TaxTMI Login
Just a moment...
By creating an account you can:
of 1
Press 'Enter' after typing page number.
of 1Press 'Enter' after typing page number.
No Folders have been created
Are you sure you want to delete "My most important" ?
NOTE:
of 1Press 'Enter' after typing page number.
of 1Press 'Enter' after typing page number.
All Daily Newsletter
of 1Press 'Enter' after typing page number.
All Daily Newsletter
Join Channel
Note
Bookmark
Share
Don't have an account? Register Here
The core legal questions considered in this judgment are:
1. Whether the transfer of land or 'development rights' to the developer by the landowner is considered as receipt of consideration by the developer under Notification No. 04/2018-CT (Rate) dated 25.01.2018 and related clarifications.
2. Whether the liability to pay GST or service tax arises on the developer upon receipt of development rights or upon conveyance of the constructed flats through an allotment letter.
3. Whether GST is applicable when consideration for the service was received prior to the enactment of the CGST Act, 2017, in light of clause (b) of Section 142 (11) of the CGST Act, 2017.
4. Whether GST is required to be paid when the developer has already paid GST on the entire value of the construction complex, including the cost incurred for constructing flats for the landowner.
ISSUE-WISE DETAILED ANALYSIS
1. Transfer of Development Rights as Consideration
- Relevant Legal Framework and Precedents: The issue revolves around Notification No. 04/2018-CT (Rate) and the clarifications issued post-GST introduction. The notification and clarifications address whether development rights transferred by a landowner to a developer constitute consideration for construction services.
- Court's Interpretation and Reasoning: The Advance Ruling Authority determined that the transfer of development rights by the landowner is indeed consideration received by the developer for supplying construction services.
- Application of Law to Facts: The court applied the notification and clarifications to conclude that the transfer of development rights is equivalent to receiving consideration.
- Conclusions: The court upheld the Advance Ruling Authority's decision that the transfer of development rights is considered as receipt of consideration by the developer.
2. Timing of GST Liability
- Relevant Legal Framework and Precedents: The timing of GST liability is governed by Section 13 of the CGST Act, 2017, which deals with the point of taxation.
- Court's Interpretation and Reasoning: The Advance Ruling Authority concluded that the liability to pay GST arises at the time of transfer of possession or right in the constructed complex or flats, not at the time of receipt of development rights.
- Competing Arguments: The appellant argued that the liability should arise at the time of receipt of development rights, based on the point of taxation rules and the absence of an invoice.
- Conclusions: The court upheld the Advance Ruling Authority's ruling that GST liability arises at the time of transfer of possession or rights in the constructed property.
3. Applicability of GST for Pre-GST Consideration
- Relevant Legal Framework and Precedents: The appellant cited clause (b) of Section 142 (11) of the CGST Act, 2017, which addresses the non-applicability of GST on services for which tax was leviable under the Finance Act, 1994.
- Court's Interpretation and Reasoning: The court noted that neither the Advance Ruling Authority nor the Appellate Authority has jurisdiction to decide on taxability under the Finance Act, 1994. The appellant's attempt to seek a ruling on service tax applicability was not entertained.
- Conclusions: The court dismissed the appellant's argument regarding the non-applicability of GST for pre-GST consideration, as it was beyond the jurisdiction of the Advance Ruling Authority.
4. GST on Construction Costs Already Taxed
- Court's Interpretation and Reasoning: The appellant raised a new issue regarding whether GST is required on construction costs already taxed, which was not presented to the Advance Ruling Authority.
- Competing Arguments: The appellant cited the case of Torrent Power Limited to argue that no further GST should be payable if GST was already paid on construction costs.
- Conclusions: The court held that new grounds not raised before the original authority cannot be entertained in an appeal, referencing Supreme Court precedent.
SIGNIFICANT HOLDINGS
- The court upheld the Advance Ruling Authority's decision that the transfer of development rights is considered as receipt of consideration by the developer.
- The court confirmed that GST liability arises at the time of transfer of possession or rights in the constructed property, not at the time of receipt of development rights.
- The court dismissed the appellant's argument regarding the non-applicability of GST for pre-GST consideration, as it was beyond the jurisdiction of the Advance Ruling Authority.
- The court ruled that new grounds not presented to the Advance Ruling Authority cannot be considered in an appeal.
ORDER
The appeal is dismissed, and the ruling of the Advance Ruling Authority is upheld.
Receipt of consideration by the developer as per N/N. 04/2018-CT (Rate) dt.25.01.2018 or not - transfer of land or transfer of 'development rights' to the developer by the landowner - Whether the liability to pay GST or service tax as applicable arises on the developer immediately on receipt of development rights or immediately on conveyance of the flats to be constructed by way of an allotment letter?
Whether GST is applicable when consideration for the service was received prior to enactment of CGST Act, 2017 in the light of clause (b) of Section 142 (11) of GST Act, 2017? - HELD THAT:- The appellant is of opinion that since the JDA was entered on 01.01.2016 i.e., before introduction of GST, TDR attracts service tax for transfer of land by the appellant to the builder for the purpose of construction (para 14.3 of their appeal). It is observed that Advance Ruling Authority or Appellate Authority are constituted under the CGST/SGST Act, 2017 to provide clarification on matters under GST Act and Rules made thereunder. Section 97 (2) of the Chapter XVII provides for spectrum of issues on which the advance ruling can be sought for under the Act. Neither the Advance Ruling Authority nor this Appellate Authority have any jurisdiction to decide on the taxability under Finance Act, 1994. Therefore, the attempt of the appellant to seek a ruling to the effect that, in the facts of this case, the supply of TDR attracted Service Tax cannot be countenanced.
Whether GST is required to be paid when the developer has paid GST on the entire value of construction complex including the cost incurred for construction of flats to the landowner appellant? - HELD THAT:- The appellant has raised a query which is not posed before the Advance Ruling Authority. In terms of Section 101 (1) of CGST Act, 2017, the Appellate Authority can, after giving the parties to the appeal or reference an opportunity of being heard, pass such order as it thinks fit, confirming or modifying the ruling appealed against or referred to. Further, it is not open to the appellant to introduce new grounds in an appeal when admittedly these grounds were not raised before the original authority.
Hon'ble Supreme Court has in the case of Commissioner of Cust & C Ex, Goa vs Dempo Engineering Works Ltd. [2015 (4) TMI 961 - SUPREME COURT], held that Tribunal cannot allow an appeal on new grounds when the same were neither raised in reply to the show cause notice nor were argued before the Adjudicating Authority - Thus, when a question is not raised before the Advance Ruling Authority, the Appellate Authority cannot entertain the same in appeal.
Conclusion - i) The transfer of development rights is considered as receipt of consideration by the developer. ii) GST liability arises at the time of transfer of possession or rights in the constructed property, not at the time of receipt of development rights.
The appeal is dismissed and the impugned ruling of Advance Ruling Authority is upheld.
The core legal issues considered in this judgment include:
ISSUE-WISE DETAILED ANALYSIS
1. Mastermind Behind Fake Billing Racket
2. Compliance with Procedural Safeguards in Arrest
3. Consideration for Grant of Bail
SIGNIFICANT HOLDINGS
Seeking grant of bail - availing Input Tax Credit (ITC) fraudulently - issuance of fake tax invoices of Copper Scrap to various manufacturer - HELD THAT:- The intention of the accused is of having transactions without actual supply of goods, for claiming input tax credit (ITC) and for the aforesaid purpose fake invoices and bills were prepared. Thus the applicant/accused Chandan Sharma appears to be the mastermind in defrauding the Government exchequer by availing and utilizing ineligible ITC of GST without any concomitant supply of goods and also by creating and operating firms which are not owned by him.
The offence in the present is affecting the public interest at large - The present case relates to economic offences. Such offence like large scale fraud, money laundering and corruption, are often viewed seriously because they affect the economic fabric of the society. The Courts may deny bail in such cases especially if the accused holds a position of influence or power.
The present case is a grave economic offence. The total GST evasion has so far workout amounts to Rs. 59,00,98,178/-. The investigation is under progress. The applicant if released on bail will definitely try to destroy the evidence and influence the witnesses and there is his high flight risk considering his role. Considering these facts, as well as gravity of the offence, it would not be proper to enlarge him on bail at this stage. The bail application, preferred by the applicant is liable to be rejected at this stage.
Conclusion - i) Chandan Sharma is the mastermind behind the fraudulent operation of multiple firms, leading to significant ITC fraud. ii) The procedural requirements under Section 69 of the CGST Act were duly followed in the arrest of Chandan Sharma.
First regular bail application of Chandan Sharma son of Shri Bhramdutt sharma, u/s 132 (1) (c), 132 (1) (b), 132 (1) (i) of C.G.S.T. Act, 2017 D.G.G.I, Ghaziabad, Meerut Commissionerate, is hereby dismissed.
The core legal questions considered in this judgment include:
ISSUE-WISE DETAILED ANALYSIS
1. Validity of the AI-Generated Order and Principles of Natural Justice
2. Availability of Alternate Remedy under Section 264
3. Reliance on ICAI Guidance Note
SIGNIFICANT HOLDINGS
AI-generated order by the CPC or the computer portal -Return was declared invalid for non-filing a compulsory audit report u/s 44AB - Petitioner responded to the defects notice by pointing out that it had claimed gross receipts or income under the head of “Profits and Gains of Business or Profession” amounting to Rs.6.15 crores only, which was much less than the threshold limit of Rs.10 crores. Hence, the Petitioner submitted that there was no requirement to obtain and e-file a tax audit report.
HELD THAT:- The AI-generated impugned order contains no reasons in this case. The argument that the software is not programmed to record elaborate reasoning or that the previous system was too cumbersome may not be the answer. The new system certainly offers numerous advantages and is efficient. However, it must evolve to include what was essential in the earlier system.
For example, while no detailed judgment is expected when declaring a return invalid, the order must provide minimal reasoning so that the affected party can take corrective action or effectively challenge the reasoning. Such minimum compliance with the principle of natural justice cannot be dispensed with on the grounds of expediency or due to the machine's limitations. Nothing in the impugned order explains why the cause presented by the Petitioner was deemed unacceptable. There is no indication that the cause shown by the Petitioner was given due consideration despite the order’s format stating that a response was considered. The impugned order indeed resembles the “inscrutable face of a sphinx.”
Therefore, based upon the violation of principles of natural justice or because the impugned order is a nonspeaking order, we could have set aside the order and remanded the matter for fresh consideration. However, our apprehension is that the CPC or the portal, which is programmed in a particular manner, may be able to do no better, even upon remand. Therefore, a remand may not solve the problem.
However, where the Petitioner has an alternate and effective remedy in the form of a revision under Section 264 of the IT Act, we see no reason to entertain this Petition or investigate issues of compliance with the requirements of Section 44AB in the specific facts of each case. Such investigation would, as noted earlier, involve scrutiny of the returns, interpretation of the documents accompanying the returns, and not merely interpreting the provisions of Section 44AB. There would also be the question of interpreting the guidance note and other matters. In the present case, we are concerned with the alleged non-compliance with the requirements of Section 44AB. However, returns can be declared invalid under Section 139 (9) of the IT Act for various reasons.
In each such case, it would not be possible to exercise extraordinary jurisdiction and undertake such an elaborate exercise bypassing the alternate and statutory remedy under Section 264 of the IT Act. If such a remedy is resorted to, an official of the Commissioner of Income Tax rank would examine whether declaring the return as invalid was legal and proper. The factual matters which invariably arise could also be effectively investigated by the Commissioner exercising revisional jurisdiction in the first instance.
Petitioner is best placed to avail of the alternate remedy under Section 264 of the IT Act. At the same time, we believe that the Respondents must create a system in which their CPC or portal demonstrates thoughtful consideration, and the essence of the orders is not like the “inscrutable face of a sphinx. " Resorting to Artificial Intelligence (AI) is certainly welcome. However, when the application of thoughtful consideration through actual intelligence is required, it cannot be cast aside simply because AI and automation represent the expedient future. The principles of natural justice and fairness are too valuable to be sacrificed at the altar of AI and automation expediency.
