELD THAT: - The Court recorded that the Appellate Authority's finding that Condition (v) of Section 2(6) of the CGST Act was satisfied is unchallenged by the respondents and was not contested on appeal. The finding that the petitioner and its foreign clients were separate tax entities (and thus not merely establishments of a distinct person) stands final inter se between the parties. [Paras 13]

The finding that Condition (v) is satisfied is final between the parties.

Violation of principles of natural justice for want of opportunity to meet a new case - Whether the impugned appellate order offended the principles of natural justice by denying the petitioner an opportunity to meet the newly asserted ground that it was an intermediary. - HELD THAT: - It was undisputed that the petitioner had no opportunity to address the contention that its services were rendered as an intermediary because this ground was neither part of the show cause notice nor advanced earlier. The Court held that passing an order on such a ground without affording the petitioner a chance to be heard amounted to a breach of natural justice. Consequently, the impugned order was set aside and the appeal was restored for fresh adjudication after giving the petitioner an opportunity of hearing. [Paras 11, 16, 17, 18]

The impugned order was set aside for violation of natural justice and the appeal was remitted for fresh adjudication after affording opportunity to the petitioner.

Final Conclusion: The impugned appellate order is set aside and the petitioner's appeal is remitted to the Appellate Authority to be decided afresh in accordance with law after affording the petitioner an opportunity to be heard; the Appellate Authority is to consider in the first instance whether it may legitimately introduce and decide any new ground not earlier raised, while the prior finding that Condition (v) of Section 2(6) is satisfied remains final between the parties.

Principle of composite supply - violation of composite supply principle under Section 2(3) read with Section 8 of the CGST Act - inter-State supply in import by CIF contract - reverse charge and specification of recipient - power of Central Government under Section 5(4) of the IGST Act to specify class of recipients - recommendatory (non binding) character of GST Council recommendations

Principle of composite supply - violation of composite supply principle under Section 2(3) read with Section 8 of the CGST Act - Levy of service tax/IGST on the 'service' component of a CIF import transaction separate from the composite supply of goods and ancillary services. - HELD THAT: - The High Court applied the ratio of the Hon'ble Supreme Court in Union of India & Ors. v. Mohit Minerals Pvt. Ltd., particularly paragraph 148(v), which held that where an import on CIF terms constitutes a composite supply comprising supply of goods together with transportation, insurance and allied services, the Indian importer is liable to pay IGST on the composite supply and a separate levy on the 'service' aspect by the shipping line would violate the statutory scheme of composite supply under Section 2(3) read with Section 8 of the CGST Act. Relying on that authoritative conclusion, the Court found the impugned levy imposed by the Commissioner of Service Tax on the service component to be inconsistent with the composite supply principle and hence unsustainable.

The impugned order imposing tax on the service aspect of the CIF import transaction is quashed.

Final Conclusion: Appeal allowed; following the Supreme Court's decision in Mohit Minerals, the order of the Commissioner is quashed and the connected application for stay is disposed of.

Revival of GST registration - cancellation of registration for non-filing of returns - integration of taxpayers into the GST fold - exercise of writ jurisdiction under Article 226 - conditional quashing subject to payment of tax, interest, penalty and safeguards on Input Tax Credit

Cancellation of registration for non-filing of returns - Validity of the order cancelling the petitioner's GST registration on account of continuous non-filing of GSTR-3B for six months - HELD THAT: - The High Court, relying on the Principal Bench decision in WP.Nos.25048, 25877, 12738 of 2021 etc., observed that where an assessee continues to carry on business despite cancellation, keeping such persons out of the GST regime defeats the object of levy and collection of tax. The petitioner's cancellation under the Act for non-filing of returns was quashed insofar as it operated to permanently exclude the petitioner from the GST fold. The court found that the issues raised were similar to those decided by the Principal Bench and therefore proceeded to dispose of the petition in terms of that order.

The order of cancellation is quashed and set aside to the extent indicated, and the petition is disposed of in terms of the Principal Bench order.

Revival of GST registration - conditional quashing subject to payment of tax, interest, penalty and safeguards on Input Tax Credit - Terms and safeguards for revival of the petitioner's GST registration - HELD THAT: - Following the Principal Bench guidelines, the court directed that revival be permitted subject to specified conditions: filing of past returns and returns for the period prior to cancellation, payment of tax, interest, and applicable fines/fees for the defaulted period within the prescribed time; payment of GST and filing of returns for the period subsequent to cancellation with payment of tax in cash; non-utilisation of unapproved Input Tax Credit until scrutiny and approval by competent officers; and imposition of such restrictions as necessary to prevent abuse including undue passing of Input Tax Credit or bill trading. The court endorsed the imposition of these safeguards as appropriate measures to integrate the petitioner back into the GST regime while protecting revenue interests.

Revival ordered subject to compliance with the conditional safeguards and payment obligations as prescribed in the Principal Bench order.

Exercise of writ jurisdiction under Article 226 - Use of High Court's Article 226 jurisdiction to quash administrative cancellation and grant revival with safeguards - HELD THAT: - The court reaffirmed that while exercising Article 226 jurisdiction it must have regard to legislative intent but may grant relief to effectuate the rule of law and facilitate legitimate trade, subject to law. Applying that principle and the reasoning of the Principal Bench, the High Court exercised its writ jurisdiction to quash the impugned order and direct revival on conditions that ensure compliance and protect revenue.

Writ jurisdiction under Article 226 exercised to quash the cancellation order and direct revival subject to conditions.

Final Conclusion: Writ petition allowed in terms of the Principal Bench order dated 31.01.2022; the cancellation of GST registration is quashed and revival is directed subject to the specified conditions and safeguards to secure tax, interest, penalties and to regulate Input Tax Credit; no costs.

Pre-assessment notice - service of notice - opportunity of personal hearing - transitional credit - interest - virtual summary of notices / GST portal dashboard - setting aside order for lack of service

Pre-assessment notice - service of notice - virtual summary of notices / GST portal dashboard - opportunity of personal hearing - Validity of the impugned assessment order in the absence of proof of issuance or service of the pre-assessment notice and related show-cause/formal notice on the taxpayer. - HELD THAT: - The assessment order under challenge proceeded on the basis that notice dated 20.09.2019 (which included opportunity for personal hearing) and Form DRC 01 dated 05.02.2020 had been issued and not responded to, after which demand was raised in respect of transitional credit with interest. The petitioner produced the printout of the taxpayer's GST portal dashboard (virtual summary of notices) showing the sequence of notices between 30.10.2018 and 14.05.2020; that printout did not record either the notice dated 20.09.2019 or Form DRC 01 dated 05.02.2020. The officer relied on issuance via the online system but did not controvert or contradict the dashboard printout; no evidence of service or of any written reply or personal hearing was shown. In the absence of documentary proof of issuance and service of the pre-assessment/show-cause notice on the taxpayer, the impugned assessment could not stand. The court therefore set aside the impugned order for want of service of the requisite notice and attendant opportunity of hearing. [Paras 3, 5, 6]

Impugned order set aside for lack of proof of issuance/service of the pre-assessment/show-cause notice; writ petition and connected petitions allowed.

Final Conclusion: The High Court allowed the writ petition and connected miscellaneous petitions, set aside the assessment order for want of proof of issuance/service of the pre-assessment/show-cause notice and absence of opportunity of hearing, and ordered no costs.

Cancellation of GST registration - revocation of cancellation of GST registration - requirement of furnishing returns and payment for revocation - condonation of delay in filing appeal - power of a writ court to condone delay - prejudice to third parties in revocation of registration

Revocation of cancellation of GST registration - requirement of furnishing returns and payment for revocation - Revocation of the petitioner's cancelled GST registration and the preconditions for seeking revocation. - HELD THAT: - The Court noted Rule 23(1) of the GST Rules, 2017 which requires that no application for revocation shall be filed unless returns are furnished and any tax, interest, penalty and late fee due in respect of those returns is paid. The petitioner had subsequently filed returns up to April, 2022 and sought revocation, but had not filed a revocation application within the prescribed period. The Court held that the Appellate Authority should be informed of the total outstanding statutory dues standing against the petitioner as on the date of cancellation; upon deposit of any outstanding statutory dues by the petitioner, the Appellate Authority shall proceed to hear the pending appeal on merits and consider revocation after giving adequate opportunity to the petitioner to be heard. The direction contemplates compliance with the statutory preconditions for revocation before any favourable order is passed on revocation. [Paras 7, 10]

The petitioner shall be intimated of outstanding statutory dues and, upon deposit of such dues, the Appellate Authority will hear the appeal on merits and consider revocation of the cancellation after affording opportunity to be heard.

Condonation of delay in filing appeal - power of a writ court to condone delay - cancellation of GST registration - prejudice to third parties in revocation of registration - Whether the appeal pending before the Appellate Authority should be decided on merits notwithstanding delay and whether the matter should be remanded to the Superintendent. - HELD THAT: - The Court observed that limitation serves to secure compliance and protect third party rights, but found that cancellation of GST registration typically prejudices the assessee alone and does not create third party rights which would be unsettled by revocation. Given that an appeal under Section 107 was already pending, the Court declined to remit the matter to the Superintendent for revocation. The Court recognised that a writ court has inherent power to condone delay and, in the exercise of that supervisory jurisdiction, directed that the Appellate Authority decide the pending appeal on merits and condone any delay rather than dismiss the appeal on limitation grounds. The Appellate Authority is therefore empowered to pass appropriate orders after condoning delay where justified and after hearing the petitioner on merits. [Paras 8, 9]

The writ court declined to remand to the Superintendent; the Appellate Authority shall decide the pending appeal on merits and may condone any delay rather than rejecting the appeal on limitation grounds.

Final Conclusion: Writ petition disposed directing respondent Superintendent to intimate outstanding GST dues to the petitioner; upon deposit of such dues the Appellate Authority shall hear and decide the pending appeal on merits and may condone any delay, rather than dismissing it on limitation grounds. No costs.

Cancellation of GST registration - limitation and exclusion of period by the Supreme Court - reconsideration and revocation of cancellation on payment of statutory dues - power of writ court to condone delay/relief against time-barred statutory appeals - service of show cause/suspension notice and rules of natural justice

Cancellation of GST registration - limitation and exclusion of period by the Supreme Court - power of writ court to condone delay/relief against time-barred statutory appeals - Whether the Appellate Authority erred in dismissing the appeal as time-barred without taking into account the Supreme Court order excluding a portion of the limitation period and whether the cancellation order should be set aside for reconsideration. - HELD THAT: - The Court found that the order cancelling the petitioner's GST registration was dated 11.11.2021 and the appeal was filed on 19.07.2022. Both the period for filing revocation and the appeal fell within the period affected by the Supreme Court's order dated 10.01.2022 which excluded the period from 15.03.2020 to 28.02.2022 for limitation purposes. The Appellate Authority's order contains no reference to the Supreme Court's order and does not record whether the petitioner was entitled to benefit of the exclusion. In these circumstances the Appellate Authority failed to take into account the applicable law on exclusion of limitation and consequently erred in dismissing the appeal as time barred. The writ court has inherent power to condone delay or to grant relief where statutory or quasi-judicial authorities have not applied extension/exclusion of limitation; therefore interference with both the cancellation order and the appellate order was warranted and the matter was remitted for fresh consideration in light of the Supreme Court's order. [Paras 6, 7]

Impugned cancellation order dated 11.11.2021 and appellate order dated 16.01.2023 set aside; matter remanded to departmental authority to reconsider revocation of cancellation taking into account the Supreme Court's order on exclusion of limitation.

Reconsideration and revocation of cancellation on payment of statutory dues - service of show cause/suspension notice and rules of natural justice - Procedure to be followed on remand, including intimation of outstanding statutory dues and revocation of registration upon compliance. - HELD THAT: - The Court directed that the Superintendent of Central Taxes shall intimate to the petitioner the total outstanding statutory dues standing in his name up to the date of cancellation. The petitioner is required to deposit any such outstanding GST dues; upon payment of those dues the departmental authorities shall revoke the cancellation of the petitioner's GST registration. The Court noted the petitioner's grievance that initial notices were uploaded on the department website and not served personally, and observed the practical consequence that failure to include the petitioner within the GST regime may prejudice revenue collection; accordingly the remand contemplates fresh consideration of revocation (and thereby, necessarily, procedural compliance) after the intimation and payment of dues. [Paras 7, 8]

Respondent directed to inform petitioner of outstanding GST dues; petitioner to pay such dues; upon payment the cancellation shall be revoked and petitioner shall continue to comply with statutory obligations under the CGST Act.

Final Conclusion: The Court set aside the cancellation order dated 11.11.2021 and the appellate order dated 16.01.2023 for failure to consider the Supreme Court's exclusion of limitation; the matter is remanded to the departmental authority to reconsider revocation of the petitioner's GST registration in light of that exclusion, with a direction to intimate outstanding statutory dues to the petitioner and to revoke the cancellation upon payment of such dues.