We decline to entertain this Petition but relegate the Petitioner to avail of the alternate remedy under Section 264 of the IT Act.
The core legal questions considered by the Court were:
ISSUE-WISE DETAILED ANALYSIS
1. Validity of Reopening Notice Within Four Years
The legal framework under Section 148 of the Income-tax Act allows for the reopening of assessments if income has escaped assessment. The Court noted that the reopening notice was issued within four years from the end of the relevant assessment year, which is permissible under the Act. However, the validity of the notice also depends on the adequacy and correctness of the reasons recorded for reopening.
2. Factual Inaccuracies and Lack of Application of Mind
The Court found significant factual inaccuracies in the reasons recorded for reopening the assessment. The recorded reasons contained incorrect dates and figures regarding the filing of returns, declared income, and deductions claimed. The Court emphasized that these inaccuracies demonstrated a lack of application of mind by the Assessing Officer. The Respondents failed to rebut these inaccuracies when pointed out by the Petitioner, further undermining the validity of the reopening.
3. Examination of Issues During Original Assessment
The Court examined whether the issues raised for reopening had already been scrutinized during the original assessment proceedings:
4. Failure to Address Objections
The Court criticized the Respondents for failing to address the Petitioner's objections in a reasoned manner. The order disposing of the objections merely reproduced case law extracts without engaging with the Petitioner's factual and legal arguments. This lack of reasoning further invalidated the reopening proceedings.
SIGNIFICANT HOLDINGS
The Court held that the reopening proceedings were invalid due to factual inaccuracies, lack of application of mind, and the impermissible review of issues already examined during the original assessment. The Court emphasized the principle that reopening based on a change of opinion is not permissible under Section 147 of the Act.
Core Principles Established:
Final Determination:
The Court quashed the impugned notice under Section 148 and the order rejecting the objections, declaring them without jurisdiction, illegal, and arbitrary.
Reopening of assessment u/s 147 - reopening notice is issued within the period of four years from the end of relevant assessment year - HELD THAT:- Respondents have recorded reasons without looking at the records of the Petitioner and on the same being pointed out by the Petitioner in its objections have not been rebutted. Therefore the reasons recorded are without any application of mind and without perusing the records of the Petitioner and therefore on this short ground itself, the impugned proceedings are required to be quashed and set aside.
For the sake of completeness, we examine each of the issues on which the reopening is sought to be initiated independently on what we have observed above.
Adding on account of provision of wage revision while computing the book profit u/s 115JB - As in the reasons recorded it is stated that this figure was disallowed under normal provisions of the Act in the assessment order on the ground that it is a contingent liability but however same was not added back while computing the book profit. In an appeal proceedings before CIT (A), on remand, the AO has admitted that this provision ought not to have been disallowed and accordingly CIT (A) based on this admission of the AO in the remand report has given relief to the Petitioner and deleted the addition.
This order of the CIT (A) was available to the AO while recording reasons for reopening the case on 27 March 2021. Therefore, on the date of recording the reasons which were based on the findings in the assessment order which findings were reversed by the CIT (A) and on the basis of admission in the remand proceedings by the Assessing Officer there could not have been any reasons to believe that any income has escaped assessment. The base of reopening falls to ground, therefore on this account, the reopening on the issue of provision for wage revision to be added while computing the book profit is required to be quashed and set aside.
Adding interest on non-performing investment while calculating book profit, the officer in the reasons recorded proceeds on footing that the profit and loss account is not prepared in accordance with Schedule III of the Companies Act, 2013. The Petitioner is banking company and the provisions of Schedule III of the Companies Act is not applicable. As per the second provision to Section 129 of the Companies Act 2013, the banking company is required to prepare its financials as per the Banking Regulation Act and not as per Schedule III of the Companies Act. Secondly, the issue of computation of book profit was examined during the assessment proceedings and the AO added various other items and calculated revised book profit. Therefore it cannot be said that the AO has not examined the issue of computation of book profit, qua interest on non-performing investment.
Petitioner is justified in relying upon the decision in the case of Century Textiles & Industries Ltd. [2018 (10) TMI 379 - SC ORDER] wherein it is held if certain aspects were examined in the course of the assessment proceedings, then reopening is not permissible on the ground that other aspects were not considered. Therefore, even on this count there could not have been any reasons to believe that income has escaped assessment.
Deduction u/s 36 (1) (viia), a specific query was raised in the course of the assessment proceedings on this issue and the Petitioner vide letter dated 30 November 2018 filed its detailed submissions. In the assessment order, sum was disallowed u/s 36 (1) (vii)/36 (1) (viia) of the Act. The said issue was also subject matter of appeal before the CIT (A). Therefore, in our view the issue of deduction under Section 36 (1) (vii) and 36 (1) (viia) was examined during the course of the original assessment proceedings and therefore any attempt to reopen the case on this issue would result into conferring power of review on the AO based on change of opinion which is not permissible u/s 147 of the Act.
The order disposing the objection does not give any reasoning for rejection of objection except reproducing the extracts of various case laws. In our view, this was not the correct approach. Therefore, even on this count the objection raised by the Petitioner goes unrebutted.
We have no hesitation in holding that the impugned proceedings are required to be quashed and set aside.
Outcome: The writ petition was disposed of with liberty to the petitioner to raise the challenge to the rejection of the rectification petition before the appellate authority, which was directed to consider it in accordance with law while dealing with the appeals.
Rejection of the Rectification Petition - entire alleged TDS default are covered by Form 26 AS and relevant circulars, notification, issued under the Act - Stay petition - HELD THAT:- As petitioner is a state Owned Corporation and it plays an anchor role to the development of Power Sector Projects in the State of Tamil Nadu, and it is the specific claim of the petitioner that the money/funds received by the petitioner-Corporation from various depositors such as Universities, Temples, Government Companies, are all Statutory Bodies, exempted from payment of TDS, and also taking into consideration of the suggestion made by the learned Senior Counsel for the petitioner that the petitioner has voluntarily come forward to deposit Rs. 30 Crores, passed a conditional order, staying the operations of the Assessment Order passed by the Assessing Officer, till the disposals of the Appeals filed by the petitioners before the Appellate Authority.
Thus, present Writ Petition is disposed of granting liberty to the petitioner to agitate the issue with regard to the rejection of the Rectification Petition filed by the petitioner before the Appellate Authority, which shall entertained by the Appellate Authority, while dealing with the Appeals and pass orders in accordance with law.
The core legal issue in this case was whether the notice issued under Section 148 of the Income Tax Act, 1961, for the assessment year 2014-15 was beyond the period of limitation as stipulated under Section 149(1) of the Act. The petitioner contended that the notice was time-barred, and thus, it should be set aside.
ISSUE-WISE DETAILED ANALYSIS
Relevant Legal Framework and Precedents
The legal framework primarily involved Sections 148, 148A, 149, 153A, and 153C of the Income Tax Act, 1961. Section 148 pertains to the issuance of notice for income escaping assessment, while Section 149 sets the time limit for issuing such notices. Section 153C deals with the assessment of income of persons other than the searched person, and Section 153A pertains to the assessment in case of search or requisition.
Precedents considered include the decisions in The Pr. Commissioner of Income Tax - Central-I v. Ojjus Medicare Pvt. Ltd., Dinesh Jindal v. Assistant Commissioner of Income Tax, and Pankaj Jain v. Assistant Commissioner of Income Tax, which elucidate the computation of the period for reopening assessments under Sections 153C and 153A.
Court's Interpretation and Reasoning
The Court interpreted the relevant provisions to determine the commencement of the limitation period for issuing a notice under Section 148. The Court emphasized that the computation of the ten-year period for reopening assessments under Section 153C should start from the end of the assessment year relevant to the financial year in which the decision to initiate proceedings is taken, as opposed to the year of search.
Key Evidence and Findings
The key evidence included the satisfaction note dated 11.03.2023, which recorded the AO's satisfaction regarding the initiation of proceedings under Section 153C for AYs 2015-16 to 2021-22. However, no satisfaction note was recorded for AY 2014-15. The notice under Section 148A(b) was issued on 06.08.2024, and the subsequent notice under Section 148 was issued on 31.08.2024.
Application of Law to Facts
The Court applied the legal principles derived from the relevant sections and precedents to the facts of the case. It noted that the satisfaction note did not pertain to AY 2014-15, and thus, the initiation of proceedings for this year was not valid under Section 153C. Consequently, the notice under Section 148 was beyond the permissible ten-year period as computed from the end of the assessment year in which the decision to initiate proceedings was made.
Treatment of Competing Arguments
The Court considered the respondent's argument that the block period should be reckoned with reference to the date of search. However, it rejected this contention, aligning with the established legal position that the period should be computed from the date when the decision to initiate action is taken, especially for cases post-31.03.2021.
Conclusions
The Court concluded that the notice for AY 2014-15 was issued beyond the statutory limitation period and thus was invalid. The petition was allowed, and the impugned notice was set aside.
SIGNIFICANT HOLDINGS
Core Principles Established
The Court reiterated that the computation of the limitation period for issuing notices under Section 153C should be based on the date of the decision to initiate proceedings, not the date of search, especially in cases where the search occurred after 31.03.2021. This principle aligns with the statutory amendments introduced by the Finance Act, 2021.
Final Determinations on Each Issue
The final determination was that the notice issued for AY 2014-15 was beyond the permissible period as per the amended provisions of the Income Tax Act. The Court set aside the notice, allowing the petition in favor of the petitioner.
Reopening of assessment beyond the period of limitation as stipulated u/s 149(1) - manner in which a block of six or ten assessment years for which assessments could be reopened in terms of Section 153C - HELD THAT:- The period of limitation of ten years is required to be reckoned from the end of the assessment year relevant to the financial year in which the decision to take action for re-opening the assessments was initiated, that is, the date on which the notice u/s 148 of the Act was issued.
The relevant assessment year in question (AY 2014-15) is beyond the period of ten years as contemplated u/s 153C r.w.s. 153A of the Act from the end of the assessment year. The petition is, accordingly, allowed and the impugned notice is set aside.
Outcome: The tax appeal was disposed of in view of the revised monetary limit for departmental appeals, as the tax effect was below the prescribed threshold.
Maintainability of appeal before High Court on low tax effect -appellant would submit that the Government of India, Ministry of Finance has issued a new circular dated 17.09.2024, in which monetary limits for filing Income Tax Appeals by the department before the High Court has been enhanced to Rs. 2 Crores, whereas in the present case the tax liability of assess is less than Rs. 2 Crore
HELD THAT:- In view aforesaid submission of appellant where monetary limit (tax liability) in the present case is less than Rs. 2 Crores therefore, in light of aforesaid circular (Para-5) dated 17/09/2024, the instant Tax Case stands disposed of.
The core legal questions considered in this judgment are:
ISSUE-WISE DETAILED ANALYSIS
1. Violation of Principles of Natural Justice
Relevant Legal Framework and Precedents:
The principles of natural justice require that individuals be given a fair opportunity to present their case before any adverse decision is made against them. This includes the right to be heard and the right to receive notice of proceedings.
Court's Interpretation and Reasoning:
The Court noted that the petitioner claimed not to have received any notice of the reassessment proceedings. The petitioner argued that the order was passed ex parte, without a fair hearing, thus violating the principles of natural justice. The Court found merit in the petitioner's claim, especially considering the failure of communication through various channels.
Key Evidence and Findings:
The petitioner was not residing in India and was unaware of the notices allegedly sent via RPAD, which were returned with an endorsement of 'No such Addressee'. Notices sent via email bounced back, and the petitioner, being a non-regular taxpayer, was not expected to check the online portal frequently.
Application of Law to Facts:
The Court applied the principles of natural justice to the facts, finding that the petitioner was not given a reasonable opportunity to be heard due to the failure of notice delivery, which was crucial for the reassessment proceedings.
Treatment of Competing Arguments:
The respondents argued that notices were duly sent via multiple channels, including the online portal, email, and RPAD. However, the Court found that the petitioner had a valid reason for not receiving these notices, given her residence outside India and the failure of communication methods.
Conclusions:
The Court concluded that the order was indeed passed in violation of the principles of natural justice and was liable to be set aside.