Rectification of error apparent on the face of the record - Coverage under Notification No. 14/2017 - supplies treated as neither supply of goods nor supply of services - Renting of immovable property - definition and scope - Reverse charge mechanism for renting of immovable property - Exemption under Notification No. 12/2017 - entry at Sl. No. 7 - Correction of jurisdictional authority in appellate record

Coverage under Notification No. 14/2017 - supplies treated as neither supply of goods nor supply of services - Renting of immovable property - definition and scope - Reverse charge mechanism for renting of immovable property - Whether the appellate order omitted rulings on services at Sl. No.10 (Avenue receipts), Sl. No.11 (Right to fishing in pond) and Sl. No.12 (Running a fish market), and if so, what rectification is required. - HELD THAT: - The appellate authority had not extended any ruling in respect of SI. Nos. 10, 11 and 12 and the omission is a matter for rectification. On the merits, the transactions described at SI. Nos. 10 and 11 confer on the successful tenderer the right to enjoy produce (fruits of avenue trees; fishing rights) by temporary transfer of beneficial enjoyment. Such transactions are not payments for providing services as a public authority under Notification No. 14/2017 but are entailment of access/enjoyment of immovable property rights. The definition of "renting of immovable property" in the explanation to the notification covers allowing or granting access, occupation, use or similar facility and thus captures the avenue receipts and fishing-right arrangements. Consequently, those supplies are not covered by Notification No. 14/2017 and, instead, attract liability under the reverse charge mechanism applicable to renting of immovable property as provided in the cited entry of Notification No. 13/2017. By contrast, the activity at SI. No. 12 (running a fish market - granting the right to sell fish in a specified stall/area) is similarly a letting/renting of immovable property; however, the appellate authority correctly held that the exemption at Sl. No. 7 of Notification No. 12/2017 is available for that activity and that reverse charge under the relevant entry of Notification No. 13/2017 applies subject to fulfilling conditions specified therein. These conclusions are recorded and incorporated into the rectified ruling. [Paras 9, 10, 13]

Ruling rectified to add that (a) SI. Nos. 10 and 11 are transfers of enjoyment/rights falling within the definition of renting of immovable property and are not covered by Notification No. 14/2017; such supplies are liable to tax on reverse charge by the tenderer under the relevant entry of Notification No. 13/2017; and (b) SI. No. 12 is renting of immovable property for which exemption under Sl. No. 7 of Notification No. 12/2017 is available and reverse charge under the relevant entry of Notification No. 13/2017 is applicable subject to conditions.

Renting of immovable property - definition and scope - Exemption under Notification No. 12/2017 - entry at Sl. No. 7 - Whether the appellate order contains an apparent error in treating SI. No. 5A (Charges for TV advertisement in bus stand), SI. No. 5C (Flower shop in bus stand) and SI. No. 7 (Bunk stall) as covered by Sl. No. 7 of Notification No. 12/2017 and by reverse charge under the cited entry of Notification No. 13/2017, and whether that part of the order requires rectification. - HELD THAT: - The appellant contended that the appellate order incorrectly applied Sl. No. 7 of Notification No. 12/2017 and the reverse charge entry of Notification No. 13/2017 (alleging that a different sub-entry should apply). The appellate authority reviewed the matter and recorded reasons in paragraph 9.2 and the ruling portion (para 11(d)) concluding that the transactions fall within "renting of immovable property services" and that the exemption and reverse charge treatment as stated in the order are available subject to conditions. The present review finds no error apparent on the face of the record in that conclusion and therefore the request for rectification in respect of these items is not allowable. [Paras 11]

Request for rectification in respect of SI. Nos. 5A, 5C and 7 is rejected; no amendment is made to the appellate ruling on these entries.

Rectification of error apparent on the face of the record - Correction of jurisdictional authority in appellate record - Whether the appellate order incorrectly recorded the Jurisdictional Authority (Centre) as Coimbatore Commissionerate instead of Salem Commissionerate and whether this requires rectification. - HELD THAT: - The appellate record on page 2 erroneously stated the Jurisdictional Authority-Centre. The appellant is under the jurisdiction of Salem Commissionerate, Erode Division, Erode-I Range. Such an incorrect recital in the appellate order is an error apparent on the face of the record and is amenable to rectification under the rectification provision. The authority has recorded the correct jurisdictional authority and amended the entry in the appellate order accordingly. [Paras 12, 13]

Appellate order amended to show Jurisdictional Authority - Centre as Salem Commissionerate, Erode Division in place of Coimbatore Commissionerate.

Final Conclusion: The application for rectification is allowed in part: the appellate order is amended to record rulings on SI. Nos. 10-12 as clarified (SI. Nos. 10 & 11 treated as renting of immovable property liable to reverse charge by the tenderer; SI. No. 12 eligible for exemption under Sl. No. 7 of Notification No. 12/2017 with reverse charge implications as stated), and the jurisdictional authority is corrected to Salem Commissionerate, Erode Division; the request to alter the appellate treatment of SI. Nos. 5A, 5C and 7 is refused.

Leasing or renting of goods - tax rate determined with reference to supply of like goods involving transfer of title - Applicability of notification exempting/altering tax treatment for sale of old and used motor vehicles - Determination of liability to pay tax on leasing of pre-owned motor vehicles - Restriction on applicability of margin-based notification where transaction is not a sale - Input tax credit affecting applicability of concessional notifications

Leasing or renting of goods - tax rate determined with reference to supply of like goods involving transfer of title - Schedule II classification of supply as goods or services - transfer of title test - Rate and HSN applicable to monthly lease fees for leasing pre-owned cars are to be determined in accordance with serial no. 17(vi) of Notification No. 11/2017-Central Tax (Rate) dated 28-06-2017 as amended - HELD THAT: - The Authority found that leasing of pre-owned motor vehicles is a taxable supply within the scope of section 7 of the CGST Act, 2017 and must be classified by reference to the entries in Notification No. 11/2017. The Authority held that the notification entry for leasing must be read with the legal distinction in Schedule II (transfer of title versus transfer of right to use) and with the Rules governing interpretation of "like goods". However, the Authority concluded that Notification No. 08/2018, which prescribes a margin-based rate for sale of old and used motor vehicles, applies to sale transactions and not to leasing. Consequently, the tax rate on leasing pre-owned motor vehicles is to be determined by reference to the entry prescribing "same rate of central tax as applicable on supply of like goods involving transfer of title in goods" as set out in serial no. 17(vi) (as amended) of Notification No. 11/2017, and by reference to the vehicle specifications (engine capacity, dimensions, fuel, etc.) under Chapter 87 for the applicable HSN/classification.

Leasing of pre-owned motor vehicles: tax rate and HSN to be determined under serial no. 17(vi) of Notification No. 11/2017-Central Tax (Rate) dated 28-06-2017 as amended.

Compensation cess applicability linked to classification of supply - Exclusion of margin-based concessional notification where input tax credit is availed or where transaction is lease - Compensation cess on monthly lease fees for leasing pre-owned cars is to be determined in accordance with Notification No. 01/2017-Compensation cess (Rate) dated 28-06-2017 - HELD THAT: - The Authority observed that compensation cess incidence follows the tax classification of the supply. Since leasing of pre-owned vehicles is not covered by the margin-based exemption/alteration (Notification No. 08/2018) which is confined to sales of old and used vehicles, the applicable compensation cess must be applied as per Notification No. 01/2017 in accordance with the classification under Chapter 87 and the rate applicable to the supply determined under serial no. 17(vi) of Notification No. 11/2017. The Authority also noted that availment of input tax credit affects applicability of concessional notifications, but on the facts before it the question of actual ITC availment required clear disclosure; that factual aspect does not alter the legal conclusion that compensation cess is governed by Notification No. 01/2017.

Compensation cess on leasing of pre-owned motor vehicles: to be determined under Notification No. 01/2017-Compensation cess (Rate) dated 28-06-2017.

Final Conclusion: Advance ruling: (i) GST rate and HSN for monthly lease fees of pre-owned cars are to be determined under serial no. 17(vi) of Notification No. 11/2017-Central Tax (Rate) (as amended) and not under Notification No. 08/2018 which applies to sales; (ii) Compensation cess is to be applied in accordance with Notification No. 01/2017-Compensation cess (Rate) dated 28-06-2017.

GST levy on pre-packaged and labelled goods - pre-packaged and labelled commodity as per the Legal Metrology Act - applicability of notification amending rate entries to pre-packaged and labelled goods - scope of supply under the GST law - exports and taxability where no exemption is provided - bill-to-ship-to supplies and destination of goods - persuasive value of Ministry of Finance FAQs

GST levy on pre-packaged and labelled goods - pre-packaged and labelled commodity as per the Legal Metrology Act - applicability of notification amending rate entries to pre-packaged and labelled goods - GST leviable on export of pre-packaged and labelled rice up to 25 Kgs to a foreign buyer - HELD THAT: - The Authority examined the amendment to the rate notification which substituted "pre-packaged and labelled" in the relevant schedule and the Explanation which imports the definition from the Legal Metrology Act. Where rice is supplied in packages of quantity less than or equal to 25 kg and the package or label is required to bear declarations under the Legal Metrology Act and Rules, such supply falls within the category of "pre-packaged and labelled" goods covered by the notification. The Ministry of Finance's FAQ clarifying that the levy applies irrespective of domestic supply or export, while not binding, has persuasive value. No exemption for such pre-packaged and labelled commodities for export was shown to exist in the statute or notification. Consequently, the supply of such pre-packaged and labelled rice for export attracts GST.

Yes

Bill-to-ship-to supplies and destination of goods - exports and taxability where no exemption is provided - scope of supply under the GST law - GST leviable on supply of pre-packaged and labelled rice up to 25 Kgs to an exporter on a "bill to ship to" basis (bill to exporter and ship to customs port) - HELD THAT: - The Authority observed that neither the notification nor the Legal Metrology Act differentiates between supplies intended for domestic consumption and those intended for export when the goods meet the definition of pre-packaged and labelled. The supply in the bill-to-ship-to model involves the applicant packing goods in pre-packaged and labelled bags and dispatching them to the customs port on exporter instruction; since no statutory exemption excludes such supplies from the scope of supply, they remain taxable. The general principle that only items specifically declared non-taxable/exempt fall outside section 7 was applied.

Yes

Exports and taxability where no exemption is provided - scope of supply under the GST law - pre-packaged and labelled commodity as per the Legal Metrology Act - GST leviable on supply of pre-packaged and labelled rice up to 25 Kgs supplied to the factory of an exporter where the exporter subsequently exports the rice - HELD THAT: - The Authority noted that supplies made to a customer located in the taxable territory for the purpose of export, where the goods are pre-packaged and labelled as defined under the Legal Metrology Act and fall within the amended notification entry, are not carved out from the levy by any provision. The taxable event is the supply which falls within the scope of section 7 unless expressly exempted. As no exemption for such pre-packaged and labelled supplies intended for export was demonstrated, the transaction attracts GST.

Yes

Final Conclusion: The Authority held that supplies of rice packaged and labelled in packages of up to 25 Kg which are required to bear declarations under the Legal Metrology Act attract GST at the rate indicated in the amended notification, and this taxability applies irrespective of whether the goods are exported directly, supplied on a bill-to-ship-to basis, or supplied to an exporter's factory for subsequent export.

Classification of goods - classification under HSN 20098990 - taxability of sugarcane juice - applicability of Notification No. 1/2017 Central Tax (Rate) - definition of agricultural produce under Notification No. 11/2017 - General Rules for the Interpretation of Import Tariff (Rule 3)

Classification of goods - definition of agricultural produce under Notification No. 11/2017 - classification under HSN 20098990 - General Rules for the Interpretation of Import Tariff (Rule 3) - Sugarcane juice is classifiable under chapter 20 as tariff item 20098990. - HELD THAT: - The Authority examined the definition of "agricultural produce" in Notification No. 11/2017 and held that sugarcane juice does not satisfy the essential elements of that definition because it is produced by crushing (a processing step not limited to primary marketability) and its form and constitution are altered so as to serve as a raw material for secondary manufacture. Sugarcane is neither a fruit nor a vegetable for the purposes of chapter 20; accordingly, the specific description in heading 2009 (fruit and vegetable juices) does not literally cover sugarcane, and Rule 3(a) of the General Rules for the Interpretation of Import Tariff requires preference to the heading which most specifically describes the product. Applying these principles, the Authority concluded that sugarcane juice merits classification under the residual tariff item 20098990 (other fruit/vegetable juices), and not as an agricultural produce exempt entry. [Paras 11, 12, 14, 15]

Sugarcane juice is classifiable under chapter 20, tariff item 20098990.

Taxability of sugarcane juice - GST rate on fruit and vegetable juices - classification under HSN 20098990 - GST on sale of sugarcane juice is leviable at 6% CGST and 6% SGST (or 12% IGST). - HELD THAT: - Having classified sugarcane juice under tariff item 20098990 within chapter 20, the Authority referred to Schedule II of Notification No. 1/2017 Central Tax (Rate) and identified the entry at Sr. No. 41 which prescribes a 6% central tax rate for goods under heading 2009. On that basis, the Authority ruled that supply of sugarcane juice attracts 6% CGST and 6% SGST (or 12% IGST for inter-state supply). [Paras 12, 13, 15]

Sugarcane juice is taxable at 6% CGST and 6% SGST (or 12% IGST).

Applicability of Notification No. 1/2017 Central Tax (Rate) - taxability of sugarcane juice - Notification No. 1/2017 Central Tax (Rate) dated 28.06.2017 applies to sugarcane juice classified under tariff item 20098990. - HELD THAT: - The Authority noted that although there is no express entry naming 'sugarcane juice', the product falls within the scope of the entry in Schedule II (Sr. No. 41) to Notification No. 1/2017 covering fruit and vegetable juices under heading 2009. Consequently, the rates prescribed by that notification are applicable to sugarcane juice as classified. [Paras 13, 15]

Notification No. 1/2017 Central Tax (Rate) dated 28.06.2017 is applicable.

Final Conclusion: The Authority ruled that sugarcane juice is not an exempt agricultural produce but is classifiable under chapter 20, tariff item 20098990; it is taxable under Notification No. 1/2017 at 6% CGST and 6% SGST (or 12% IGST).

Tax rate on composite supply of works contract - applicability of notification amendments to GST rate - advance ruling on rate of tax - works contract supplied to a State Government entity

Tax rate on composite supply of works contract - applicability of notification amendments to GST rate - works contract supplied to a State Government entity - Whether the applicant's works contract under Chief Minister Jan Awas Yojna is liable to 9% CGST and 9% SGST each post 01.01.2022. - HELD THAT: - The Authority examined the notification changes and the factual matrix that the applicant supplied construction services to the Rajasthan Housing Board under the CM Jan Awas Yojna. It noted that subsequent amendments by Notification No. 03/2022 - Central Tax (Rate) dated 13.07.2022 omitted specified entries in Serial No. 3 of Notification No. 11/2017 and resulted in alteration of the tax incidence on works contracts rendered to Government or local authorities. The application was filed on 03.07.2022 and the Authority therefore pronounced the ruling in light of the law as it stood after the notification dated 13.07.2022. On these findings, the Authority held that the applicant's supply to RHB does not attract the 9% + 9% rate post 01.01.2022 as contended; instead, in view of the amendments effected by Notification No. 03/2022 dated 13.07.2022, the services provided to RHB will attract an 18% GST rate from 13.07.2022 until the rate is changed again. [Paras 5, 7]

The works contract services supplied by the applicant to Rajasthan Housing Board attract GST at 18% from 13.07.2022 onward; they are not liable to 9% CGST and 9% SGST post 01.01.2022 as contended.

Final Conclusion: Advance ruling: the applicant's contention that the works contract should attract 9% CGST and 9% SGST post 01.01.2022 is not accepted; services supplied to Rajasthan Housing Board will attract 18% GST from 13.07.2022 until further change in rate.

Applicability of notification - Works contract - Governmental authority / Government entity exclusion from concessional rate - Amendment of tax rate by subsequent notification - Prospective effect of notification amendment

Applicability of notification - Works contract - Governmental authority / Government entity exclusion from concessional rate - Amendment of tax rate by subsequent notification - Whether the concessional GST rate under Notification No. 11/2017 (as amended) applies to the applicant's contract with RIICO or whether the subsequent amendment attracts GST at 18% for services rendered to RIICO. - HELD THAT: - The Authority examined the nature of the supply (construction and re-carpeting of C.C. road) and the character of the recipient (Rajasthan State Industrial Development & Investment Corporation (RIICO)). RIICO, though constituted by State enactment, is not itself the State Government as defined under the CGST/RGST Acts. The Authority noted that the words "or a Governmental authority or a Government Entity" were omitted from the description in Serial No. 3 of Notification No. 11/2017 by Notification No. 15/2021 and that Notification No. 03/2022 effected further amendments increasing rates for works contracts rendered to Government or local authority. Having regard to these amendments, and that the applicant's ruling application was dealt with after the later amendment, the Authority held that the concessional description no longer covers entities such as RIICO and that the applicable rate after the amendment dated 13.07.2022 is 18%. The Authority therefore directed that services provided to RIICO on or after 13.07.2022 will attract GST at 18% under the amended notifications. [Paras 6, 7, 8, 9, 10]

Services supplied by the applicant to RIICO shall attract GST at 18% with effect from 13.07.2022 in view of the omission of "Governmental authority or Government Entity" from the concessional entry and subsequent amendment by Notification No. 03/2022.

Final Conclusion: The Authority rules that the concessional rate under Notification No. 11/2017 (as earlier amended) does not apply to services rendered to RIICO; following the amendment notified on 13.07.2022 the applicant's services to RIICO will attract GST at 18% from 13.07.2022 onwards.

Exempt supply of services - support services to crop production (SAC 998611) - agricultural operations - plant protection - processes which do not alter essential characteristics and make produce marketable for the primary market - input tax credit disallowed for inputs used in exempt supplies - advance ruling - admissibility where issue not pending or decided

Exempt supply of services - support services to crop production (SAC 998611) - agricultural operations - plant protection - processes which do not alter essential characteristics and make produce marketable for the primary market - Spraying services of agrochemicals provided by the applicant to farmers are exempted under Notification No. 12/2017 CT (and corresponding IGST notification). - HELD THAT: - The Authority examined whether the spraying service falls within the entry for services relating to cultivation of plants, specifically clauses describing (a) agricultural operations directly related to production including plant protection and (c) processes at an agricultural farm which do not alter essential characteristics but make produce marketable for the primary market. Applying the explanatory notes for SAC 998611, spraying is a support service to crop production (including spraying and pest control). The service is performed at the farmer's agricultural land during pre harvest, does not alter the essential characteristics of the crop, and materially contributes to making the produce fit for the primary market. The Authority applied the established understanding of 'cultivation', 'agricultural operations' (including both basic and subsequent operations such as plant protection), and 'primary market', and found all conditions of the notification satisfied. Reliance was placed on the nature and situs of the service (direct supply to farmers on their land), the end purpose (crop protection and marketability), and classificatory guidance in the explanatory notes to conclude that the spraying service is covered by the nil rated entries and therefore exempt.

The spraying services are an exempt supply under Notification No. 12/2017 CT (and the corresponding IGST notification).

Input tax credit disallowed for inputs used in exempt supplies - Section 16 and Section 17 - apportionment/availability of input tax credit - No input tax credit is available for inputs and input services attributable to the exempt spraying services. - HELD THAT: - The Authority determined that, having held the spraying service to be an exempt supply, the statutory scheme in Sections 16 and 17 applies so that input tax credit cannot be claimed for inputs and input services used for making exempt supplies. The Authority therefore treated the question of availment of input tax credit as answered by the exemption finding and recorded that ITC on supplies used for the exempt spraying service would not be allowable.

The applicant is not eligible to claim input tax credit for inputs and input services used for the exempt spraying services.

Final Conclusion: The Authority ruled that the applicant's spraying of its agrochemicals for farmers is a support service to crop production falling within the nil rated entries of the notifications and hence exempt; consequently, input tax credit for inputs and input services attributable to that exempt service is not available.

Taxable supply - scope of supply - business (definition) - consideration - Pure Services exemption under Notification No. 12/2017-CT(R) - eligibility to seek advance ruling

Taxable supply - scope of supply - business (definition) - Activity of supplying water by the applicant to residents is covered under the GST Act - HELD THAT: - The Authority examined the nature of the water distribution system operated by the applicant and applied the statutory definitions. The definition of "business" in Section 2(17) and the wide scope of "supply" under Section 7 encompass activities undertaken for consideration and in furtherance of business. The applicant, a private company carrying out water distribution as part of its commercial management of the complex, performs an independent business activity and supplies services for consideration. The exemption for supplies by local authorities does not extend to a private company performing such services. Accordingly, the activity is a taxable supply under the CGST/HGST framework.

The water supply/distribution services by the applicant constitute a taxable supply under the GST Act.

HSN/SAC classification - Water distribution Services - Applicable HSN/SAC code for the applicant's water supply activity - HELD THAT: - On examining the nature of the service provided, the Authority identified the correct classification within the services nomenclature relevant to water distribution. The invoices produced and the functional description confirm the activity is supply of water distribution services as a taxable service provided by the applicant to residents.

HSN/SAC code 996921 (Water distribution Services) applies to the activity.

Rate of tax - exemption under Notification No. 12/2017-CT(R) - Rate of GST applicable on the water distribution services supplied by the applicant - HELD THAT: - The Authority considered the exemption entry in Notification No. 12/2017-CT(R) which confers nil-rating for pure services provided to specified public authorities in relation to functions entrusted to Panchayats or Municipalities. That exemption is limited to supplies to Central/State/Union territory/local authorities and excludes supplies involving any goods or supplies by private entities. No express option or extension of the exemption to private suppliers was available in the notification. Consequently, the applicant cannot claim the nil-rated concession and is liable to levy tax at the applicable notified rate for such taxable services.

The water distribution services by the applicant attract GST at 18% and are not covered by the nil-rating in Notification No. 12/2017-CT(R).

Final Conclusion: The Advance Ruling Authority held that the applicant's water distribution/supply to residents is a taxable service; it is classifiable under HSN/SAC 996921 (Water distribution Services) and is liable to GST at 18%.

Penalty proceedings pending disposal of appeal - deferment of penalty during pendency of appeal - show cause notice under the Block Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 - personal hearing before imposition of penalty - restraint on coercive steps pending decision - judicial review under Article 226 of the Constitution - remand for fresh consideration of penalty

Show cause notice under the Block Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 - personal hearing before imposition of penalty - penalty proceedings pending disposal of appeal - Direction to afford personal hearing to the petitioner on the show cause notices and to restrain coercive steps until orders are pronounced. - HELD THAT: - The petition challenged two show cause notices dated 13.03.2023 issued under the Act in respect of assessment year 2017-2018 and sought that penalty proceedings be dropped or deferred pending disposal of the appeal before the appellate authority. The Court noted that the petitioner had submitted detailed explanations and requested deferment until the appeal was decided. Balancing the parties' contentions and in the interest of justice, the Court did not quash the notices but directed that the petitioner be given an opportunity to appear and make submissions on a specified date. The Court further directed that the respondents shall thereafter pass appropriate orders on the matter and, until such orders are pronounced, no coercive steps shall be initiated. These directions preserve the petitioner's right to be heard and prevent immediate enforcement while leaving the merits for the authority to decide after hearing. [Paras 12, 13]

Petitioner to appear before the authority on 27.03.2023 at 10.30 am for personal submissions; respondents to pass appropriate orders thereafter; no coercive steps until orders are pronounced.

Remand for fresh consideration of penalty - penalty proceedings pending disposal of appeal - restraint on coercive steps pending decision - The matter of imposing penalty was left to the authority for fresh consideration after affording hearing; the Court remitted the proceedings for decision without pronouncing on merits. - HELD THAT: - Rather than adjudicating the substantive correctness of the assessment or the show cause notices, the Court remitted the matter to the respondents to decide the penalty after hearing the petitioner. The Court's order operates as a supervisory direction to ensure that the authority affords a fair opportunity of hearing and refrains from coercive enforcement until it reaches and pronounces its decision. The direction preserves the appellate process and confines the Court's intervention to procedural protection rather than a substantive determination of liability. [Paras 12]

Penalty proceedings remitted to the respondents for fresh consideration after hearing the petitioner; interim restraint on coercive measures until orders are pronounced.

Final Conclusion: Writ petition disposed by directing the petitioner to appear and make submissions on the specified date; respondents to pass appropriate orders thereafter and refrain from any coercive action until such orders are pronounced; no costs.

Reopening of assessment - notice under Section 148 of the Income Tax Act - change of opinion - tangible material distinct from assessment record - failure to truly and fully disclose material facts - formation of opinion during scrutiny assessment - notice under Section 142(1) and its consideration in assessment

Reopening of assessment - notice under Section 148 of the Income Tax Act - tangible material distinct from assessment record - change of opinion - failure to truly and fully disclose material facts - formation of opinion during scrutiny assessment - notice under Section 142(1) and its consideration in assessment - Validity of the notice dated 21st March, 2021 under Section 148 and consequential order dated 22nd November, 2021 reopening assessment for A.Y.2015-16 - HELD THAT: - The Court found that the queries raised by the Assessing Officer by notice under Section 142(1) dated 23rd August, 2017 (queries regarding increase in share capital and share premium) were specifically answered by the assessee and the assessment order dated 6th November, 2017 recorded reference to that notice and accepted the returned income. The reasons recorded for reopening did not disclose any fresh tangible material distinct from the material available during the original scrutiny; the reassessment was therefore founded on a mere change of opinion. There was no allegation or finding of any failure by the assessee to truly and fully disclose material facts which would justify reopening beyond four years. The Court applied the principle that reopening cannot be sustained where the issue was thouroughly gone into during scrutiny and no new tangible material is shown, and that an assessing officer's decision not to make an addition after detailed scrutiny constitutes formation of opinion (even if reasons were not elaborated in the assessment order). In those circumstances reopening under Section 148 was impermissible and constituted an abuse of power. [Paras 11, 13, 14, 15]

Impugned notice dated 21st March, 2021 and consequential order dated 22nd November, 2021 are quashed and set aside.