2. Adequacy of Notification
Relevant Legal Framework and Precedents:
Legal provisions require that adequate notice be given to parties involved in reassessment proceedings, ensuring they have the opportunity to respond.
Court's Interpretation and Reasoning:
The Court found that the methods used to notify the petitioner were inadequate, given her circumstances. The failure of email delivery and the return of RPAD notices indicated that the petitioner was not properly informed.
Key Evidence and Findings:
The evidence showed that the petitioner was residing in the USA, and the notices sent via RPAD were returned with 'No such Addressee'. The bounced emails further supported the petitioner's claim of not receiving adequate notice.
Application of Law to Facts:
The Court determined that the notification methods were insufficient, considering the petitioner's non-residence in India and the failure of communication channels.
Treatment of Competing Arguments:
The respondents maintained that all possible notification methods were used. However, the Court sided with the petitioner, emphasizing the importance of effective communication in ensuring a fair hearing.
Conclusions:
The Court concluded that the petitioner was not adequately notified, which contributed to the violation of natural justice principles.
SIGNIFICANT HOLDINGS
Preserve Verbatim Quotes of Crucial Legal Reasoning:
"Thus, this Court, in the interest of justice, is inclined to set aside the impugned orders as the order has been passed in violation of principles of natural justice."
Core Principles Established:
Final Determinations on Each Issue:
Validity of order passed u/s 143(3) - allegation of violation of the principles of natural justice due to a lack of opportunity for the petitioner to be heard - as argued petitioner has no source of income other than salary earned from 2005 onwards and the tax payable by her for each assessment year would be deducted at source by the respective employer and after such deduction, no further income tax was payable by her, therefore, there was no necessity for the petitioner to pay to file return of income, hence, the petitioner was not aware as to when the notice regarding re-assessment proceedings was caused by the respondent-Department.
HELD THAT:- As notices have been issued to the petitioner through all modes of service, viz., Online Portal, E-mail and RPAD. Insofar as notice sent through online portal is concerned, since the petitioner is not a regular income tax payer, she cannot be expected to view the Portal then and there.
Notice sent via. E-mail is concerned, since the same was stated to have bounced back, the same could not be known to the petitioner. Finally, the notice that was sent through RPAD is concerned, the same was returned with an endorsement, ''No such Addressee, as the petitioner is no longer resident of India, there is no possibility for her to respond to such notice. In the said scenario, it is sheer clear that the petitioner is totally unaware of the proceedings being initiated by the respondent-Income Tax Department.
That apart, the sale with regard to which, reassessment proceeding were initiated, was made in the year 2015-16, whereas, impugned proceedings were initiated in the year 2023- 24, therefore, the petitioner, being a non-tax payer, cannot be expected to view the Portal after a lapse of 8 eight years. Thus, the ignorance pleaded by the petitioner appears to be genuine.
Thus, this Court, in the interest of justice, is inclined to set aside the impugned orders as the order has been passed in violation of principles of natural justice, however, the same is subject to the payment of Rs.7,500/- to the Cancer Institute Adyar, Chennai.
The primary legal issues considered in this judgment are:
ISSUE-WISE DETAILED ANALYSIS
1. Rejection of Registration under Section 12A
Relevant Legal Framework and Precedents: Section 12A of the Income Tax Act deals with the conditions for registration of a trust for availing tax exemptions. The CIT(Exemption) rejected the application based on perceived profit motives and non-compliance with the Right to Education Act, 2009.
Court's Interpretation and Reasoning: The Tribunal noted that the CIT(E) inferred a profit motive and commercial elements in the trust's activities without sufficient evidence. The Tribunal highlighted the necessity for the CIT(E) to provide adequate opportunities for the assessee to address discrepancies.
Key Evidence and Findings: The Tribunal observed that the CIT(E) failed to consider the surplus generated by the trust being applied towards charitable purposes and the creation of specific funds consistent with the trust's objectives.
Application of Law to Facts: The Tribunal found that the CIT(E)'s decision was premature and lacked consideration of all relevant facts and submissions by the assessee.
Treatment of Competing Arguments: The Tribunal considered the assessee's arguments regarding the application of surplus funds and compliance with the Right to Education Act, concluding that these were not adequately addressed by the CIT(E).
Conclusions: The Tribunal decided to restore the issue to the CIT(E) for fresh adjudication, emphasizing the need for a comprehensive review of the facts and adherence to principles of natural justice.
2. Rejection of Approval under Section 80G
Relevant Legal Framework and Precedents: Section 80G pertains to the approval required for donations to be eligible for tax deductions. The rejection was contingent upon the non-availability of registration under Section 12A.
Court's Interpretation and Reasoning: The Tribunal noted that the rejection of approval under Section 80G was directly linked to the rejection under Section 12A, and thus, the issue needed reconsideration in light of the latter's reevaluation.
Key Evidence and Findings: The Tribunal observed that the CIT(E) did not fully appreciate the charitable activities carried out by the trust and its compliance efforts.
Application of Law to Facts: The Tribunal found that the CIT(E) prematurely concluded the ineligibility for approval under Section 80G without a complete assessment of the trust's compliance and activities.
Treatment of Competing Arguments: The Tribunal acknowledged the assessee's contentions regarding procedural compliance and the application of surplus funds, which were not sufficiently considered by the CIT(E).
Conclusions: The Tribunal restored the issue to the CIT(E) for fresh adjudication, aligning it with the reconsideration of the Section 12A registration.
3. Admission of Additional Evidence
Relevant Legal Framework and Precedents: Rule 29 of the Income Tax (Appellate Tribunal) Rules permits the admission of additional evidence if it is essential for rendering justice. The Tribunal considered precedents supporting this approach.
Court's Interpretation and Reasoning: The Tribunal recognized the necessity of the additional evidence for a comprehensive evaluation of the trust's status and activities.
Key Evidence and Findings: The Tribunal noted that the additional evidence, including school registration certificates and financials, was crucial for understanding the trust's operations and compliance.
Application of Law to Facts: The Tribunal found a reasonable cause for the previous non-submission of these documents and deemed their consideration essential for justice.
Treatment of Competing Arguments: The Tribunal considered the assessee's justification for the late submission and the potential impact of these documents on the outcome.
Conclusions: The Tribunal allowed the admission of additional evidence under Rule 29, directing the CIT(E) to consider these documents in the fresh adjudication.
SIGNIFICANT HOLDINGS
Core Principles Established: The Tribunal emphasized the importance of providing adequate opportunities for the assessee to present its case and the necessity of considering all relevant evidence and submissions before reaching a decision.
Final Determinations on Each Issue: The Tribunal restored both issues-registration under Section 12A and approval under Section 80G-to the CIT(E) for fresh adjudication, with directions to consider all evidence, including the newly admitted documents, and to adhere to principles of natural justice.
Rejecting the application for grant of registration u/s 12A and approval u/s 80G - HELD THAT:- We find since the order of the Tribunal setting aside the issue to the file of the Ld. CIT(E) is still pending and the assessee filed another appeal before the Tribunal on the basis of extension of due date for filing of Form 10A/10AB vide CBDT Circular No.7/2024, dated 25.04.2024, therefore, considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore the issue to the file of the Ld. CIT(E) with a direction to decide the issue afresh along with earlier order of the Tribunal setting aside the issue to his file. Appeals filed by the assessee are allowed for statistical purposes.
The core legal issues considered in this judgment include:
ISSUE-WISE DETAILED ANALYSIS
1. Validity of Reopening under Sections 147/148
2. Additions under Section 68
3. Disallowance of Interest and Commission under Section 69C
4. Violation of Natural Justice
SIGNIFICANT HOLDINGS
Reopening of assessment - Addition u/s 68 - AO based on the statements and findings of respective accommodation providers assessments, came to conclusion that the assessee has taken accommodation entries from the dummy or paper companies controlled by the accommodation providers - HELD THAT:- Merely because the assessee has taken the unsecured loan from the companies controlled by them, the addition was made rejecting the various supporting documents provided by the assessee relating to transactions.
In our considered view, the additions were made only on the basis of alleging that the loan taken by the assessee from the above said two companies are only accommodation entries and assessee’s own money was routed through these companies with the help of accommodation entry providers.
On careful note, the accommodation entries are taken which will remain in the books of account and they will ultimately written off over the period of time. These loans were normally not repaid. In the given case, it is brought to our notice that the assessee has received the unsecured loan through the banking channel and repaid through the banking channel.
Assessee has repaid the loan even before the assessment was reopened. When the assessee takes the loan and repaid along with the interest clearly shows that the transactions are genuine. By returning the loan, the assessee has only utilised the loan for the purpose of business and repaid the same. Merely because some operator has managed the affairs and all the transactions cannot be labelled as non-genuine. Every transaction has to be evaluated on its merit rather than on the basis of suspicion. Therefore, in this case, the assessee has submitted all the documents in support of the transaction before the AO and he has merely rejected the same on the basis of information available with him as the same on the basis of suspicion. Decided in favour of assessee.
The core legal questions considered in this judgment include:
ISSUE-WISE DETAILED ANALYSIS
1. Addition under Section 68 of the Income Tax Act
2. Addition under Section 40A(3)
3. Addition of Rs. 25,57,254/-
4. Other Additions and Procedural Issues
SIGNIFICANT HOLDINGS
Addition u/s 68 - Unexplained cash deposit - CIT(A) deleted addition - HELD THAT:- We find no reason to interfere with the well-reasoned order of the CIT(A). Endorsing the decision of the ld. CIT(A), the grounds taken by the Revenue stand dismissed and we direct the Assessing Officer to delete the additions. Decided against revenue.
The core legal questions considered in the judgment include:
ISSUE-WISE DETAILED ANALYSIS
1. Addition of Rs 67,53,135 to Income
Relevant legal framework and precedents: The addition was made under Section 69 of the Income Tax Act, 1961, which deals with unexplained investments. The legal requirement is for the assessee to satisfactorily explain the nature and source of the investment.
Court's interpretation and reasoning: The Tribunal found that the addition was based on conjecture and lacked substantive evidence. The primary evidence was a screenshot of a "kaccha parchi" from a broker's mobile, which was neither signed nor witnessed, and did not mention the assessee's name.
Key evidence and findings: The "kaccha parchi" was not seized during the search, and its authenticity was questionable. An affidavit from the broker, Pravin Jain, indicated that the slip was a personal record and not an agreement.
Application of law to facts: The Tribunal concluded that the evidence did not meet the legal standards required to substantiate the addition under Section 69.
Treatment of competing arguments: The Revenue argued that the "kaccha parchi" was an agreement, but the Tribunal rejected this, emphasizing the lack of signatures and witness testimony.
Conclusions: The addition of Rs 67,53,135 was not sustainable in law and was directed to be deleted.
2. Reliance on "Kaccha Parchi" as Evidence
Relevant legal framework and precedents: The validity of evidence in tax proceedings requires it to be credible and legally admissible.
Court's interpretation and reasoning: The Tribunal highlighted that the "kaccha parchi" lacked legal sanctity as it was unsigned, unwitnessed, and not seized during the search.
Key evidence and findings: The broker admitted in an affidavit that the slip was not an agreement but a personal record.
Application of law to facts: The Tribunal found that the slip could not be considered a valid agreement or evidence of cash transactions.
Treatment of competing arguments: The Tribunal dismissed the Revenue's argument that the slip was sufficient evidence, citing the lack of corroborative details.
Conclusions: The reliance on the "kaccha parchi" was deemed legally untenable.
3. Proceedings under Sections 153C and 143(3)
Relevant legal framework and precedents: These sections pertain to assessments and reassessments in cases of search and seizure.
Court's interpretation and reasoning: The Tribunal noted procedural irregularities, including the absence of a Document Identification Number (DIN) on satisfaction notes.
Key evidence and findings: The procedural lapses were highlighted, questioning the validity of the proceedings.
Application of law to facts: The Tribunal emphasized adherence to procedural norms for valid assessments.
Treatment of competing arguments: The Tribunal found the procedural lapses significant enough to question the proceedings' legality.
Conclusions: The proceedings were deemed procedurally flawed.
4. Disallowance under "Income from House Property"
Relevant legal framework and precedents: Section 23 of the Income Tax Act pertains to the determination of income from house property.