Final Conclusion: Writ petition allowed; the Section 148 notice and the consequential order reopening the assessment for A.Y.2015-16 were held unsustainable as the reassessment was based on material already on record and a mere change of opinion, with no failure to disclose material facts; the impugned notice and order are quashed.

Reopening assessment under Section 148 - time limit for reopening and limitation under Section 149 - deemed show-cause notice under Section 148A(b) - effect of Finance Act, 2021 on reassessment regime (pre- and post-01.04.2021) - deeming direction in Ashish Agarwal - notifications under Taxation and Other Laws (Relaxation & Amendment) Act, 2020 do not extend statutory limitation

Reopening assessment under Section 148 - time limit for reopening and limitation under Section 149 - deemed show-cause notice under Section 148A(b) - notifications under Taxation and Other Laws (Relaxation & Amendment) Act, 2020 do not extend statutory limitation - Validity of notices under Section 148 and orders under Section 148A(d) issued in July 2022 in respect of Assessment Years 2013-14 and 2014-15 on the ground of limitation. - HELD THAT: - The Court applied the law laid down in Keenara Industries Pvt. Ltd. and the clarified position in Ashish Agarwal to hold that notices originally falling under the pre-01.04.2021 (old) regime cannot be validly issued after the outer time limit prescribed by that old regime. Under the old regime, a notice under Section 148 could not be issued after six years from the end of the relevant assessment year unless specific exceptions applied. The Finance Act, 2021 substituted the reassessment regime effective 01.04.2021 but its First Proviso preserves that where a notice could not have been issued under the old regime on account of being time-barred, no notice shall be issued post-amendment for assessment years beginning on or before 01.04.2021. The Taxation and Other Laws (Relaxation & Amendment) Act, 2020 and the Notifications thereunder cannot be used to revive or extend the expired limitation under the principal enactment; secondary legislation cannot override the statutory time bar. Applying these principles, the Court found that for AY 2013-14 and AY 2014-15 the six year limitation under the old regime had already expired prior to 01.04.2021, and therefore the notices issued in July 2022 (deemed as Section 148A show cause notices under Ashish Agarwal) were beyond the permissible time and without jurisdiction. The Court confined its decision to the legal ground of limitation and left all factual contentions bearing on merits of reopening open for determination elsewhere. [Paras 6, 7, 10]

Notices dated 29.07.2022 and 30.07.2022 under Section 148 and the orders under Section 148A(d) seeking reopening for AY 2013-14 and AY 2014-15 are time barred, illegal and set aside.

Final Conclusion: The Special Civil Applications are allowed on the sole ground that the reassessment notices and consequential orders for AY 2013-14 and AY 2014-15 were issued beyond the statutory time limit and are therefore void; other factual questions relating to the merits of reopening remain open.

Non-speaking order - principles of natural justice - quashing and remand for fresh consideration - application for NIL rate of TDS under Section 197 of the Income tax Act - opportunity of personal hearing

Non-speaking order - principles of natural justice - application for NIL rate of TDS under Section 197 of the Income tax Act - Validity of the impugned communication dated 28.02.2022 rejecting the petitioner's application for NIL TDS - HELD THAT: - The communication dated 28.02.2022, enclosing a screenshot of the TRACES portal, amounted to a summary, cryptic and unreasoned rejection of the petitioner's Form 13 application for NIL deduction of tax. The assessing authority recorded no reasons and showed no application of mind. Such non speaking, laconic action offended the principles of natural justice because it did not disclose why the claim was rejected nor afford the petitioner a hearing or opportunity to rectify or explain. The Court therefore found the impugned communication to be procedurally deficient and legally unsustainable, requiring quashing and fresh consideration in accordance with law. [Paras 5, 6]

The impugned communication/order is quashed as non speaking and violative of natural justice; matter remitted for fresh consideration after giving the petitioner opportunity to file additional material and a personal hearing.

Quashing and remand for fresh consideration - opportunity of personal hearing - Relief to be granted following quashing of the impugned order - HELD THAT: - Having quashed the non speaking rejection, the Court directed that the matter be remitted to respondent No.2 for de novo consideration. The reassessment must be carried out in accordance with law, after allowing the petitioner to submit further pleadings and documents and after granting an opportunity of personal hearing. The order therefore provides for both reconsideration on merits and observance of procedural fairness in the re examination process. [Paras 6]

Order dated 28.02.2022 set aside; matter remitted for fresh consideration with leave to the petitioner to file additional documents and to be afforded personal hearing.

Final Conclusion: The petition is allowed: the impugned non speaking communication rejecting the Form 13 application for NIL rate of TDS is quashed and set aside, and the matter is remitted for fresh consideration in accordance with law after permitting the petitioner to file additional material and granting a personal hearing.

Initiation of assessment proceedings without jurisdiction - notice under Section 148 issued by non jurisdictional officer - assessment framed under Sections 144/147 quashed for want of jurisdiction - obligation to challenge territorial jurisdiction under Section 124(3) - transfer of case under Section 127(4) cannot validate a non existent notice

Initiation of assessment proceedings without jurisdiction - notice under Section 148 issued by non jurisdictional officer - assessment framed under Sections 144/147 quashed for want of jurisdiction - transfer of case under Section 127(4) cannot validate a non existent notice - obligation to challenge territorial jurisdiction under Section 124(3) - Validity of proceedings initiated by ITO, Ward 1(3), Bhilai and sustainment of assessment framed by ACIT 2(1), Bhilai based on the notice issued by that officer. - HELD THAT: - Record shows notice under Section 148 dated 09.03.2018 was issued by ITO, Ward 1(3), Bhilai. The same officer, by letter dated 10.04.2018, transferred the assessee's case for A.Y.2013 14 to ITO, Ward 2(2), Bhilai on the ground that jurisdiction vested with ITO, Ward 2(2) pursuant to Notification No.01/2014 15 dated 15.11.2014. There is no material to show that jurisdiction was at any time vested in or transferred to ITO, Ward 1(3), Bhilai prior to issuance of the notice. Consequently, the notice dated 09.03.2018 was issued by an officer who was not vested with jurisdiction over the assessee's case and therefore was without authority of law. The tribunal further held that the time limit provision in Section 124(3) for raising territorial jurisdiction objections does not bar an assesseee from challenging actions which are wholly without authority (i.e., where the officer was not an assessing officer within the meaning of the Act), and on that basis the assessee's challenge to jurisdiction was permissible notwithstanding the lapse of the one month period. Finally, the statutory provision allowing transfer under Section 127(4) and the principle that re issue of notice is not necessary where transfer occurs cannot validate an original notice that was non existent in law because it was issued by a person lacking jurisdiction; a subsequent transfer does not retrospectively confer validity on a void notice. [Paras 15, 16, 17, 18, 19]

Notice dated 09.03.2018 issued by ITO, Ward 1(3), Bhilai was without jurisdiction; assessment framed pursuant thereto under Sections 144/147 is quashed. Merits of additions left open for fresh consideration if appropriate.

Final Conclusion: The assessment order for A.Y.2013 14 framed by ACIT 2(1), Bhilai under Sections 144/147 is quashed because it was founded on a Section 148 notice issued by an officer who lacked jurisdiction; the Tribunal declined to decide merits, leaving them open.

Royalty - definition under Article 12(3) of the India-Malaysia DTAA - Use of, or right to use, copyright/trademark for royalty characterisation - Limitation of benefits - Article 28 of the India-Malaysia DTAA - Beneficial application of treaty versus domestic law (section 90(2) of the Act)

Limitation of benefits - Article 28 of the India-Malaysia DTAA - Whether Article 28 of the India-Malaysia DTAA could be invoked to deny treaty benefits to TSA Malaysia in respect of payments routed through it - HELD THAT: - The Tribunal examined the factual matrix, including the existence, date of incorporation, turnover and operations of TSA Malaysia, and the commercial rationale for routing rights through the Malaysian entity. The learned CIT(A)'s finding that TSA Malaysia carried out substantive functions, had pre existing operations and turnover significantly higher than the transaction value, and was not merely a conduit was accepted. The anomaly that the agreement between the assessee and TSA Malaysia preceded one of the upstream agreements did not, on the material on record, establish that TSA Malaysia was a sham or that the arrangement was devised solely to obtain treaty benefits. On these facts the invocation of Article 28 was not warranted and the Tribunal found no infirmity in the CIT(A)'s conclusion declining to apply Article 28. [Paras 14, 15]

Article 28 of the India-Malaysia DTAA was not attracted and treaty benefits to TSA Malaysia could not be denied on the facts of the case.

Royalty - definition under Article 12(3) of the India-Malaysia DTAA - Use of, or right to use, copyright/trademark for royalty characterisation - Beneficial application of treaty versus domestic law (section 90(2) of the Act) - Whether the payments made by the assessee to TSA Malaysia for the advertising package/rights (logo rights, advertising privileges, promotional activity rights and complementary tickets) constituted "royalty" taxable in India - HELD THAT: - The Tribunal compared the definition of "royalty" in Article 12(3) of the India-Malaysia DTAA with the rights granted under the sublicences. Following the reasoning in DIT vs Sahara India Financial Corporation Ltd , the Tribunal held that the payments were for publicity and sponsorship benefits (display of sponsor logo, title/official partner claims, promotional appearances, access to tickets, use of photographs for promotion) and did not amount to consideration for the use of, or the right to use, any copyright, trademark or other intellectual property as contemplated by Article 12(3). Because the treaty definition is more restrictive than the domestic provision relied upon by the AO, and the taxability failed under the treaty, the Tribunal applied section 90(2) to favour the assessee and declined to examine other domestic provisions. Consequentially the addition treating the payments as royalty was set aside. [Paras 16, 17, 19]

The payments did not constitute "royalty" under Article 12(3) of the India-Malaysia DTAA; the addition on account of royalty was deleted.

Final Conclusion: The appeal by the assessee succeeds and the addition treating the advertising/sponsorship payments as royalty is deleted; the Revenue's appeal is dismissed. The Tribunal also upholds the CIT(A)'s conclusion that Article 28 of the India-Malaysia DTAA is not attracted on the facts before it.

Validity of reassessment proceedings and notice issued under Section 147/148 where the issuing officer lacks jurisdiction - Inherent jurisdiction versus territorial jurisdiction and effect of failure to object under Section 124(3) - Effect of transfer of case under Section 127(4) on validating a notice issued by a non jurisdictional officer

Validity of reassessment proceedings and notice issued under Section 147/148 where the issuing officer lacks jurisdiction - Assessment framed pursuant to proceedings initiated by an officer who lacked jurisdiction is liable to be quashed. - HELD THAT: - The Tribunal found on the record that the reasons to believe dated 09.05.2016 and the notice under Section 148 dated 25.10.2016 were recorded/issued by ITO Ward-1(1), Bhilai at a time when jurisdiction over the assessee's case was vested under Notification No.01/2014-15 with ITO Ward-2(1), Bhilai. Since the initiating officer was not vested with jurisdiction when he recorded the reasons to believe and issued the notice, those acts were without authority of law and void. The subsequent assessment framed by an officer who had jurisdiction at the time of assessment could not save or validate the initial void initiation; therefore the reassessment founded on the non jurisdictional initiation was quashed. [Paras 11, 12, 15, 19]

Assessment framed pursuant to the reasons to believe and notice issued by a non jurisdictional officer is quashed.

Inherent jurisdiction versus territorial jurisdiction and effect of failure to object under Section 124(3) - Failure to challenge jurisdiction under Section 124(3) does not preclude assailing initiation that is wholly without authority where the officer was not an Assessing Officer within the meaning of the Act. - HELD THAT: - The Tribunal distinguished territorial jurisdiction objections under Section 124(3) from challenges to the very authority or inherent jurisdiction of the officer who issued the notice. Because the notice was issued by an officer who was not vested with jurisdiction (i.e., not an Assessing Officer under Section 2(7A) or directed under Section 120), the statutory time bar in Section 124(3) for raising territorial jurisdiction objections did not apply. Reliance was placed on coordinate decisions and high court observations that objections to acts wholly without authority are not curtailed by the time limits applicable to territorial jurisdiction objections. [Paras 16, 17, 18]

The assessee was not precluded by Section 124(3) from challenging the initiation of proceedings that was wholly without jurisdiction.