Court's interpretation and reasoning: The Tribunal did not find sufficient grounds to uphold the disallowance.
Key evidence and findings: The disallowance lacked substantive justification.
Application of law to facts: The Tribunal found the disallowance unsustainable.
Conclusions: The disallowance was deleted.
5. Principles of Natural Justice
Relevant legal framework and precedents: The principles require fair hearing and disclosure of evidence used against a party.
Court's interpretation and reasoning: The Tribunal noted that the assessee was not provided with certain statements and materials.
Key evidence and findings: The non-disclosure was seen as a violation of natural justice.
Application of law to facts: The Tribunal emphasized the need for transparency and fairness.
Conclusions: The violation of natural justice principles contributed to the decision to delete the additions.
SIGNIFICANT HOLDINGS
Preserve verbatim quotes of crucial legal reasoning: "The reliance on the 'kaccha parchi' as evidence is legally untenable due to its lack of signatures, witness testimony, and the absence of the assessee's name."
Core principles established: Evidence used in tax assessments must be credible, legally admissible, and procedurally sound.
Final determinations on each issue: The Tribunal allowed the appeal, directing the deletion of the additions and disallowances made by the lower authorities.
Unexplained investment -Sagar Plaza flat having been sold at value 14.29% above the circle rate - AO strangely concluded “kachi parchi” is not rough jotting but an agreement to sell for the immovable property writing down all the conditions for transfer of property - HELD THAT:- There is material substance in the submissions advanced on behalf of the assessee / appellant that hand written kaccha Slip did not exist as not found and seized by the search party and even upon the same, no mention of name of assessee and such a slip is can’t said to be in the handwriting of the assessee / appellant. The contention of the AR having force that upon the slip in question, there is no any name mentioned of witness or also no signature of any witness in order to endorse / establish the veracity of alleged document and above all there is no any signature of the assessee upon it.
Strangely, the Ld. CIT(A) confirms the observation of the Ld. AO by treating kachi parchi as agreement to sell and both the lower authorities ignored the basic principles of law, that for a valid agreement to sell of immovable properly, it needs to be in writing include key details like parities, property description, price, payment terms and timelines, and be signed by both parties, ideally with witnesses and registered with the sub-register’s office and in present case it is admitted fact that there is no signature of parties and witnesses upon it.
Unless and until, the contents of the documents are proved against a person, the possession of the document or hand writing of that person, on such document by itself cannot prove the contents of the documents. On the basis of above fact situation, we are of the considered opinion that the Ld. AO made addition in question only on the basis of surmises and conjectures, which was erroneously confirmed by the Ld. CIT(A) in quite unsustainable, in the eye of law and deserves to be deleted. Appeal of assessee is allowed
The core legal issues considered in this judgment are:
ISSUE-WISE DETAILED ANALYSIS
1. Addition under Section 68 of the Income Tax Act
Relevant legal framework and precedents: Section 68 of the Income Tax Act deals with unexplained cash credits. If an assessee fails to provide a satisfactory explanation regarding the nature and source of any sum credited in the books of accounts, the sum may be charged as income of the assessee.
Court's interpretation and reasoning: The Tribunal examined whether the cash deposits during the demonetization period could be considered unexplained cash credits under Section 68. The Tribunal noted that the assessee is a consignment agent for M/s Dharam Pal Satya Pal Group, selling tobacco products on behalf of the principal. The sales prices are fixed by the principal, and the assessee earns income through commission, not from the sales themselves.
Key evidence and findings: The Tribunal found that the cash deposits were consistent with the assessee's business operations. The books of accounts were audited and not rejected by the AO, and there was no discrepancy in the stock or cash in hand during the survey. The CIT(A) had accepted the explanation provided by the assessee regarding the source of cash deposits, supported by documentary evidence, including sales invoices and VAT returns.
Application of law to facts: The Tribunal applied the principles of Section 68, considering the consistency and regularity of the cash deposits with the business operations. The Tribunal found that the cash deposits were adequately explained as arising from cash sales, and there was no evidence of undisclosed income.
Treatment of competing arguments: The Revenue argued that the cash deposits were unexplained and beyond comprehension, given the physical cash found during the survey. However, the Tribunal found that the CIT(A) had rightly accepted the assessee's explanation, supported by evidence, and that the AO's addition was based on mere suspicion without substantiating evidence.
Conclusions: The Tribunal concluded that the CIT(A) had correctly deleted the addition under Section 68, as the cash deposits were satisfactorily explained as arising from the assessee's business operations.
SIGNIFICANT HOLDINGS
Preserve verbatim quotes of crucial legal reasoning: The Tribunal endorsed the CIT(A)'s reasoning: "The CIT(A) has examined the issue threadbare and has dealt with factual aspects in a very cogent and precise manner. The process of reasoning adopted by the CIT(A) resonates with the facts on record."
Core principles established: The judgment reinforces the principle that mere suspicion or presumption cannot replace concrete evidence when determining the nature of cash deposits under Section 68. The Tribunal emphasized the importance of corroborating evidence and the consistency of business operations in evaluating the source of cash deposits.
Final determinations on each issue: The Tribunal upheld the CIT(A)'s decision to delete the addition of Rs. 28,63,10,588/- under Section 68, affirming that the cash deposits were adequately explained as arising from legitimate business activities. Consequently, the appeal by the Revenue was dismissed.
Addition u/s 68 r.w.s. 115BBE - unexplained cash credit - cash deposits made by the assessee during the demonetization period - HELD THAT:- The pattern of cash sales and cash deposits are consistent and same trend of cash sales and deposits thereof in bank account continues in the later period as well. There is no remarkable difference in the pattern of business in pre-demonetization period or in the post demonetization period.
The survey operation carried out by the Revenue as a surprise check also confirms the fact that assessee carried out cash sales and makes deposits thereof in the wake of absence of any discrepancy in the closing stock, cash in hand etc.
The books of accounts are audited and not rejected by the AO which further gives an assurance towards bonafide of cash sales. The receipts against cash sales have found its way in the bank account in the ordinary course of business. The consignment sale agreement and working of commission and service tax returns etc. yet again provide sound basis to the submissions propounded on behalf of the assessee.
In the absence of any anomaly detected either in the course of survey or in the books of account, the source of cash deposit during demonetization recorded to be out of cash sales of tobacco products in ordinary course could not have been treated as unsatisfactory by the AO. CIT(A), to our mind has rightly discredited the action of the AO on appraisal of factual matrix.
CIT(A) has examined the issue threadbare and has dealt with factual aspects in a very cogent and precise manner. The process of reasoning adopted by the CIT(A) resonates with the facts on record. We, thus, do not consider it expedient to reiterate and repeat each observations made by the CIT(A).
We fully endorse the process of reasoning adopted by the CIT(A) and conclusion derived thereon in the matter.
CIT(A) has rightly obliterated and reversed the additions made u/s 68 r.w.s. 115BBE towards cash deposits and rightly held that the source of cash deposits have live link and clear nexus to the cash sales carried out in a routine manner by the assessee. The adverse action of the AO is devoid of any weight whereas the direct and circumstantial evidences placed by the assessee carries overwhelming rationale and probative value and hence cannot be brushed aside. Decided against revenue.
The primary issue considered in this judgment is whether the excess stock found during a survey conducted under section 133A of the Income Tax Act should be treated as 'business income' or 'income from other sources.' This determination affects the applicability of section 68 read with section 115BBE of the Act, which imposes a higher tax rate on unexplained income. Additionally, the judgment addresses whether the Commissioner of Income Tax (Appeals) erred in confirming the applicability of section 68 and section 115BBE, and whether the appellant is liable for interest under section 234.
ISSUE-WISE DETAILED ANALYSIS
1. Treatment of Excess Stock as Business Income or Income from Other Sources
Relevant Legal Framework and Precedents: The relevant legal provisions include section 68, which deals with unexplained cash credits, and section 115BBE, which imposes a higher tax rate on unexplained income. The appellant cited several precedents, including decisions from the Pune ITAT and other tribunals, which held that excess stock found during surveys should be treated as business income.
Court's Interpretation and Reasoning: The Tribunal examined whether the excess stock identified during the survey should be treated as 'business income' or 'income from other sources.' It considered the nature of the business, which involved machinery packing and small furniture items, and noted that the appellant had consistently treated the excess stock as business income in its financial statements.
Key Evidence and Findings: The Tribunal noted that the appellant had not maintained detailed stock records due to the nature of the business. The excess stock was calculated based on a tentative trading account prepared during the survey. The appellant argued that the excess stock resulted from accumulated suppressed business profits.
Application of Law to Facts: The Tribunal found that the excess stock was part of the regular business operations and not attributable to any other source of income. It emphasized that no incriminating documents or evidence of unaccounted transactions were found during the survey.
Treatment of Competing Arguments: The Revenue argued that the excess stock should be treated as 'unaccounted investments' and taxed as 'income from other sources.' However, the Tribunal found the appellant's explanation credible and consistent with the nature of the business.
Conclusions: The Tribunal concluded that the excess stock should be treated as business income, and sections 68 and 115BBE were not applicable.
2. Jurisdiction and Authority of CIT(A)
Relevant Legal Framework and Precedents: The appellant argued that the CIT(A) lacked the authority to substitute sections like 69, 69A, and 69B for section 68 as applied by the Assessing Officer.
Court's Interpretation and Reasoning: The Tribunal did not find it necessary to address this argument in detail as it had already concluded that section 68 was not applicable.
3. Interest Liability under Section 234
Relevant Legal Framework and Precedents: Section 234 deals with interest for defaults in payment of advance tax.
Court's Interpretation and Reasoning: The Tribunal did not specifically address the issue of interest liability under section 234, as the primary focus was on the treatment of excess stock.
SIGNIFICANT HOLDINGS
Preserve Verbatim Quotes of Crucial Legal Reasoning: The Tribunal emphasized that "the excess stock found during the course of survey is from regular business income of assessee firm having no other source of income and has been rightly disclosed at business income in the audited financial statements."
Core Principles Established: The judgment reinforces the principle that excess stock found during a survey should be treated as business income if it is part of regular business operations and no evidence of other income sources is found.
Final Determinations on Each Issue: The Tribunal allowed the appeal, holding that the excess stock should be treated as business income, and sections 68 and 115BBE were not applicable. Consequently, the appeal was allowed, and the orders of the lower authorities were set aside.
Excess stock found in Survey - addition u/s 68 - Appellant prays to cancel the applicability of Sec.115BBE accepting the same as Business Income to which Normal Tax rate will be applicable.
Whether the value of excess stock found at the premises of the assessee during the course of survey u/s 133A is to be treated as ‘business income’ or ‘income from other sources’? - HELD THAT:- Excess stock found during the course of survey is from regular business income of assessee firm having no other source of income and has been rightly disclosed at business income in the audited financial statements as well as computation of income as business income and both the learned lower authorities erred in treating it as income from other sources and further erred in invoking section 68 r.w.s. 115BBE. Under similar set of facts and circumstances, this Tribunal in plethora of decisions have consistently held that if the unexplained income is from business sources then section 115BBE cannot be invoked.
Accordingly, finding of Ld. CIT(A)/NFAC is set-aside and the excess stock offered by the assessee in its books of accounts is held to be from business income and therefore Ld. Assessing Officer erred in invoking section 68 r.w.s. 115BBE of the Act. Effective grounds of appeal raised by the assessee are allowed.
The core legal issues considered in the appeal were:
2. ISSUE-WISE DETAILED ANALYSIS
Disallowance under Section 14A:
The legal framework involves Section 14A of the Income Tax Act, which disallows expenses incurred in relation to earning exempt income. The court reasoned that the disallowance should be limited to the amount of exempt income actually earned, which was Rs. 42,800/-. The Assessing Officer (AO) failed to demonstrate that interest-bearing funds were directly used for investments yielding exempt income. The court upheld the disallowance to the extent of the exempt income, allowing partial relief to the Revenue.
Depreciation on Temporary Structures:
The relevant legal principle is that depreciation is a statutory allowance. The court found that the temporary structures were demolished post-project completion, and any scrap was reused. The AO's disallowance was deemed arbitrary as it lacked evidence that the structures were not used. The court upheld the CIT(A)'s decision, dismissing the Revenue's appeal.