Effect of transfer of case under Section 127(4) on validating a notice issued by a non jurisdictional officer - Transfer of the case after issuance of a notice by a non jurisdictional officer does not validate the original notice. - HELD THAT: - Although Section 127(4) provides that transfer need not render necessary the re issue of any notice already issued by the transferring Assessing Officer, the Tribunal held that this provision cannot validate a notice which, at the time of issuance, was issued by an officer who lacked jurisdiction and therefore was void ab initio. Consequently, the subsequent transfer of the case cannot cure the fundamental defect in the initiation of proceedings. [Paras 20]

The transfer of the case did not validate the notice issued by the non jurisdictional officer; the notice remained non est and could not be relied upon.

Adjudication of merits left open for re consideration - Substantive/merit issues raised by the assessee were not adjudicated because the assessment was quashed for lack of jurisdiction. - HELD THAT: - Having quashed the assessment on jurisdictional grounds, the Tribunal refrained from addressing the other contentions on merits (including the addition made under Section 69). Those substantive issues were left open for fresh consideration, if any, in accordance with law. [Paras 21]

Merits of the additions were not decided and remain open for fresh adjudication.

Final Conclusion: The reassessment for assessment year 2014-15 was quashed because initiation (recording of reasons and notice under Section 148) was carried out by an officer who lacked jurisdiction; the assessee was not barred by Section 124(3) from raising that jurisdictional challenge; the subsequent transfer did not validate the void notice; consequentially the Tribunal allowed the appeal and left the merits open.

Admission of fresh evidence under Rule 46A of the Income Tax Rules - remand to the Assessing Officer for examination of additional evidence - taxability of withdrawal from capital gains account scheme under Section 54(2) - validity of reassessment notice issued under section 148 - cross-objection dismissed as not pressed

Admission of fresh evidence under Rule 46A of the Income Tax Rules - remand to the Assessing Officer for examination of additional evidence - taxability of withdrawal from capital gains account scheme under Section 54(2) - Additional evidence admitted by the Commissioner (Appeals) was not dealt with in accordance with Rule 46A and the matter is restored to the Assessing Officer for fresh examination. - HELD THAT: - The Tribunal found that the ld. Commissioner (Appeals) admitted bank statements and other documents supporting the assessee's plea that the capital gains deposits were not liquidated in the impugned year but in the succeeding year, without referring the newly produced evidence to the Assessing Officer for comments or seeking a remand report as envisaged by Rule 46A. Given that the statutory procedure for dealing with fresh evidence was not followed, the Tribunal declined to adjudicate the factual controversy on the papers and restored the matter to the file of the Assessing Officer. The Assessing Officer is directed to examine afresh whether the investments were liquidated in assessment year 2015-16 or in 2016-17, and, if the Assessing Officer concludes that tax was exigible in 2015-16, to verify whether the same capital gain has already been offered to tax in 2016-17 and afford relief as permissible under law. [Paras 6, 7]

Restored to the Assessing Officer for fresh consideration in accordance with Rule 46A; appeal of the Revenue allowed for statistical purposes.

Cross-objection dismissed as not pressed - Cross-Objections filed by the assessee were not pressed and are dismissed as not pressed. - HELD THAT: - The assessee's counsel expressly stated that the cross-objections would not be pressed. The Tribunal accordingly dismissed the cross-objections as not pressed without adjudicating their merits. [Paras 10, 11]

Cross-objections dismissed as not pressed.

Final Conclusion: The Revenue's appeal is allowed for statistical purposes and the matter is remanded to the Assessing Officer for fresh examination of the additional evidence and determination of the year of taxability; the assessee's cross-objections are dismissed as not pressed.

Agricultural land for exemption under section 2(14)(iii) - criterion of rural agricultural land (beyond municipal limits and population threshold) - character of land as per revenue records and non-conversion to non-agricultural use - nexus between interest expense and cost of land - allowability of interest capitalized to cost of land against capital gain

Agricultural land for exemption under section 2(14)(iii) - character of land as per revenue records and non-conversion to non-agricultural use - Whether the profit on sale of the land at Soyala Gam is exempt as arising from agricultural land under section 2(14)(iii). - HELD THAT: - The Tribunal upheld the CIT(A)'s conclusion that the land falls within clause (iii) of section 2(14) because it is not situated within a municipality having population of 10,000 or more and is situated beyond the specified distance from municipal limits. The assessee produced revenue records (including 7/12 extract), sale/purchase deeds and a certificate from the Gram Panchayat showing population below 10,000 and the distance from the Ahmedabad Municipal Corporation in excess of 8 km. There was no application for conversion to non-agricultural use and the Assessing Officer had not disputed the land's entry as agricultural in revenue records. Reliance on judicial precedents where factual findings that land is agricultural and beyond municipal limits led to exemption was accepted. The absence of agricultural income or regular agricultural activity was not treated as determinative where the statutory territorial and revenue-record criteria were satisfied. Applying these principles to the material on record, the Tribunal found no error in holding the land to be agricultural for the purpose of section 2(14)(iii) and deleting the addition. [Paras 5, 6]

The claim of exemption under section 2(14)(iii) on the profit from sale of the Soyala Gam land is allowed and the addition deleted.

Nexus between interest expense and cost of land - allowability of interest capitalized to cost of land against capital gain - Whether interest expense of Rs.47,72,054/- claimed by the assessee is allowable as relating to the purchase of the land and deductible against the capital gain on its sale. - HELD THAT: - The Tribunal affirmed the CIT(A)'s finding that the assessee had established the borrowing and payment of interest for purchase of the land by produced ledger accounts and interest ledgers. The Assessing Officer's contention that a portion of the interest related to the period after sale (March 2011) was examined; on appreciation of records the CIT(A) found that only interest up to the date of sale had been claimed from Ganesh Plantation and that the interest had been capitalized to the cost of land. The Tribunal, on review of the appellate finding and the ledger evidence, found no infirmity and accepted that the requisite nexus between the interest and acquisition of the land was established; consequently the disallowance by the AO was not warranted. [Paras 7, 8, 9]

The disallowance of the claimed interest expense is deleted and the interest is held to be allowable as relating to the cost of land.

Final Conclusion: Both grounds of the Department's appeal are dismissed: the Tribunal affirms that the land qualifies as agricultural land under section 2(14)(iii) and that the interest expense claimed is sufficiently shown to relate to the purchase of the land; the Department's appeal and the assessee's cross-objection are dismissed.

Reopening of assessment under section 147 - Notice under section 148 - Maintainability and condonation of delay in appeal - Exemption for agricultural land and capital gains characterisation under section 2(14) - Deemed dividend treatment under section 2(22)(e) - Unexplained cash deposits and evidentiary burden under section 68

Maintainability and condonation of delay in appeal - Whether the appeal in I.T.A. No.107/Chny/2021 was maintainable in view of unexplained delay and the assessee's prayer to withdraw the appeal. - HELD THAT: - The Tribunal noted the appeal was delayed by 579 days and the assessee filed an affidavit seeking condonation for only 18 months without seeking condonation for the entire period. On that basis the appeal was not maintainable; however, at hearing the assessee's counsel prayed for withdrawal. The appeal was accordingly treated as withdrawn and dismissed as such. [Paras 2]

I.T.A. No.107/Chny/2021 dismissed as withdrawn.

Reopening of assessment under section 147 - Notice under section 148 - Validity of reopening assessment by issuance of notice under section 148 after return was processed under section 143(1). - HELD THAT: - The Tribunal distinguished cases relied on by the assessee where scrutiny under section 143(3) had been completed or where assessments under section 143(3) were concluded without dealing with objections; in the present case the return was only processed under section 143(1) and no scrutiny assessment under section 143(3) had been carried out. The Assessing Officer issued notice under section 148 within four years of processing. Having regard to the conceptual difference between processing under section 143(1) and scrutiny under section 143(3), the Tribunal held the reopening by issue of notice under section 148 was valid and the CIT(A)'s confirmation of reopening was upheld. [Paras 3]

Reopening of assessment upheld; ground dismissed.

Exemption for agricultural land and capital gains characterisation under section 2(14) - Whether the land sold qualified as agricultural land exempt from capital gains under section 2(14). - HELD THAT: - The Assessing Officer relied on the agreement to sell, information obtained under section 133(6), and the Tahsildar's report stating no crops were grown from 2008-2013; the site was shown as 'residential' on the land records and commercial/educational development existed in the vicinity. The assessee failed to produce contemporaneous evidence of cultivation, irrigation, electricity bills, sale of produce or other particulars called for; older chitta/Adangal entries did not establish agriculture for the relevant period. Earlier decisions relied on by the assessee were found distinguishable on facts. In view of the lack of supporting evidence, the claim of agricultural character and consequent exemption was rejected. [Paras 4]

Claim of exemption under section 2(14) disallowed; capital gain addition confirmed.

Deemed dividend treatment under section 2(22)(e) - Whether amounts shown as liabilities from M/s Saraswathi Broilers Pvt. Ltd. constituted loans/advances attracting deemed dividend under section 2(22)(e). - HELD THAT: - The Assessing Officer and the remand report found that sums debited in the company's books against the assessee represented advances taken by him for personal purposes distinct from share application monies. The assessee's contention that amounts represented only share application monies was not substantiated by accounts or documentary evidence to rebut the inference of advances from the company. The Tribunal agreed with the CIT(A)'s consideration of the remand report and found the conditions of section 2(22)(e) satisfied to the extent of accumulated profits, leading to the addition. [Paras 5]

Addition under section 2(22)(e) confirmed.

Unexplained cash deposits and evidentiary burden under section 68 - Whether the assessee satisfactorily explained cash deposits in bank accounts, and whether the balance amounts were taxable as unexplained cash under section 68. - HELD THAT: - The assessee admitted agricultural income credited to capital account but failed to satisfactorily explain the remaining deposits. Inconsistent and varying explanations were filed at different stages without documentary support; the remand proceedings did not yield corroborative evidence. The CIT(A) accordingly sustained the addition in respect of unexplained cash deposits, applying the principle that unexplained credits are assessable when the assessee fails to prove their genuineness or source. [Paras 6]

Addition in respect of unexplained cash deposits sustained.

Final Conclusion: Both appeals dismissed: I.T.A. No.107/Chny/2021 dismissed as withdrawn; the appeal against quantum (assessment year 2011-12) dismissed with the Tribunal upholding reopening, disallowance of agricultural-character exemption, confirmation of deemed dividend and unexplained cash additions.

Taxation of interest paid by a permanent establishment to its head office/other branches - Application of the fiction of a distinct and separate enterprise under Article 7 for attribution to a permanent establishment - Interaction between domestic charging/amendment (Explanation to section 9(1)(v)) and treaty provisions - Source rule versus treaty carve out where debt-claim is effectively connected with a permanent establishment

Taxation of interest paid by a permanent establishment to its head office/other branches - Application of the fiction of a distinct and separate enterprise under Article 7 for attribution to a permanent establishment - Interaction between domestic charging/amendment (Explanation to section 9(1)(v)) and treaty provisions - Whether interest paid by the Mumbai permanent establishment to overseas branches/head office is taxable in India for A.Y. 2016-17 despite the assessee claiming treaty benefits under the Indo Swiss DTAA - HELD THAT: - The Tribunal accepted that the Mumbai branch constitutes a permanent establishment (PE) of the Swiss resident assessee and that section 90(2) mandates application of the Act or the DTAA, whichever is more beneficial. Applying the Indo Swiss DTAA, para 5 of Article 11 leads to application of Article 7 where the debt claim is effectively connected with the PE. Article 7(2) requires attribution of profits to the PE using the separate and independent enterprise fiction, but that fiction is confined to computing profits attributable to the PE and does not extend to computing the total profits of the head office/overseas branches. Following the coordinate decisions (including BNP Paribas and the Special Bench reasoning in Sumitomo Mitsui as discussed), the Tribunal held that even if the domestic Explanation to section 9(1)(v) was inserted to address the Special Bench decision, that amendment cannot displace the treaty rule which restricts taxation to profits attributable to the PE. Consequently, interest paid by the PE to overseas branches/head office, claimed as a deduction in computing PE profits under Article 7, does not give rise to additional taxable income in India in the hands of the head office/overseas branches under the DTAA; the AO was directed to delete the addition made on account of such interest for A.Y. 2016-17. [Paras 7, 8, 9]

Addition of interest income attributed to head office/overseas branches deleted and grounds 1 and 2 allowed for A.Y. 2016-17.

Taxation of interest paid by a permanent establishment to its head office/other branches - Application of the fiction of a distinct and separate enterprise under Article 7 for attribution to a permanent establishment - Whether the decision on taxability of interest for A.Y. 2016-17 applies to A.Y. 2017-18 - HELD THAT: - The Tribunal applied the reasoning and outcome reached in the lead assessment year (A.Y. 2016-17) mutatis mutandis to A.Y. 2017-18. As the facts and the relevant treaty provisions (including Article 7 and para 5 of Article 11) are materially identical, the Tribunal allowed the corresponding grounds in respect of A.Y. 2017-18 by applying the same legal principle that the fiction of separate entity for attribution is limited to the PE and does not create taxable income in the head office/overseas branches under the DTAA. [Paras 14]

Grounds 1 and 2 allowed for A.Y. 2017-18 by applying the A.Y. 2016-17 decision.

Prematurity of initiation of penalty proceedings - Whether initiation of penalty proceedings under the cited provisions should be directed at this stage - HELD THAT: - The Tribunal treated the Revenue's direction to initiate penalty proceedings as premature. It dismissed the assessee's ground challenging initiation of penalty as premature in both assessment years, concluding that initiation of penalty proceedings was not ripe for adjudication in the present appeals. [Paras 11, 16]

Grounds seeking to challenge or resist initiation of penalty proceedings dismissed as premature.

Final Conclusion: The Tribunal partially allowed the appeals: it deleted the additions made by the AO in respect of interest paid by the Mumbai permanent establishment to overseas branches/head office for A.Y. 2016-17 and applied the same outcome to A.Y. 2017-18; non pressed grounds were dismissed as not pressed; and challenges to initiation of penalty proceedings were held premature and dismissed.

Unexplained investment - valuation report of the Valuation Officer (DVO) - spreading of income over relevant years - discount on purchase of material - self-supervision charges - recomputation and remand to Assessing Officer - section 115BBE - special rate of tax on income determined under sections 68 to 69D

Unexplained investment - valuation report of the Valuation Officer (DVO) - recomputation and remand to Assessing Officer - spreading of income over relevant years - discount on purchase of material - self-supervision charges - Validity of addition made by Assessing Officer treating difference between DVO valuation and the assessee's valuer as unexplained investment and the manner/timing of taxing such difference. - HELD THAT: - The Tribunal accepted that the Assessing Officer made an addition of Rs.66,09,203 as unexplained investment being the difference between the DVO's valuation and the assessee's valuer. The Tribunal found merit in the assessee's evidence that construction occurred in phases between May 2009 and August 2016 and that certain DVO allowances (10% material discount and 5% self-supervision) could be revisited. The matter was accordingly remitted to the Assessing Officer with specific directions: allow discount on purchase of material at 20% instead of 10%; allow self-supervision charges at 12.5% instead of 5%; recompute the cost of construction after applying these adjustments; deduct the recomputed value from the DVO value; and spread the resulting difference over the period A.Y.2010-11 to A.Y.2017-18 proportionately, computing the assessee's income on that basis. These directions constituted the Tribunal's determinative reasoning and led to partial allowance of the appeal. [Paras 11, 12, 14, 15]

Addition upheld in principle but remitted for recomputation: allow 20% material discount and 12.5% self-supervision charges, recompute construction cost, deduct from DVO value and spread the difference over A.Y.2010-11 to A.Y.2017-18 for assessment.

Section 115BBE - special rate of tax on income determined under sections 68 to 69D - Whether the addition made under section 69 is to be taxed under the amended provisions of section 115BBE for A.Y.2017-18. - HELD THAT: - The Tribunal agreed with the CIT(A) that the amended section 115BBE, which applies w.e.f. A.Y.2017-18, is attracted where income is determined under section 69. The Tribunal noted that section 115BBE does not condition its applicability upon the date of Presidential assent in the manner of some other provisions and that Parliament enacted the amendment with effect from A.Y.2017-18. In view of this, any addition finally determined under section 69 for the year under consideration would be taxable in accordance with section 115BBE. [Paras 5, 16]

The additions determined under section 69 for the year under consideration shall be taxable in accordance with section 115BBE for A.Y.2017-18.

Final Conclusion: Appeal partly allowed: the Tribunal remitted the addition to the Assessing Officer for recomputation with directions to allow 20% discount on materials and 12.5% self-supervision charges, to deduct the recomputed value from the DVO valuation and to spread the resulting difference over A.Y.2010-11 to A.Y.2017-18; any addition so determined shall be taxed under section 115BBE for A.Y.2017-18.

Cash deposits assessed as unexplained income - demonetisation redeposits - application of section 115BBE - adjustability of interest expenditure against FDR interest - taxability of pension receipts

Cash deposits assessed as unexplained income - demonetisation redeposits - Deletion of addition of cash deposit of Rs. 10,00,000/- treated as income from undisclosed sources - HELD THAT: - The Tribunal found on the record that the assessee, a super senior citizen widow suffering serious illness, had prior cash in hand and substantial cash withdrawals from bank accounts before demonetisation, and that she had also received cash from the deceased husband. Those facts were discernible from bank statements and the paper book. Given the medical exigencies and the credible provenance of the cash (opening cash, withdrawals and the cash received on husband's death), the Court held that redeposit of those amounts after the demonetisation cannot be treated as having arisen from undisclosed income. The circumstances did not amount to doubtful conduct warranting taxing treatment; consequently the addition was not sustainable. [Paras 5]

Addition of Rs. 10,00,000/- deleted.

Adjustability of interest expenditure against FDR interest - application of section 115BBE - Sustenance of addition of FDR interest of Rs. 95,076/- without allowing deduction of interest expenditure of Rs. 61,192/- - HELD THAT: - The Tribunal recorded that the FDR interest and the loan interest pertained to the relevant period and that the interest paid on a loan taken against the FDR could not be held adjustable against the FDR interest received. The factual admission that FDR interest was received in the relevant year entitled the Assessing Officer to include it in income, and the claimed interest expenditure was not allowable as an adjustment to reduce the gross FDR interest for the purpose of assessment. [Paras 6]

Addition of FDR interest of Rs. 95,076/- sustained; interest expenditure of Rs. 61,192/- not allowed as adjustment; tax liability to be recalculated.

Taxability of pension receipts - application of section 115BBE - Sustenance of addition of Rs. 1,00,000/- on account of widow pension - HELD THAT: - The Tribunal noted that the widow pension was admittedly received in the relevant financial year pertaining to the assessment year in question, and therefore the Assessing Officer was entitled to take it into account while computing the assessee's income. The payment being in the relevant year justified inclusion in the assessment and the appellate forum declined to treat it as non-taxable or to disallow its addition. [Paras 6]

Addition of Rs. 1,00,000/- on account of widow pension sustained; tax liability to be recalculated.

Final Conclusion: The appeal is partly allowed: the addition of cash deposit was deleted, while additions in respect of FDR interest and widow pension were upheld and the Assessing Officer is directed to recompute the tax liability accordingly.

Cash found during search - discrepancy between physical cash and cash book - unexplained cash - statement recorded under oath - verification of directors' statement on remand

Cash found during search - discrepancy between physical cash and cash book - unexplained cash - Deletion of cash balance shown in the books as on date of search - HELD THAT: - The Assessing Officer added the entire cash found in the premises as unexplained on the basis that the assessee's accountant could not explain a discrepancy. The CIT(A) and the Tribunal examined the cash book and noted that a cash balance of Rs.10,51,395/- stood reflected in the books on the date of search and that no discrepancy was pointed out in the accounting for that portion. The Tribunal accepted the view that cash balance recorded in the cash book cannot be treated as unexplained merely because the physical cash exceeded book balance and accordingly upheld deletion of the portion shown in books as accounted cash. [Paras 5, 9]

The cash balance of Rs.10,51,395/- as per the books on the date of search is deleted.

Statement recorded under oath - discrepancy between physical cash and cash book - verification of directors' statement on remand - Whether the excess cash (over book balance) is unexplained or can be attributed to cash kept by the director's wife - HELD THAT: - The Assessing Officer relied on the accountant's inability to explain the excess cash of Rs.5,06,125/- and treated the entire excess as unexplained. The assessee produced ledger extracts indicating that the director's wife had withdrawn funds from a partnership concern and purportedly kept Rs.5,00,000/- in the company's premises. The Tribunal observed that the record does not show whether the director himself was examined about possession of his wife's cash during search proceedings or thereafter, and that his statement would be material to the issue. Accordingly, the Tribunal did not adjudicate the question on merits but directed restoration to the file of the Assessing Officer to verify the director's statement recorded under oath and, if the director has stated that the cash belonged to his wife, to delete the addition after giving the assessee an opportunity of being heard. The Assessing Officer is to decide the matter on facts and law following such verification. [Paras 11]

The issue of the excess cash of Rs.5,06,125/- is remanded to the Assessing Officer for verification of the director's statement and fresh decision; deletion directed if the director confirms the cash belonged to his wife.

Final Conclusion: The Tribunal upheld deletion of the cash amount shown in the books as on date of search and remanded the question of excess cash to the Assessing Officer for verification of the director's statement recorded under oath, directing deletion if that statement establishes that the excess cash belonged to the director's wife; appeal partly allowed for statistical purposes.

Condonation of delay by reason of Supreme Court extension of limitation - ex parte decision - opportunity of being heard / principles of natural justice - consideration of materials on record - remand for fresh adjudication

Condonation of delay by reason of Supreme Court extension of limitation - Delay in filing the appeal was condoned and the appeal admitted. - HELD THAT: - The assessee's appeal was filed 34 days late but fell within the period excluded by the Hon'ble Supreme Court's directions which excluded the period from 15-3-2020 to 2-10-2021 and provided resulting limitation adjustments and a 90-day window where applicable. The Tribunal accepted the explanation advanced by the assessee's AR and there was no contest by the Revenue. Accordingly the Tribunal exercised its discretion to condone the delay and admit the appeal for merits. [Paras 5]

Delay in filing the appeal is condoned and the appeal is admitted for adjudication on merits.

Ex parte decision - opportunity of being heard / principles of natural justice - consideration of materials on record - remand for fresh adjudication - Whether the CIT(A) could confirm additions by deciding the appeal ex parte without considering the paper book and other materials on record. - HELD THAT: - The Tribunal found that although the assessee did not participate in the appellate proceedings, the CIT(A) remained obliged to consider the materials which were on record before him (including financial statements, cash flow statements and a paper book running to pages 1-250) before rendering an ex parte decision. The CIT(A)'s conclusion that the assessee wilfully failed to cooperate did not entitle him to ignore documentary material available on record or to decide the controversy without scientific consideration of that material. In view of these deficiencies in adjudication, the Tribunal held that the matter requires fresh consideration by the CIT(A) after affording the assessee an opportunity of being heard. [Paras 6, 7, 8, 9]

The assessment and confirmations are set aside and the matter is remanded to the CIT(A) for fresh adjudication in accordance with law after considering the materials on record and after giving the assessee an opportunity of being heard.

Final Conclusion: The Tribunal condoned the delay in filing the appeal, set aside the ex parte appellate decision insofar as it failed to consider materials on record, and remitted the matter to the CIT(A) for fresh adjudication after affording the assessee an opportunity of hearing; appeal allowed for statistical purposes.

Limitation for review under Section 129D(3) of the Customs Act, 1962 - date of communication/receipt of Order in Original for computing the three month period - onus on the department to prove date of receipt of the Order in Original - absence of evidence renders review order time barred

Limitation for review under Section 129D(3) of the Customs Act, 1962 - date of communication/receipt of Order in Original for computing the three month period - Whether the three month period for making a review order under Section 129D(3) must be computed from the date of communication/receipt of the adjudicating authority's order and whether the Commissioner (Appeals) erred in computing time from the date of Order in Original. - HELD THAT: - The Tribunal noted that Sub section (3) of Section 129D prescribes that every review order must be made within three months from the date of communication of the adjudicating authority's decision. The Department contended that the three month period should be computed from the date the Reviewing Authority received the Order in Original (different dates asserted for each appeal), whereas the Commissioner (Appeals) computed the period from the date of the Order in Original because no evidence of actual receipt dates was available. The Tribunal observed that the statute contemplates computation from the date of communication/receipt, but emphasised that where the Reviewing Authority's order does not record the date of receipt and no evidence is produced to establish an alternative receipt date, the finding of delay based on available dates cannot be displaced. In the present cases the review orders did not mention the date of receipt and the Department failed to substantiate its asserted receipt dates before the Commissioner (Appeals) or the Tribunal; therefore the computation adopted by the Commissioner (Appeals) and his conclusion of delay were upheld. [Paras 6, 9, 10, 11, 12]

The Commissioner (Appeals) did not err in treating the review orders as beyond the three month period where no evidence of receipt dates was furnished; the Department's contention as to alternative receipt dates is not accepted.