Disallowance of Director's Remuneration:
Section 40A(2)(b) addresses excessive or unreasonable payments to related parties. The AO disallowed 10% of the remuneration due to a lack of documentary evidence of services rendered. However, the court noted that the AO had accepted the fact of services rendered. The CIT(A)'s decision to delete the disallowance was upheld, as the AO's acceptance of services was inconsistent with the disallowance.
Scrap Value Disallowance:
The AO disallowed 2% of purchases as scrap value, based on observations from a previous year. The CIT(A) and Tribunal had previously dismissed similar disallowances due to low tax effect. The court agreed with the CIT(A) that consumables were essential for contract execution, dismissing the Revenue's appeal.
Notional Interest on Advances:
The AO added notional interest on advances to a subsidiary. The CIT(A) relied on precedent from previous years where similar additions were deleted. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal.
Subcontractor Charges and Accommodation Entries:
The AO disallowed subcontractor charges to certain companies, alleging them to be fictitious based on a search on PACL Ltd. The CIT(A) deleted the disallowance, citing lack of cross-examination opportunity and payment through banking channels. However, the court found the AO had demonstrated the bogus nature of the expenses and remanded the issue for further examination, allowing the Revenue's appeal for statistical purposes.
Job Charges to M/s Silicon Real Estate Pvt. Ltd.:
The AO disallowed charges paid to M/s Silicon Real Estate Pvt. Ltd., alleging them to be accommodation entries. The CIT(A) deleted the disallowance, but the court found the AO had provided sufficient evidence of the bogus nature of the transactions. The issue was remanded for further examination, allowing the Revenue's appeal for statistical purposes.
3. SIGNIFICANT HOLDINGS
The court established several core principles:
The final determinations were a partial allowance of the Revenue's appeal concerning Section 14A, dismissal of appeals on depreciation, director's remuneration, scrap value, and notional interest, and remand for further examination on subcontractor charges and job charges.
Disallowance u/s 14A r.w.r. 8D - HELD THAT:- In the present case admittedly assessee was having exempt income in the shape of dividend and also claimed interest on borrowed funds. It is a case where mixed funds were available for making investments and AO has failed to make out a case where interest bearing funds are directly applied in making such investments. Disallowance made u/s 14A should be restricted to the exempt income earned by the assessee. Therefore, we uphold the addition.
Depreciation claimed @ 100% on temporary structures - The Assessing Officer has disallowed 10% of such depreciation claimed without appreciating the fact that the scraps, if any, generated had also used in the other work sites. Therefore, no such ad hoc disallowance could be made. It is further seen that depreciation is a statutory allowance and it is not a case where AO alleged that the assets created were not used or there were no temporary structures created by the assessee. CIT DR has failed to controvert the finding of the Ld. CIT(A) in this regard. Thus, we find no occasion to interfere in the order of the Ld. CIT(A) on this score. Accordingly this ground of appeal of the Revenue is dismissed.
Disallowance of the remuneration paid to one of the Director Smt. Vinita Guliani @ 10% of the total remuneration paid - While making the disallowance the Assessing Officer observed that the assessee has failed to substantiate the services rendered by her with credible documentary proof he thus invoked the provisions of section 40A(2)(b) and made disallowance of only 10% of total payment made to her.
CIT(A) has followed the order of preceding assessment year while deleting the disallowance. During the course of hearing, the Ld. CIT DR has not controverted the findings of the Ld. CIT(A). Thus, we are not inclined to interfere in the order of CIT(A) more particularly when the AO himself has accepted the fact of services rendered though no documentary evidences were filed by the assessee. Further the fact remained that otherwise the AO has accepted the services of Smt. Vinita Guliani and, therefore, the disallowance made is rightly deleted by the Ld. CIT(A) which order is hereby upheld.
Disallowance being 2% of total purchases of shuttering and scaffolding - HELD THAT:- From the perusal of the facts and the details filed by the assessee on this issue, we find that the expenditure includes purchases of some items such as wooden frames, plywood, sawn timber, imported pine sawn timber, shuttering pine wood, etc. and the nature of which was such that they have to be consumed within a short period of time. It is also a matter of fact that assessee is having multiple sites where such consumables are required on regular basis. It is also seen that a total revenue generated was of 65.07 crroes on contractual work as against which the expense on consumables were claimed as 7.78 crores which is around 12% of the total revenue. We are in conformity with the order of the Ld. CIT(A) that consumable items are inevitable part for execution of the contract work and, therefore, we uphold the order of the Ld. CIT(A) confirming the deletion of the disallowance so made. Thus, this ground of Revenue is dismissed.
Addition observing that assessee has made earnest money deposited with its subsidiary and no interest is received - HELD THAT:- AO applied 10% interest rate and made addition of Rs. 3 lakhs as notional interest. Ld. CIT(A) has deleted the addition by placing reliance on the decision of Tribunal in the case of assessee for AY 2003-04, 2004-05 and 2005-06. CIT DR during the course of hearing placed reliance on the order of AO on this issue and failed to controvert the findings given by Ld. CIT(A).
Disallowance of sub contract charges paid and job, labour and other cite expenses - AO has made the disallowances u/s 69C of the Act all these expenditures as un-explained - HELD THAT:- CIT(A) by observing that the AO has failed to provide an opportunity of cross-examination of such parties and further observed that when the assessee has filed all the necessary details such as bills, etc. and payments were made through banking channel has deleted the disallowance. However, the fact remained that the assessee has failed to controvert the observations made by AO with plausible evidences so as to prove the genuineness of the expenses claimed. Under the circumstances, in our considered view these two issues need further examination on the part of the AO. Accordingly we remand these issues back to the file of the AO with the direction that assessee be provided an opportunity of cross examination of the persons whose statements are relied upon by the AO and also the assessee is directed to file all the necessary details and evidences.
The core legal issue considered in this judgment is whether the penalty proceedings initiated under Section 271(1)(c) of the Income Tax Act, 1961, were validly conducted. Specifically, the question is whether the failure to specify the exact limb of Section 271(1)(c) - either "concealment of income" or "furnishing inaccurate particulars of income" - renders the penalty proceedings and the consequent penalty order invalid.
2. ISSUE-WISE DETAILED ANALYSIS
Relevant legal framework and precedents
Section 271(1)(c) of the Income Tax Act, 1961, provides for the imposition of a penalty on an assessee if it is found that they have either concealed the particulars of their income or furnished inaccurate particulars of such income. The section requires the Assessing Officer (AO) to record their satisfaction regarding the specific limb under which the penalty is being initiated. The legal precedents relevant to this issue include the decisions in CIT vs. Manjunatha Cotton & Ginning Factory, CIT vs. SSA's Emerald Meadows, and Dilip N. Shroff vs. JCIT, which emphasize the necessity for clarity in specifying the limb under which penalty proceedings are initiated.
Court's interpretation and reasoning
The Tribunal interpreted that the penalty notice issued to the assessee did not specify whether the penalty proceedings were for "concealment of particulars of income" or for "furnishing inaccurate particulars of income." This lack of specificity was deemed a significant procedural defect. The Tribunal relied on the precedent set by the Karnataka High Court in Manjunatha Cotton & Ginning Factory, which held that the failure to specify the limb indicates non-application of mind by the AO and renders the penalty proceedings invalid.
Key evidence and findings
The Tribunal examined the notice issued under Section 274 read with Section 271(1)(c) and found that it was issued in a standard proforma without striking off the irrelevant parts, thus failing to specify the exact charge against the assessee. This was a key piece of evidence leading to the conclusion that the penalty proceedings were initiated without proper application of mind.
Application of law to facts
Applying the legal principles from the precedents, the Tribunal found that the AO's failure to specify the exact charge in the penalty notice deprived the assessee of the opportunity to respond appropriately to the allegations. This procedural lapse was sufficient to invalidate the penalty proceedings and the consequent penalty order.
Treatment of competing arguments
The Department argued that the AO had recorded satisfaction in the assessment order regarding the furnishing of inaccurate particulars of income and that the penalty was levied accordingly. However, the Tribunal found that the absence of specificity in the penalty notice itself was a critical defect that could not be cured by the contents of the assessment order. The Tribunal favored the assessee's argument, supported by judicial precedents, that the penalty notice must explicitly state the limb under which proceedings are initiated.
Conclusions
The Tribunal concluded that the penalty proceedings were invalid due to the failure to specify the limb under Section 271(1)(c) in the penalty notice. Consequently, the penalty order was quashed.
3. SIGNIFICANT HOLDINGS
The Tribunal's significant holding is that a penalty notice under Section 271(1)(c) must clearly specify whether the proceedings are for "concealment of income" or "furnishing inaccurate particulars of income." Failure to do so renders the penalty proceedings and any consequent order invalid. This holding reinforces the principle that procedural fairness and clarity are essential in penalty proceedings.
Verbatim quotes from the judgment include:
"The penalty proceedings initiated without recording the satisfaction is liable to be quashed."
"The standard proforma of notice under section 274 of the Act without striking of the irrelevant clauses would lead to an inference of non-application of mind by the Assessing Officer."
The core principle established is the necessity for the AO to clearly specify the charge against the assessee in the penalty notice to ensure procedural fairness and allow the assessee to respond appropriately.
Final determination on the issue is that the penalty order under Section 271(1)(c) is quashed, and the appeal of the assessee is allowed.
Penalty u/s 271(1)(c) - non specification of clear charge - defective notice u/s 274 - AR submit that from the perusal of the notice, it could be seen that it was not specified whether the penalty proceedings were initiated for concealment of particulars of income or for furnishing inaccurate particulars of income - HELD THAT:- The penalty provisions of section 271(1)(c) are attracted where the assessee has concealed the particulars of income or furnished inaccurate particulars of such income. It is also a well-accepted proposition that the aforesaid two limbs of section 271(1)(c) of the Act carry different meanings. Therefore, it was imperative for the Assessing Officer to strike- off the irrelevant limb so as to make the assessee aware as to what is the charge made against him so that he can respond accordingly.
Hon'ble Supreme Court in the case of Dilip N. Shroff [2007 (5) TMI 198 - SUPREME COURT] has also noticed that where the AO issues notice under section 274 of the Act in the standard proforma and the inappropriate words are not deleted, the same would postulate that the Assessing Officer was not sure as to whether he was to proceed on the basis that the assessee had concealed the particulars of his income or furnished inaccurate particulars of income.
According to the Hon'ble Supreme Court, in such a situation, levy of penalty suffers from non application of mind. In the background of the aforesaid legal position and having regard to the manner in which the Assessing Officer has issued notices under section 274 r.w.s. 271(1)(c) of the Act without striking off the irrelevant words, as reproduced above, the penalty proceedings shows the non-application of mind by the Assessing Officer and is, thus, unsustainable.
Appeal of the assessee is allowed.
Issues: (i) Whether, for computing long-term capital gains on sale of ancestral agricultural land, the assessee could adopt a higher historical value as on 01.04.1981 based on the rate determined by the Supreme Court for nearby land acquired compulsorily; and (ii) whether the assessee was entitled to deduction under section 54F on investments made in residential properties, including a house purchased in the name of the assessee's mother, in the facts of inherited property.
Issue (i): Whether, for computing long-term capital gains on sale of ancestral agricultural land, the assessee could adopt a higher historical value as on 01.04.1981 based on the rate determined by the Supreme Court for nearby land acquired compulsorily.
Analysis: The land had no direct contemporaneous valuation on record for 01.04.1981. The valuation adopted by the assessee was supported by a Supreme Court determination of value for land in the same vicinity, though that case arose from compulsory acquisition. The Court held that the solatium component could not be carried into the present valuation, but the underlying rate for the comparable land could be used as a reasonable guide. In the absence of better data, the Court accepted a revised historical value of Rs. 150 per sq. yd. as on 01.04.1981 and directed recomputation of indexed cost of acquisition.
Conclusion: The issue is answered in favour of the assessee, subject to recomputation of indexed cost on the basis of Rs. 150 per sq. yd. as on 01.04.1981.