Onus on the department to prove date of receipt of the Order in Original - absence of evidence renders review order time barred - Whether the Department discharged the burden of proving the date on which the Reviewing Authority received the Order in Original and whether the Commissioner (Appeals) acted properly in dismissing the appeals for want of such proof. - HELD THAT: - The Tribunal recorded that the Commissioner (Appeals) made repeated efforts to procure original case files to verify the date of receipt by the Reviewing Cell but the files were not produced. The review orders themselves did not state the date of receipt. The Department failed to produce evidence before the Commissioner (Appeals) and did not explain the omission. The Tribunal drew a strong inference, on the basis of the Commissioner (Appeals)'s findings and the absence of any contrary record, that the review orders were delayed. As the Department did not substantiate its asserted receipt dates, the Commissioner (Appeals)'s conclusion dismissing the appeals as time barred was reasonable and not to be upset. [Paras 5, 6, 9, 11, 12]

The Department failed to prove the date of receipt by the Reviewing Authority; in absence of such evidence the Commissioner (Appeals) rightly dismissed the appeals as time barred and the Tribunal will not interfere.

Absence of evidence renders review order time barred - Whether the Tribunal should interfere with the Commissioner (Appeals)'s orders dismissing the Department's appeals as time barred. - HELD THAT: - The Tribunal examined the impugned orders and the review orders and found that the Commissioner (Appeals) had recorded his unsuccessful attempts to obtain files and that the review orders did not mention receipt dates. The Department's belated assertions of receipt dates before the Tribunal were unsupported by documentary proof and were not raised before the Commissioner (Appeals). Given these facts the Tribunal found no ground to disturb the Commissioner (Appeals)'s findings. The consistent reasoning across the three appeals led the Tribunal to sustain the impugned orders. [Paras 8, 9, 11, 12, 13]

No interference with the Commissioner (Appeals)'s dismissal of the appeals; the impugned orders are sustained.

Final Conclusion: The Tribunal upheld the Commissioner (Appeals)'s finding that the review orders were time barred because the Department failed to establish the dates on which the Reviewing Authority received the Orders in Original; the appeals filed by the Department are dismissed and the impugned orders are sustained.

Transaction value - assessable value - technical know-how fee - condition for sale - post-importation service or activity excluded from assessable value - customs valuation under Rule 9(1)(c) of the Customs Valuation Rules

Technical know-how fee - condition for sale - transaction value - post-importation service or activity excluded from assessable value - Technical know-how fee of EURO 40,000 is not includible in the assessable value of imported capital goods. - HELD THAT: - The Tribunal examined the collaboration agreement and found that the Technology Transfer Fee and related technical assistance were not stipulated as a condition of sale of the imported capital goods. Applying the principle that the value of imported goods for customs duty must be determined by the payment required as a condition of sale at the time and place of importation, amounts paid for post-importation services or activities do not form part of the transaction value. The Tribunal relied on the ratio of the Apex Court in J.K. Corporation Ltd., which holds that licence or technical know-how payments not forming part of the price payable as a condition of sale at import cannot be added to the assessable value, and on consistent decisions of this Bench and other authorities which applied Rule 9(1)(c) only where the conditions for its invocation are established. On the facts, the payment was for know-how and assistance separate from the sale of goods and thus lacked the requisite nexus with the import price to be included in the transaction value. Consequently the Commissioner (Appeals) correctly excluded the fee from assessable value and there was no reason to interfere.

Appeal dismissed; order of Commissioner (Appeals) holding that the technical know-how fee need not be included in the assessable value is upheld.

Final Conclusion: The departmental appeal is dismissed; the technical know-how fee is not part of the assessable transaction value of the imported capital goods and therefore is not includible for customs valuation.

Continuing liability of directors to repay under Section 73(2) of the Companies Act - vicarious/offences-by-companies liability under Section 27 of the SEBI Act - resignation of director and its effect under Section 168 of the Companies Act - liability of directors appointed after issuance/allotment of securities - quashing of criminal proceedings in exercise of inherent jurisdiction

Continuing liability of directors to repay under Section 73(2) of the Companies Act - liability of directors appointed after issuance/allotment of securities - resignation of director and its effect under Section 168 of the Companies Act - vicarious/offences-by-companies liability under Section 27 of the SEBI Act - quashing of criminal proceedings in exercise of inherent jurisdiction - Whether the criminal proceedings pending as Special Case No. SEBI/27/2017 against the petitioner should be quashed. - HELD THAT: - The Court found on the record that the allotment of the Non-Convertible Debentures occurred in Financial Year 2012-2013, whereas the petitioner joined the company as advisor in late 2012, became Additional Director only on 03.07.2013 and resigned by letter dated 28.11.2013. SEBI's own order recorded that the petitioner joined the board pursuant to the allotment and that his name was not removed from ROC records, but there is no material that the petitioner was in charge of or responsible for the day-to-day conduct of the company when the allotment took place. Section 168 of the Companies Act places a duty on the company to inform the Registrar of a director's resignation; the resignation submitted by the petitioner is on record and his tenure was limited to a few months. Although SEBI's order speaks of a "continuing liability" to make repayments under Section 73(2) read with Section 27 of the SEBI Act, the High Court held that there is no material before the trial court to show the petitioner's involvement in the alleged offence or that he continued to act in the management in a manner attracting vicarious liability at the relevant time. On these findings the Court concluded that allowing the criminal proceedings to continue against the petitioner would amount to permitting harassment in absence of prima facie material, and exercised its inherent jurisdiction to quash the prosecution insofar as it related to the petitioner. [Paras 34, 35, 36]

Proceedings in Special Case No. SEBI/27/2017 insofar as they relate to the petitioner are quashed for want of material showing he was in charge of and responsible for the company's affairs at the time of the alleged offence.

Final Conclusion: The revision is allowed and the criminal proceedings and all orders connected therewith insofar as they concern the petitioner are quashed; no order as to costs.

Financial Creditor - Operational Creditor - Financial Debt - Receivables sold or discounted (recourse v. non recourse) - Disbursal against consideration for the time value of money - Assignment or legal transfer of operational debt under Section 21(5) of the IBC

Financial Creditor - Financial Debt - Receivables sold or discounted (recourse v. non recourse) - Disbursal against consideration for the time value of money - Whether the financiers who discounted the seller's invoices qualify as Financial Creditors of the Corporate Debtor under the IBC - HELD THAT: - The appellants contended that discounting of receivables on a recourse or limited recourse basis constitutes a financial debt under Section 5(8)(e) and thus they are Financial Creditors under Section 5(7). The Tribunal examined the nature of the transaction and the flow of funds: the financiers discounted the seller's invoices, deposited funds into an escrow account, and the escrow agent transferred the amounts to the seller's bank account; no amount was disbursed to the Corporate Debtor as money advanced to it or for the time value of money. The arrangement, by which the seller transferred its right to receive the invoice proceeds to the financiers after receipt of funds, resulted in the financiers stepping into the seller's position. Consequently, the transaction falls within the concept of an operational debt by virtue of assignment/transfer of the seller's receivable and not within the definition of financial debt, so Section 5(8)(e) and Section 5(7) are inapplicable to convert the financiers into Financial Creditors vis a vis the Corporate Debtor. [Paras 13]

The financiers do not qualify as Financial Creditors of the Corporate Debtor; they stepped into the shoes of the Seller and are Operational Creditors.

Operational Creditor - Assignment or legal transfer of operational debt under Section 21(5) of the IBC - Whether the adjudicating authority correctly dismissed the Section 7 application and directed the financiers to pursue remedy under Section 9 - HELD THAT: - The adjudicating authority found that since the funds were paid to the Seller and the Seller transferred its rights under the invoices to the financiers, the financiers were effectively assignees of operational debt and hence operational creditors within the meaning of Section 5(20) and by virtue of Section 21(5) would be treated as operational creditors to the extent of such assignment. Given that the transaction did not involve disbursal to the Corporate Debtor as a financial advance for the time value of money, the application under Section 7 was not maintainable. The Tribunal agreed with this reasoning and found no error in the Adjudicating Authority's dismissal of the Section 7 petition while leaving the appellants free to file an appropriate Section 9 application. [Paras 13, 14]

The Adjudicating Authority correctly dismissed the Section 7 application and rightly relegated the financiers to seek remedy under Section 9.

Final Conclusion: The appeals are dismissed. The financiers were held to have stepped into the seller's shoes as Operational Creditors because the discounted funds were paid to the seller and not disbursed to the Corporate Debtor; the Section 7 petitions were therefore not maintainable and the appellants were correctly relegated to file proceedings under Section 9 of the IBC.

Construction of Complex Service - self-service / absence of service provider-service recipient relationship - mutuality - unjust enrichment - retrospectivity of statutory amendment

Construction of Complex Service - self-service / absence of service provider-service recipient relationship - mutuality - retrospectivity of statutory amendment - Construction of complex service provided by the cooperative housing society to its members is not liable to service tax. - HELD THAT: - The Tribunal's earlier reasoning that where a society undertakes construction on its own (without engaging a contractor) there is no service provider-service recipient relationship and the activity amounts to self-service was applied. Board clarifications recognising that construction undertaken by an owner/promoter on its own falls outside the taxable service were relied upon. The High Court had earlier upheld the Tribunal's order in that line and observed that the statutory Explanation inserted later could not be applied retrospectively to tax events antecedent to the amendment. The revenue accepted the High Court's position. In view of these precedents and the settled legal position that the transaction between the society and its members involves mutuality and lacks the requisite service relationship for levy of service tax, the impugned demand could not be sustained. [Paras 4, 5]

Impugned order confirming demand of service tax set aside; appeal allowed.

Final Conclusion: The Tribunal allowed the appeal and set aside the adjudicating authority's demand, holding that the society's construction activity for its members is not a taxable service; the matter is disposed of in favour of the appellant with consequential relief as per law.

Business auxiliary service - incentives not leviable as consideration - air travel agent service - promotion or marketing of third party business - classification of service for levy

Business auxiliary service - incentives not leviable as consideration - air travel agent service - promotion or marketing of third party business - Levy of service tax on amounts received by the appellant from CRS companies for use of Central Reservation System (CRS). - HELD THAT: - The Tribunal accepted the Larger Bench decision in Kafila Hospitality & Travels Pvt Ltd. which held that (i) an air travel agent promotes its own business and not the business of the airlines or CRS companies; (ii) a passenger cannot be regarded as an audience for promotion of CRS companies as passengers cannot directly use CRS or be influenced to do so; (iii) mere selection or use of CRS software by a travel agent does not amount to promotional activity for the CRS company; and (iv) incentives paid for achieving targets are not 'consideration' liable to service tax. Applying those determinations, the Commissioner (Appeals) erred in holding that the CRS related payments fell within business auxiliary service. The impugned confirmation of demand in respect of CRS incentives is therefore unsustainable. [Paras 11, 12, 14, 15]

The demand of service tax on CRS incentives received by the appellant is set aside.

Final Conclusion: The appeal is allowed insofar as it challenges the levy of service tax on amounts received from CRS companies; the Commissioner (Appeals) order confirming that demand is set aside for the period October 2009 to March 2015.

Validity of Rule 8(3A) restricting utilisation of Cenvat credit - Effect of High Court decisions declaring a rule ultra vires on departmental demands - Consequences for demand and penalty when the statutory provision relied upon is invalid

Validity of Rule 8(3A) restricting utilisation of Cenvat credit - Effect of High Court decisions declaring a rule ultra vires on departmental demands - Consequences for demand and penalty when the statutory provision relied upon is invalid - Demand raised for contravention of Rule 8(3A) restricting use of Cenvat credit and consequential penalties could not be sustained because Rule 8(3A) has been held ultra vires by High Courts and those decisions were not stayed. - HELD THAT: - The Tribunal observed that the issue is covered by the Calcutta High Court decision in M/s. Goyal MG Gases Pvt. Ltd., which declared Rule 8(3A) invalid and held that the Revenue cannot adopt a contrary stand where High Courts have declared the provision ultra vires. The Tribunal further noted the Gujarat High Court decision in Indsur Global Ltd. which struck down the words "without utilizing Cenvat Credit" in Rule 8(3A), thereby permitting discharge of duty by utilization of Cenvat credit - the precise factual position in the present case. As those High Court rulings were not stayed by the Supreme Court, the departmental demand premised on contravention of Rule 8(3A) could not be sustained; parity had to be extended to the assessee and the demand and consequential penalties could not survive in view of the invalidity of the underlying rule. [Paras 7, 8, 9, 10, 11]

Demand of duty raised for alleged contravention of Rule 8(3A) set aside; penalties reduced by lower authority were also set aside and the appeals allowed with consequential relief.

Final Conclusion: The Tribunal allowed the appeals, set aside the demand of duty and the penalties imposed, holding that the demand founded on Rule 8(3A) could not be sustained in view of High Court decisions declaring that provision ultra vires which were not stayed.

Entitlement to CENVAT credit on inputs used in manufacture of capital goods - user test for classification as capital goods - effect of non-retrospective amendment to definition of "input" w.e.f. 07.07.2009 - distinction between inputs used in manufacture of capital goods and materials used for construction of factory/foundations

Entitlement to CENVAT credit on inputs used in manufacture of capital goods - user test for classification as capital goods - effect of non-retrospective amendment to definition of "input" w.e.f. 07.07.2009 - CENVAT credit on various iron and steel items (including TMT bars, MS angles, channels, plates, coils and similar structurals) used in fabrication of support structures for capital goods for the period November 2006 to March 2008 is allowable. - HELD THAT: - The Tribunal held that the structural steel items were used in the fabrication of support structures on which capital goods (kiln, conveyors, furnace, etc.) are placed and, applying the "user test" as adopted by the Apex Court, such fabricated goods must be treated as parts/components of the relevant machines and fall within the definition of "capital goods" and hence are eligible as "inputs" for CENVAT credit. The decision relied on earlier Tribunal and High Court precedents and the Apex Court's reasoning in similar contexts. The amendment to the definition of "input" effected w.e.f. 07.07.2009 was held not to operate retrospectively; since the dispute relates to the period November 2006 to March 2008, the later non-retrospective amendment did not bar the claim for that period. In view of these legal principles and authorities, the impugned disallowance, recovery and penalty were held unsustainable.

Impugned order disallowing CENVAT credit is set aside; appeal allowed with consequential relief.

Final Conclusion: Appeal allowed - CENVAT credit on the impugned iron and steel items used in fabrication of support structures for capital goods for the period November 2006 to March 2008 was held allowable; the order of disallowance, recovery and penalty set aside.

Unjust enrichment - refund claim for erroneously paid excise duty - classification and excisability of scrap - interpretation of payment equal to duty leviable on clearance of capital goods as waste and scrap - appellate authority exceeding grounds of appeal / jurisdictional limits of appellate authority

Appellate authority exceeding grounds of appeal / jurisdictional limits of appellate authority - classification and excisability of scrap - unjust enrichment - Whether the Commissioner (Appeals) exceeded the grounds of the Department's appeal by addressing classification and excisability of the used refractories instead of the pleaded ground of unjust enrichment, thereby vitiating his Order-in-Appeal. - HELD THAT: - The Tribunal found that the Commissioner (Appeals) did not address the grounds advanced by the Department-which were confined to unjust enrichment and related scrutiny-and instead proceeded to decide the separate question of classification and excisability of the used refractories, including reliance on rule 3(5A) of CCR'04 as applicable to clearance of capital goods as waste and scrap. That question of excisability had previously been considered and decided by the predecessor Commissioner (Appeals) in favour of the assessee and no appeal was taken against that earlier order. The Tribunal noted precedent holding that an appellate authority must not create or assume jurisdiction to decide controversies that were not before it and that traversing beyond the grounds of appeal calls for setting aside the order. Because the Commissioner (Appeals) travelled beyond the specific ground of unjust enrichment pleaded by the Department and re-decided classification/excisability (a matter not before him), his Order-in-Appeal was set aside. The Tribunal expressly declined to adjudicate whether the Department could raise unjust enrichment at the appeal stage, having allowed the appeal on the ground of traversal alone. [Paras 8, 9, 10, 11]

The Department's appeal is allowed; the Order-in-Appeal is set aside for having traversed beyond the grounds of appeal.

Final Conclusion: The appeal is allowed on the sole ground that the Commissioner (Appeals) exceeded the grounds of the Department's appeal by deciding classification/excisability instead of the pleaded issue of unjust enrichment; the Tribunal did not decide the merits of unjust enrichment and granted consequential relief to the appellant.

Eligibility of CENVAT credit on inputs used in manufacture of dutiable products despite intermediate non-excisable output - Reversal of credit for inputs used in exempted or non-excisable goods under Rule 6 of the CENVAT Credit Rules, 2004 - Benefit of Notification No. 67/95 C.E. in respect of captively consumed denatured alcohol - Adherence to binding precedents upholding credit where proportionate reversal/accounting is made

Eligibility of CENVAT credit on inputs used in manufacture of dutiable products despite intermediate non-excisable output - Reversal of credit under Rule 6 of CCR, 2004 - Benefit of Notification No. 67/95 C.E. - CENVAT Credit availed on duty paid molasses used in the manufacture of denatured spirit (DNS), which is captively consumed in the manufacture of dutiable products, is eligible and the demand cannot be sustained. - HELD THAT: - The Tribunal examined whether credit on molasses is ineligible merely because ethyl alcohol (ENA) is produced at an intermediate stage as a non excisable product. The appellant did not claim credit for the quantity of molasses attributable to ENA cleared as non excisable, and availed credit only in respect of the proportion of molasses contained in DNS captively consumed for manufacture of excisable products. Relying on earlier Tribunal and Apex Court decisions which held that denial of credit is not warranted where the assessee accounts for/excludes the portion attributable to exempt/non excisable clearances and complies with reversal obligations under Rule 6, the Tribunal held that the factual method adopted by the appellant (to quantify and take credit only for the portion used in dutiable manufacture) falls within the scope of those precedents. The authorities cited by Revenue holding that molasses used to produce ENA cannot be treated as an input ab initio were considered in light of the binding decisions of this Tribunal and the Apex Court which permit proportionate credit where the excise law and notifications (including Notification No. 67/95 C.E.) and Rule 6 obligations are met. On the material before the Tribunal there was no finding that the appellant had availed credit on the entire quantity of molasses or failed to reverse credit attributable to exempt/non excisable clearances; therefore the demand could not be sustained. [Paras 7, 8, 10, 12]

The demand, interest and penalty confirmed by the lower authority are set aside; the appeal is allowed.

Final Conclusion: The Tribunal allowed the appeal, holding that CENVAT credit on duty paid molasses used to produce DNS captively consumed for dutiable manufacture is admissible where the portion attributable to exempt/non excisable clearances is not claimed and appropriate reversal/accounting under Rule 6 (and relevant notifications) is observed.

Re-assessment on filing correct and complete return under the proviso to Section 22(6) - requirement of satisfactory proof of payment with application for re-assessment - opportunity of personal hearing / assessment without hearing - rectification of assessment under Section 84 - conditional remand for fresh consideration upon payment of tax and interest

Re-assessment on filing correct and complete return under the proviso to Section 22(6) - requirement of satisfactory proof of payment with application for re-assessment - Application for re-assessment under Section 22(6) could not be entertained in the absence of satisfactory proof of payment of tax as required by the proviso. - HELD THAT: - The petitioner's representation of 22.12.2014 sought re-assessment and enclosed purported revised returns, but did not contain evidence of payment of tax on the enhanced turnover as mandated by the proviso to Section 22(6). The Court recorded that this lacuna must be remedied by the petitioner. Consequently, the assessing authority was not obliged to accept the application for re-assessment until the statutory condition-satisfactory proof of payment of the tax admitted-was fulfilled. The Court therefore directed that the petitioner remit the taxes on the omitted turnover with interest within two weeks as a precondition to further consideration of the application for re-assessment.

Application under Section 22(6) is not entertained without proof of payment; petitioner directed to remit tax with interest within two weeks as condition precedent to reconsideration.

Opportunity of personal hearing / assessment without hearing - rectification of assessment under Section 84 - conditional remand for fresh consideration upon payment of tax and interest - Although the assessing authority passed assessments without affording personal hearing, the Court granted a limited remedy by directing reconsideration of the petitioner's objections on compliance with the payment condition and treating those objections as an application for rectification under Section 84. - HELD THAT: - The Court noted that the petitioner was not afforded personal hearing before the assessment orders were passed. Recognising the substantial lapse of time since the original proceedings, the Court provided an equitable and procedural route: if the petitioner remits the taxes with interest within the specified period, the objections dated 22.12.2014 shall be taken as an application for rectification under Section 84 and the assessing authority shall dispose of them within four weeks. If the payment is not made within two weeks, the direction to reconsider the objections will not be operative. Thus the matter was remanded for fresh consideration limited to disposal of the objections upon fulfillment of the payment condition.

Assessment to be reconsidered and objections to be disposed as a rectification application under Section 84 within four weeks, but only upon the petitioner remitting the taxes and interest within two weeks; failure to remit negates the remedy.

Final Conclusion: Writ petitions disposed by directing the petitioner to remit tax on the omitted turnover with interest within two weeks; upon such payment the objections filed on 22.12.2014 shall be treated as an application for rectification under Section 84 and disposed by the assessing authority within four weeks; no relief if the conditional payment is not made; no costs.

Audi alteram partem - principles of natural justice - civil consequences of debarment / blacklisting - reading in procedural safeguards into statutory silence - reasoned order requirement - reporting to investigative agencies versus right to prior hearing

Audi alteram partem - principles of natural justice - reading in procedural safeguards into statutory silence - The rule of audi alteram partem must be read into Clauses 8.9.4 and 8.9.5 of the Master Directions on Frauds so that borrowers are given an opportunity of being heard before their accounts are classified as fraud. - HELD THAT: - The Court held that classification of an account as fraud carries serious civil consequences and, where a regulatory provision is silent on prior hearing, principles of natural justice must be read in to prevent arbitrariness. Considering the nature, purpose and effect of the Master Directions and precedents that require fair procedure where substantial rights are affected, banks and Joint Lenders Forums must furnish forensic audit reports to borrowers and afford a reasonable opportunity to submit representations before classifying accounts as fraud. The Court emphasised that such reading-in is permissible to preserve constitutionality and fairness of administrative action. [Paras 32, 36, 56, 77, 79]

Audi alteram partem is to be read into Clauses 8.9.4 and 8.9.5; borrowers must be furnished audit reports and given a reasonable opportunity to be heard before fraud classification.

Civil consequences of debarment / blacklisting - principles of natural justice - Classification of an account as fraud under the Master Directions entails significant civil consequences (including debarment from institutional finance) and is akin to blacklisting, thereby engaging the requirement of natural justice. - HELD THAT: - The Court analysed Clause 8.12 and attendant consequences (debarment from institutional finance, prohibition on restructuring, continued criminal proceedings) and held that these effects go beyond mere reporting and materially impair the borrower's civil and commercial rights. Drawing upon authorities on blacklisting and civil consequences, the Court concluded that such impairments trigger the audi rule and demand procedural safeguards. [Paras 38, 39, 42, 43, 81]

Fraud classification produces grave civil consequences akin to blacklisting; therefore procedural fairness must attend the decision-making process.

Reporting to investigative agencies versus right to prior hearing - implied exclusion of natural justice - The Master Directions do not, by necessary implication, exclude the application of audi alteram partem; exigency and timelines in the Directions do not obviate the need for a prior opportunity to be heard in ordinary cases. - HELD THAT: - While recognising that no hearing is required prior to lodging an FIR, the Court distinguished reporting of a crime from administrative decisions that impose civil disabilities. Precedents permit exclusion of prior hearing only where absolute urgency or paralysis of administrative process would result. Given the timeframes in the Directions (including an overall six month period to complete the exercise), the Court found it reasonably practicable to give borrowers notice and an opportunity to respond without frustrating prompt reporting and investigation. [Paras 54, 58, 60, 61, 81]

There is no implied exclusion of audi alteram partem in the Master Directions; the requirement of a hearing is not displaced by the Directions' timelines except in truly exceptional circumstances.

Reporting to investigative agencies versus right to prior hearing - No opportunity of being heard is required prior to lodging or registration of an FIR. - HELD THAT: - The Court reiterated settled law that the stage of reporting a cognisable offence to investigative agencies does not attract the audi rule, as prior hearing in that context would impede criminal investigation and is not mandated by criminal procedure jurisprudence. [Paras 30, 81]

FIR registration may be done without prior hearing; the obligation to hear arises in respect of administrative steps that cause civil consequences (such as debarment).

Reasoned order requirement - principles of natural justice - A reasoned decision must be recorded when a bank or JLF finally classifies an account as fraud; the reasons need not be elaborate but must indicate due application of mind and respond to the borrower's objections. - HELD THAT: - The Court accepted the borrowers' submission (following Jah Developers and other authorities) that recording reasons serves as a check against arbitrariness and provides the aggrieved party a basis to challenge extraneous or perverse reasoning. Accordingly, the final classification must be accompanied by a reasoned order furnished to the borrower. [Paras 78, 79, 81]

Final fraud-classification orders must be reasoned and provided to the borrower so as to satisfy fairness and enable meaningful challenge.

Final Conclusion: The rule of audi alteram partem and the requirement of a reasoned order are to be read into the Master Directions on Frauds (Clauses 8.9.4 and 8.9.5 and Clause 8.12 as relevant). While no prior hearing is required for lodging an FIR, banks and JLFs must furnish forensic audit reports to borrowers, afford a reasonable opportunity to make representations before classifying an account as fraud, and record reasoned decisions. The Division Bench judgment of the High Court of Telangana dated 10 December 2020 is upheld; other High Court judgments referred to in these appeals are set aside and the appeals disposed of in the terms stated.