Issue (ii): Whether the assessee was entitled to deduction under section 54F on investments made in residential properties, including a house purchased in the name of the assessee's mother, in the facts of inherited property.
Analysis: The property originally belonged to the assessee's father and, on the facts found, devolved on the assessee and the mother by inheritance. The Court accepted the explanation that the assessee had sold the property as a single recorded owner but had in substance applied the sale proceeds for acquisition and construction of residential properties, including one registered in the mother's name. The Court treated the arrangement as an indirect partition of inherited property and found no material to dislodge the claim that the investments were made from the sale consideration. The Court also held that the inherited share attributable to the mother's interest was not a basis to deny the relief in the peculiar facts of the case.
Conclusion: The issue is decided in favour of the assessee and the deduction under section 54F is allowed in substance.
Final Conclusion: The quantum addition was reduced and the related penalty could not survive once the substantive relief was granted.
LTCG on sale of agricultural land (inherited from late father of the appellant) - AO observed that the land was ancestral land which the assessee has inherited and the relevant value as on 01.04.1981 is Rs. 20 per sq.yds - HELD THAT:-the solatium was awarded for other purposes that cannot be considered. Therefore, the assessee can adopt the value of Rs. 85 per sq.yds. as on 1962 and assessee has to determine the value as on 01.04.1981.
We noticed that there is a gap of 19 years between 1962 to 1981. Since there is no data available on record in order to dispense the justice, however even if we take 3% year on year increase of index cost, the total index cost for 19 years would be 57%. By adopting the same, the cost of acquisition as on 01.04.1981 would be Rs. 150/- (i.e. Rs. 85 ÷ 57 x 100). Therefore even though the cost of acquisition determined by Hon’ble Supreme Court for compulsory acquisition, however the rate determined by Hon’ble Supreme Court for the lands within the vicinity of the lands of the assessee. Therefore, nothing wrong in adopting the same rate as on 1962. We are inclined to direct the Assessing Officer to determine the value of Rs. 150 as on 01.04.1981 and direct the AO to recalculate the index cost of acquisition and allow the difference.
Deduction u/s 54F on purchase of one house in the name of his widow mother - This is a peculiar case wherein assessee has declared as a single owner and sold the property, however purchased two properties and registered one property in the name of his mother on the basis of inheritance. This fact cannot be denied.
Considering the peculiar facts on record, we are inclined to allow the claim of the assessee based on the facts brought on record. The AO has not disputed the fact nor brought any material to dispute the above facts on record. Therefore, we are inclined to allow the claim of the assessee in Ground No.3 and additional grounds.
Even otherwise, if we consider the inheritance as per Hindu Succession Act, the property sold by the assessee has to be apportioned on the basis of inheritance and the portion of sale consideration in the name of the mother of the assessee will have tax neutral considering the fact that the relevant sale consideration is already invested in the property and the same would be available for deduction u/s 54F. Therefore, it will lead to tax neutral and considering the peculiar facts on record, we are inclined to allow the claim of the assessee.
Appeal filed by the assessee is partly allowed.
The core legal issues considered in this judgment are:
ISSUE-WISE DETAILED ANALYSIS
Inclusion of Clean Energy Cess in Duty Drawback Calculation
The legal framework for this issue revolves around Instruction No. 4/2019 issued by the CBIC, which clarified the inclusion of the clean energy cess in the brand rate for duty drawback. The Court interpreted this instruction to mean that the clean energy cess, collected as an additional duty under the Customs Tariff Act, should be included in the calculation of the brand rate. The instruction was not merely prospective; it also applied to pending applications.
The Court found that the Instruction explicitly stated that field formations should handle pending applications in accordance with the new guidance. Thus, the Petitioner's claim that the clean energy cess should be included was supported by the legal framework established by the CBIC.
Limitation Period for Duty Drawback Claims
The Customs and Central Excise Duties Drawback Rules, 1995, provide a limitation period of three months, extendable by another three months, for claiming duty drawbacks. The Petitioner's counsel argued that the limitation should not apply because the Petitioner was unaware of the eligibility to claim the clean energy cess until the issuance of Instruction No. 4/2019.
The Court noted that the CBIC Drawback Division rejected the Petitioner's applications on the grounds of being time-barred without providing detailed reasons. The Court emphasized that the Instruction allowed for the consideration of pending applications, suggesting that the strict application of the limitation period might not be appropriate in this context.
Validity of CBIC's Rejection of Applications
The Court criticized the CBIC Drawback Division for issuing a cryptic rejection of the Petitioner's applications, lacking detailed reasoning. The Court found that the rejection merely stated that the request for relaxation was not considered favorably, without addressing the substantive arguments or the rationale behind the Instruction No. 4/2019.
The Court underscored the necessity for administrative bodies to provide reasoned orders, especially when rejecting claims based on new clarifications or instructions.
Authority to Relax Limitation Period
Under Rule 17 of the Customs and Central Excise Duties Drawback Rules, 1995, the Central Government has the power to relax the limitation period if the exporter has failed to comply with the provisions for reasons beyond their control. The Petitioner's counsel argued that this rule should apply given the lack of clarity before Instruction No. 4/2019.
The Court did not make a definitive ruling on this point but indicated that the CBIC should consider the purpose and rationale behind the Instruction when deciding on the Petitioner's applications.
SIGNIFICANT HOLDINGS
The Court held that the CBIC, Drawback Division, must reconsider the Petitioner's applications and issue a reasoned order. The Court stated:
"Considering the same, this Court is of the opinion that the CBIC, Drawback Division ought to look into the matter and pass a reasoned order on the representations of the Petitioner while considering the purpose and the rationale behind issuance of the said Instruction No. 4/2019 dated 11th October 2019."
The Court established that administrative decisions must be accompanied by clear reasoning, particularly when new instructions or clarifications are involved. The final determination was that the petition be treated as a representation, and the CBIC should provide a decision within three months, leaving all remedies for the Petitioner open in accordance with the law.
Inclusion of Clean Environment/Clean Energy cess in Brand Rate of duty drawback - Instruction No. 04/2019 - applicability to pending applications for fixation of Brand Rate - power to relax limitation under the Customs and Central Excise Duties Drawback Rules, 1995 (Rule 17) - requirement of a reasoned order; prohibition of cryptic rejection
Inclusion of Clean Environment/Clean Energy cess in Brand Rate of duty drawback - Instruction No. 04/2019 - applicability to pending applications for fixation of Brand Rate - Instruction No. 04/2019 requires inclusion of Clean Environment (erstwhile Clean Energy) cess in calculation of Brand Rate and the instruction applies to pending applications. - HELD THAT: - The Court noted the content of Instruction No. 04/2019 which explains that Clean Energy cess (renamed Clean Environment cess) was leviable as additional duty and, being collected as additional duty under the Customs Tariff, the incidence of the cess is required to be included in the calculation of Brand Rate. The instruction expressly requested field formations to deal with pending applications for fixation of Brand Rate accordingly and thus was not merely prospective; benefit could be extended to pending applications. The Court therefore treated the instruction as clarifying the position and as applicable to pending representations. [Paras 5, 12, 13]
Instruction No. 04/2019 mandates inclusion of the cess in Brand Rate and is applicable to pending applications for fixation of Brand Rate.
Power to relax limitation under the Customs and Central Excise Duties Drawback Rules, 1995 (Rule 17) - requirement of a reasoned order; prohibition of cryptic rejection - The CBIC Drawback Division's cryptic rejection of the petitioner's representation cannot stand; the matter is remanded for a reasoned consideration including, as may be appropriate, the exercise of power under Rule 17 and the rationale of Instruction No. 04/2019. - HELD THAT: - The Court observed that the communication rejecting the petitioner's request was cryptic and did not assign reasons. Given that Instruction No. 04/2019 permitted dealing with pending applications, the Drawback Division is required to examine the petitioner's representation and record reasons while considering the purpose and rationale of the instruction and any contention regarding limitation or the exercise of the power to relax under Rule 17. The Court directed that the petition be treated as a representation and that a reasoned order be passed within a specified period. [Paras 10, 11, 16, 17, 18]
Matter remanded to CBIC Drawback Division to pass a reasoned order on the petitioner's representation within three months; all remedies left open.
Final Conclusion: The writ petition is disposed of by treating it as a representation; Instruction No. 04/2019 requires inclusion of the cess in Brand Rate and applies to pending applications, and the CBIC Drawback Division is directed to pass a reasoned order on the petitioner's representation within three months, with all remedies preserved.
The core legal issues considered by the Court were:
ISSUE-WISE DETAILED ANALYSIS
1. Unlocking of Mobile Phones and "Taken into Use"
2. Entitlement to Duty Drawbacks
3. Validity of CBIC Clarifications
SIGNIFICANT HOLDINGS
Entitlement to duty drawbacks when exporting mobile phones, which have been unlocked and accordingly they had availed of the drawbacks - HELD THAT:- As per the judgement in M/s AIMS Retail Services Private Limited v. Union of India & Ors. [2025 (2) TMI 596 - DELHI HIGH COURT], this Court has held that duty drawback may be claimed in respect of unlocked mobile phones being exported, as the mere act of unlocking does not constitute the phones being “taken into use” within the meaning of the applicable provisions. Given that a mobile phone is capable of being utilized in several ways, the mere unlocking thereof cannot be deemed as the Petitioners having “taken it into use.”
Furthermore, this Court has observed that with the expansion of mobile phone manufacturing and assembly in India, the volume of exports is expected to increase. The mere fact that the said products are configured for use in foreign jurisdictions cannot operate as a ground to deprive the Petitioners of their rightful claim to duty drawback under the prevailing legal framework. The present case also pertains to the Respondents’ rejection of the Petitioner’s request for duty drawback on unlocked mobile phones being exported.
Conclusion - The unlocking of mobile phones for export does not constitute "use" under the Duty Drawback Rules. Exporters are entitled to duty drawbacks unless explicitly restricted by law.
Petition disposed off.
Issues: (i) Whether rejection of Form TRAN-1 filed by the petitioners for carrying forward transitional credit was lawful; (ii) Whether the order-in-original dated 10.10.2019 rejecting the petitioners' refund claim of duties (CVD and SAD) paid for non-fulfilment of export obligations was sustainable.
Issue (i): Lawfulness of rejection of Form TRAN-1 filed for carrying forward transitional credit.
Analysis: The petitioners had imported goods in 2016 without payment of duty under Advance Authorisation and EPCG schemes and later, in 2018 (after 01.07.2017), voluntarily deposited duties including CVD and SAD on account of shortfall in export obligations. At the appointed day (30.06.2017) the petitioners did not have an outstanding balance of such duties reflected as credit in the Cenvat Register. Section 140 of the CGST Act governs carry forward of transitional credit and requires that the balance to be carried forward exist as on the appointed day. The court examined the timing of payment and the absence of admissible credit as on 30.06.2017 and considered the verification report relied upon by the authorities.
Conclusion: The rejection of Form TRAN-1 is sustained as the petitioners did not possess an admissible outstanding credit on the appointed day; this disposes the challenge to the TRAN-1 rejection against the petitioners.
Issue (ii): Validity of order-in-original dated 10.10.2019 rejecting refund claim of CVD and SAD voluntarily deposited by the petitioners.
Analysis: Section 142 of the CGST Act contains transitional provisions. Section 142(3) mandates that every claim for refund of any amount of CENVAT credit, duty, tax, interest or any other amount paid under the existing law shall be disposed of in accordance with the provisions of the existing law and amounts eventually accruing shall be paid in cash. The court distinguished deposits made voluntarily (not in recovery proceedings) from amounts recovered as arrears under section 142(8)(a). Reliance was placed on relevant judicial decisions applying section 142(3) and 142(6)(a), which held that voluntarily deposited CVD/SAD arising from non-fulfilment of export obligations are to be processed under the pre-GST law (Central Excise Act and Cenvat Credit Rules) and may be refunded in cash where admissible.
Conclusion: The order-in-original dated 10.10.2019 rejecting the refund claim is quashed and set aside. The refund claim is to be remanded to the respondent authorities for fresh decision on merits under the Central Excise Act, 1944 read with Cenvat Credit Rules, 2004 (in accordance with section 142(3) read with section 142(6)(a) of the CGST Act, 2017); if found eligible, refund shall be paid in cash.
Final Conclusion: The petition is partly allowed the TRAN-1 rejection is left undisturbed while the refund rejection is quashed and remanded for fresh adjudication under the pre-GST law, with direction to complete the exercise within twelve weeks after receipt of the order copy.
Ratio Decidendi: Where duties (including CVD and SAD) were voluntarily deposited after the appointed day in respect of imports made prior to the appointed day, claims for refund of such amounts fall to be processed under the existing (pre-GST) law pursuant to section 142(3) read with section 142(6)(a) of the CGST Act, 2017, and amounts found admissible are payable in cash; section 142(8)(a) applies only to amounts recoverable in recovery proceedings and is not applicable to voluntary deposits.
Refund of the Countervailing Duty (CVD) and Special Additional Duty (SAD) paid after failing to fulfill export obligations under the Advance Authorization and Export Promotion Capital Goods (EPCG) schemes - failure to fulfill export obligation - HELD THAT:- On perusal of Section 142, it is apparent that the respondent authorities could not have referred to and relied upon the provisions of section 142(8)(a) as the same would not be applicable to the facts of the case as the petitioners did not deposit the amount of duties in any recovery proceedings but the petitioners had voluntarily deposited the amount of duties on reconciliation of the imports made by the petitioners with the Advance Authorisation and EPCG license entitlement. Therefore, the case of the petitioners would be squarely covered by provisions of section 142(3) of the CGST Act which provides for considering the refund claim of the petitioners as per the existing law at the relevant time when import was made in the year 2016.
As held by Telangana High Court in case of Principal Commissioner of Customs v. M/.s Granules India Limited [2024 (12) TMI 725 - TELANGANA HIGH COURT], the respondents were required to process the refund claim under section 142(3) read with section 142(6)(a) of the CGST Act. The Hon’ble Telangana High Court held that 'The Tribunal, by taking into account the provisions of sub sections (3), (5) and (8A) of Section 142 of the CGST Act, has held that the assessee is entitled to claim refund of CVD and SAD paid after the appointed day. Accordingly, the assessee had been held to be entitled to refund of central value added tax credit of Rs. 3,28,75,733/-.'
This Court in case of Indo-Nippon Chemicals Co. Ltd. v. Union of India [2002 (2) TMI 136 - GUJARAT HIGH COURT], has also held that assessee would be entitled to the refund claim as per the proviso of section 11B of the Central Excise Act, 1944 and clause(c) of proviso could not be construed as enlarging the scope of the main provision in sub-section (1) of section 11B read with Cenvat Credit Rules,2004.
Conclusion - Refund claim filed by the petitioners is required to be processed under the provisions of Central Excise Act, 1944 read with Cenvat Credit Rules, 2004 as per the provisions of section 142(3) read with 142(6)(a) of the CGST Act,2017. Therefore, without disturbing the order rejecting Form TRAN-1 passed by the respondent authorities, so far as order-in-original dated 10.10.2019 rejecting the refund claim of the petitioner for Rs. 45,84,371/- is concerned, is herby quashed and set aside and the matter is remanded back to the respondent authorities so as to decide the refund claim of the petitioners on merits as per the provisions of Central Excise Act, 1944 read with Cenvat Credit Rules, 2004 in view of provisions of section 142(3) read with section 142(6)(a) of the CGST Act, 2017
The petition is partly allowed by way of remand.
Issues: Whether the entire earnest money deposit could be forfeited automatically on default in payment of the balance consideration, or whether the authority was required to exercise discretion and determine the extent of forfeiture after considering the loss suffered.
Analysis: The dispute arose from forfeiture of the bidder's deposit after failure to pay the balance consideration within time. The Court distinguished the forfeiture regime under Rule 9(5) of the Security Interest (Enforcement) Rules, 2002 from the regime under Rule 58 of the Second Schedule to the Income-tax Act, 1961. It held that Rule 58 uses discretionary language, permitting forfeiture only if the Tax Recovery Officer thinks fit, after defraying the expenses of sale. The Court also relied on the general principle that forfeiture or damages for breach are not to be imposed as an automatic windfall where the governing provision requires assessment of loss, and that reasonable compensation must be linked to actual or assessable loss. Since the respondent forfeited the entire amount without exercising discretion and without giving an opportunity of hearing, the action could not stand in full. The Court, however, did not interfere with the finding that the appellant had failed to establish any COVID-19 impediment to timely payment.
Conclusion: The forfeiture could not be treated as automatic, and the authority was required to decide afresh the nature and extent of forfeiture after hearing the appellant. The appellant succeeded to that extent.
Forfeiture of earnest money deposit under Rule 9(5) of the SARFAESI Rules - exclusion of Sections 73 and 74 of the Contract Act by a special enactment - discretion in forfeiture under Rule 58 of the Second Schedule to the Incometax Act and Order XXI Rule 86 CPC - requirement of opportunity of hearing before forfeiture - remand for fresh determination of quantum of forfeiture
Forfeiture of earnest money deposit under Rule 9(5) of the SARFAESI Rules - exclusion of Sections 73 and 74 of the Contract Act by a special enactment - discretion in forfeiture under Rule 58 of the Second Schedule to the Incometax Act and Order XXI Rule 86 CPC - Validity and nature of forfeiture under Rule 9(5) of the SARFAESI Rules and comparison with Rule 58 (Second Schedule, Incometax Act) and Order XXI Rule 86 CPC - HELD THAT: - The Court held that subrule (5) of Rule 9 of the SARFAESI Rules, being part of rules framed under a special enactment, permits forfeiture of the deposit on default and does not leave discretion to determine and quantify actual loss; therefore Sections 73 and 74 of the Contract Act are not applicable to Rule 9(5) in SARFAESI proceedings. By contrast, Rule 58 of the Second Schedule of the Incometax Act and Order XXI Rule 86 CPC employ discretionary language ("may, if the Tax Recovery Officer/thinks fit"), indicating that the authority may exercise discretion and limit forfeiture to reasonable loss. The Court accordingly found that Rule 9(5) is not pari materia with Rule 58/Order XXI R.86 and that the latter provisions vest discretion to the officer/court to decide on forfeiture and its extent. [Paras 16, 17, 19, 22, 32]
Rule 9(5) of the SARFAESI Rules permits forfeiture without the requirement of quantifying actual loss under Sections 73 and 74 of the Contract Act; Rule 58 (Second Schedule, Incometax Act) and Order XXI R.86 CPC, however, confer discretion on the authority/court to order forfeiture and to determine its extent.
Requirement of opportunity of hearing before forfeiture - remand for fresh determination of quantum of forfeiture - Whether, in the present case, the respondent exercised discretion, afforded a hearing and properly determined the extent of forfeiture - HELD THAT: - On the facts, the Court found that the respondent treated forfeiture as automatic, forfeited the entire deposit and cancelled the sale without exercising any discernible discretion or affording the appellant an opportunity of hearing. The Single Judge's finding rejecting the appellant's COVID19 plea was not disturbed. However, because no exercise of discretion or consideration of loss/quantification and no hearing had been recorded, the Court set aside the part of the impugned order rejecting the appellant's prayer for return of the EMD and directed that the respondent determine afresh the nature and extent of forfeiture. The respondent must provide the appellant a sufficient opportunity to be heard, may consult other parties or documents as necessary, and must communicate its decision within eight weeks. [Paras 33, 34, 35]
The forfeiture as effected in this case was quashed insofar as the appellant's claim for return of EMD is concerned; the matter is remitted to the respondent to exercise discretion afresh, after affording hearing and determining the quantum/nature of forfeiture within the time directed.
Final Conclusion: The appeal is allowed in part: the Single Judge's disbelief of the appellant's COVID19 plea is upheld, but the forfeiture of the entire deposit is set aside insofar as no discretion was exercised or hearing afforded; respondent to decide afresh, after hearing the appellant, on the nature and extent of forfeiture within eight weeks.
Issues: (i) Whether claims and recovery proceedings for statutory dues pertaining to the period prior to approval of the resolution plan could be continued against the successful resolution applicant, and whether such dues stood extinguished if not included in the plan; (ii) Whether continuation of demand and recovery proceedings after the binding effect of the resolution plan was brought to notice amounted to contempt, and what consequential relief followed.
Issue (i): Whether claims and recovery proceedings for statutory dues pertaining to the period prior to approval of the resolution plan could be continued against the successful resolution applicant, and whether such dues stood extinguished if not included in the plan.
Analysis: Once a resolution plan is approved under Section 31(1) of the Insolvency and Bankruptcy Code, 2016, the claims covered by the plan stand frozen and bind the corporate debtor, its creditors, and all other stakeholders, including governmental authorities. Claims not forming part of the approved plan stand extinguished, and no proceedings can be initiated or continued for such pre-approval dues. The Code has overriding effect by virtue of Section 238, and the successful resolution applicant is entitled to run the business on a clean slate. The demand notices for the pre-approval period were therefore inconsistent with the approved resolution plan.
Conclusion: The continuation of demands for pre-approval dues was impermissible and illegal, and the impugned recovery action could not be sustained.
Issue (ii): Whether continuation of demand and recovery proceedings after the binding effect of the resolution plan was brought to notice amounted to contempt, and what consequential relief followed.
Analysis: Despite being informed of the governing legal position and the earlier decision covering the petitioner's case, the authorities proceeded with recovery notices and related proceedings. Such continuation was found to be contemptuous in nature. At the same time, the authorities were given the benefit of doubt and the unconditional apology tendered by them was accepted, so no punitive action was taken.
Conclusion: The proceedings were held contemptuous, but no contempt action was directed and the apology was accepted.
Final Conclusion: The impugned demand notices and all proceedings founded on them were quashed, and the petitioner obtained relief against recovery of the pre-resolution-plan dues.
Ratio Decidendi: After approval of a resolution plan, all claims not included in the plan stand extinguished and cannot be pursued by any stakeholder, including governmental authorities, for the period prior to approval.
Wilful disobedience - binding nature of Resolution Plan, on any creditor including the Central Government, State Government or any local authority, once it is approved by an adjudicating authority under sub-section (1) of Section 31 of the Insolvency and Bankruptcy Code, 2016 - amendment to Section 31 by Section 7 of Act 26 of 2019 is clarificatory/declaratory or substantive in nature? - initiation of any proceedings for recovery of any of the dues from the Corporate Debtor, hich are not a part of the Resolution Plan approved by the adjudicating authority, after approval of resolution plan by the Adjudicating Authority a creditor including the Central Government, State Government or any local authority.
HELD THAT:- All the dues of any of the stakeholders including the statutory dues owed to the Central Government, any State Government or any local authority, which were not part of the Resolution Plan, stood extinguished from the date on which the Resolution Plan stood approved.
This Court has held that a successful resolution applicant cannot suddenly be faced with “undecided” claims after the resolution plan submitted by him has been accepted as this would amount to a hydra head popping up which would throw into uncertainty amounts payable by a prospective resolution applicant who would successfully take over the business of the corporate debtor. It has also been held that all claims must be submitted to and decided by the RP so that a prospective resolution applicant knows exactly what has to be paid in order that it may then take over and run the business of the corporate debtor.
There are no hesitation in holding that the demands raised by the respondents/authorities for a period prior to the date on which the learned NCLT has approved the Resolution Plan were totally contemptuous in nature. The respondents could not have raised the said demands inasmuch as they are not part of the Resolution Plan.
Undoubtedly, in the present case, in spite of public notice, neither the State of Chhattisgarh nor its authorities raised any claim before the CoC. In that view of the matter, the case of the present Petitioner is specifically covered by the judgment of this Court in the case of Ghanshyam Mishra, which judgment was brought to the notice of the respondents/authorities, the respondents/authorities could not have proceeded with the recovery proceedings - When the law laid down by this Court in the case of Ghanshyam Mishra is clear and unambiguous and specifically when the Petitioner’s own case was part of the batch which is specifically dealt with by this Court, the respondents/alleged contemnors ought not to have proceeded further with the recovery proceedings and ought to have dropped them forthwith. The continuation of such proceedings despite the judgment and order of this Court being pointed out to their notice is nothing but contemptuous in nature.
There are no hesitation in holding that the continuation of the proceedings by the respondents/authorities even after the judgment of this Court in Ghanshyam Mishra was specifically brought to their notice is contemptuous in nature. However, we do not propose to proceed against the respondents/contemnors inasmuch as they are entitled to benefit of doubt.
Conclusion - The act of the alleged contemnors is contemptuous in nature, it is not proposed to take any action against them. The demand notices issued by the contemnors on the Petitioner Company and all proceedings pursuant thereto are held to be illegal and the same are quashed and set aside.
The contempt petition accepting unconditional apology of the contemnors disposed off.
The core legal questions considered in this judgment are:
ISSUE-WISE DETAILED ANALYSIS
Business Auxiliary Service Issue
Goods Transport Agency (GTA) Service Issue
SIGNIFICANT HOLDINGS
In conclusion, the Tribunal allowed the appeal filed by the appellant, setting aside the impugned order and granting consequential relief as per law.
Process amounting to manufacture - process of drawing wire from wire rod - liability of appellant to pay Service Tax under the 'transportation of goods by road' (GTA) service category when the vehicles were hired from local transporters who did not issue consignment notes - business auxiliary services.
Business auxiliary service - HELD THAT:- From the definition of ‘business auxiliary service’, it is seen that if the activity undertaken by the appellant amounts to manufacture of excisable goods, then the said activity shall be excluded from the said definition. As the activity of drawing of wire from wire rod supplied by the customer amounts to ‘manufacture’, the services undertaken by the appellant do not fall within the ambit of the taxable service of 'business auxiliary service' as defined under Section 65(19) of the Act. Thus, the job work undertaken by the appellant does not amount to 'business auxiliary services', as held in the impugned order. Consequently, the demand of Service Tax confirmed under this category is not sustainable and hence, the same is set aside.
Demand confirmed under the category of GTA service - HELD THAT:- The appellant has hired vehicles from local vehicle providers who have not issued any consignment notes. Hence, they cannot be considered as ‘goods transport agencies’ within the meaning of Section 65(50b) of the Finance Act, 1994. The liability of the appellant to pay Service Tax under the category of ‘transportation of goods by road’ (GTA) service arises only when the appellant receives services from a goods transport agency who issues a consignment note, by whatever name it may be called. In these circumstances, the appellant is not liable to pay Service Tax under the category of GTA service in respect of the expenditure incurred by them for transportation of goods during the impugned period as the services were not received from a GTA who issues consignment notes - as the suppliers were not goods transport agencies within the meaning of Section 65(50b) of the Act as they have not issued any consignment notes, the services received by the appellant cannot be held liable to Service Tax under reverse charge mechanism at the hands of the appellant under the category of GTA service. Accordingly, the demand of Service Tax confirmed under this category is not sustainable and therefore, the same is set aside.
Interest and penalty - HELD THAT:- As the demands confirmed against the appellant do not survive, the question of demanding interest thereon or imposing penalties does not arise.
Conclusion - i) As the activity of drawing of wire from wire rod supplied by the customer amounts to 'manufacture', the services undertaken by the appellant do not fall within the ambit of the taxable service of 'business auxiliary service' as defined under Section 65(19) of the Act. ii) Service tax under the GTA category requires issuance of consignment notes by a 'goods transport agency.
The impugned order is set aside - appeal allowed.
The Tribunal considered six principal issues:
(i) Whether the demand notice is justified under the proviso to Section 73 when tax liabilities have already been accepted by the Appellant by filing ST-3 Returns.
(ii) Whether the demand of Service Tax based on figures of turnover in Balance Sheets is legally correct.
(iii) Whether the demand of Service Tax on services covered under Reverse Charge Mechanism (RCM) is justified when the same is claimed as CENVAT credit by the Appellant.
(iv) Whether the demand of inadmissible credit in respect of services, said not to be input services, is justified.
(v) Whether penalty under Section 78 is imposable.
(vi) Whether personal penalty on Shri Shailendra Sharma, Assistant Vice President, is justified.
ISSUE-WISE DETAILED ANALYSIS
Issue No. (i): Demand Notice Justification
The Court examined the applicability of Section 73(1B) of the Finance Act, 1994, which states that no notice of demand is required if the tax is self-assessed and declared in returns. The Tribunal found that the Appellant had self-assessed and declared the tax liabilities in the ST-3 returns before the issuance of the Show Cause Notice (SCN). The issuance of the SCN for recovery of self-assessed tax was deemed unwarranted and legally incorrect. Consequently, no demand of interest under Section 75 was justified.
Issue No. (ii): Demand Based on Balance Sheets
The Tribunal noted that the turnover in the Balance Sheets included the sale value of flats sold by the Appellant in its own account, which is not subject to service tax under Section 66B of the Finance Act, 1994. The service tax was only applicable to the commission earned on sales for other builders. The demand based on the turnover in Balance Sheets was found to be incorrect and unsustainable, as it did not account for the nature of the transactions.
Issue No. (iii): Demand on Services under RCM
The Tribunal highlighted that the services in question were input services eligible for CENVAT credit. It was a case of revenue neutrality, as any service tax paid could be claimed back as credit. The demand was not sustainable due to the principle of revenue neutrality, supported by precedents from the Supreme Court.
Issue No. (iv): Inadmissible Credit for Input Services
The Tribunal analyzed the definition of "input service" under Rule 2(l) of the CENVAT Credit Rules, 2004, which includes services used for providing output services and activities related to business. The services in question, such as hotel rent, building rent, air ticket booking, and catering, were found to be related to the Appellant's business activities and thus qualified as input services. The credit availed was deemed admissible.
Issue No. (v): Imposition of Penalty under Section 78
The Tribunal found that since there was no requirement to issue a notice under Section 73, the imposition of penalty under Section 78 was not warranted. The Tribunal referenced previous decisions where penalties were not imposed if the service tax was deposited before the issuance of the SCN.
Issue No. (vi): Personal Penalty on Shri Shailendra Sharma
The Tribunal referred to Section 78A of the Finance Act, 1994, which penalizes directors or officers of a company for certain contraventions. In this case, no evasion of service tax, issuance of fake invoices, or wrong availment of credit was established. Therefore, no personal penalty was justified.
SIGNIFICANT HOLDINGS
The Tribunal set aside the impugned Order-in-Original, allowing the appeal with consequential relief. The key principles established include:
- Self-assessed tax liabilities declared in returns do not warrant an SCN under Section 73.
- Service tax demands based on Balance Sheet figures require thorough investigation to establish liability.
- Revenue neutrality precludes sustainable demands for differential duty.
- Services related to business promotion and operations qualify as input services for CENVAT credit purposes.
- Penalties under Section 78 are not applicable if tax is paid before SCN issuance, and personal penalties require clear contraventions.
Validity of demand notice under proviso to Section 73 when tax liabilities have already been accepted by the Appellant by filing ST-3 Returns - demand of Service Tax on the basis of figures of turnover in Balance Sheets - demand of Service Tax on services covered under RCM, when the same is claimed as Cenvat credit by the Appellant - demand of inadmissible credit in respect of services, said not to be input services - penalty u/s 78 - personal penalty on Asstt. Vice President - Demand of late fee for filing ST-3 Returns late, beyond the due date, under Section 70 of the Finance Act, 1994.
Whether demand notice is justified under proviso to Section 73 when tax liabilities have already been accepted by the Appellant by filing ST-3 Returns? - HELD THAT:- An in-depth reading of tprovisions of Section 73(1B) of the Finance Act, 1994 reveals that where tax was self- assessed and returns were furnished, no notice of demand was required to be issued under Section 73(1). It is further found that in the present case, tax was self- assessed and service tax liability was declared in returns as already admitted in the SCN as well as impugned order. So, issuance of SCN for recovery of self- assessed tax is patently unwarranted and legally incorrect. There should also be no demand of interest under Section 75. It is also found that the service tax liability declared in the ST-3 returns was deposited before issuance of SCN. As per provisions Section 73(3), if short levied or non-paid service tax deposited before issuance of the SCN, no notice under sub Section (1) of 73 in respect of the amount so paid was required to be issued.
Whether demand of Service Tax on the basis of figures of turnover in Balance Sheets is legally correct? - HELD THAT:- It indicates that no service tax was chargeable on sale of flats by the Appellant in its own account. Service tax was payable only on the commission amount earned by the Appellant for sale of flats of other builders. The demand of service tax on the turnover shown in Balance Sheets is incorrect. Thus, demand of service tax on differential value, i.e., difference between figure of turnover shown in Balance Sheets and value of service declared in ST-3 is unjustified and is not sustainable. It is a settled legal position that demand raised on the basis of Balance Sheet or Form 26AS is not sustainable as held in M/s Lord Krishna Real Infra P. Ltd., [2019 (2) TMI 1563 - CESTAT ALLAHABAD]. It has been held that by raising demand on the value shown in the Balance Sheets without any investigation, the Department had not discharged the onus on them. Following the ratio of the above decision, the demand raised on the figure of Balance Sheet is not sustainable.
Whether demand of Service Tax on services covered under RCM is justified when the same is claimed as Cenvat credit by the Appellant? - HELD THAT:- It is a case of revenue neutrality with no loss of revenue to the Exchequer. It is a settled law that in case of revenue neutrality, demand of any differential duty would not be sustainable. In this context, reliance is placed on the judgement of the Hon’ble Supreme Court in the case of V.E. Commercial Vehicles Ltd., [2019 (9) TMI 887 - SC ORDER]. In the above case, the Hon’ble Supreme Court held that the demand of differential duty would not be sustainable as the same is available as rebate to the assessee. So, it is revenue neutrality case. Decision of the Hon’ble Supreme Court in the case of Mahindra & Mahindra Ltd., [2019 (11) TMI 783 - SC ORDER] is also referred to. In this case the Court has enunciated that demand of differential duty is not sustainable on the ground of revenue neutrality in as much as differential duty would be available as credit to the assessee. In view of the above judgments, it is clear that demand in the present case is not sustainable.
Whether demand of inadmissible credit in respect of services, said not to be input services, is justified or not? - HELD THAT:- The business of the Appellant to provide real estate agent services whereunder, as commonly known, they arranged customer’s meeting, arranged their visits to location, provide free catering to customers and also used to visit abroad for promotional activities of its business. Therefore, any service for undertaking above said activities were covered in the definition of input services - In view of utilisation of the services, it is held that they were covered under the definition of input services and credit availed thereon would be admissible.
Whether penalty under Section 78 is imposable? - HELD THAT:- As there was no requirement to issue notice u/s 73, the imposition of penalty u/s 78 is not warranted. In this regard, the Tribunal in the case of Ms Mass Marketing and Advertisement Services Pvt. Ltd., [2006 (2) TMI 20 - CESTAT BANGALORE] where it has been held that no penalty is imposable if service tax deposited before issuance of show cause notice. The same view has also been taken in the case of [2004 (8) TMI 3 - CESTAT, BANGALORE] where it was held that no penalty is imposable if service tax is deposited before issuance of SCN.
Whether personal penalty on Asstt. Vice President is justified? - HELD THAT:- In the present case, evasion of service tax has not been established. There is no case of issuance of fake invoice or challan and also no case of wrong availment of credit. Nothing has been discussed that taxes were collected but not paid. Hence, no penalty is imposable.
Demand of late fee for filing ST-3 Returns late, beyond the due date, under Section 70 of the Finance Act, 1994 - HELD THAT:- There are no provisions to raise any demand notice for late fees. It is provided that a Return can be filed with late fees of maximum amount of Rs.20,000/-. It does not prescribe that incase of non- payment of late fees any demand notice is required to be issued. Lack of any provision for issuing SCN for demand of late fee, it is refrained to confirm any such demand.
Conclusion - i) Self-assessed tax liabilities declared in returns do not warrant an SCN under Section 73. ii) Service tax demands based on Balance Sheet figures require thorough investigation to establish liability. iii) Revenue neutrality precludes sustainable demands for differential duty. iv) Services related to business promotion and operations qualify as input services for CENVAT credit purposes. v) No penalties imposed.
Appeal allowed.
The core legal issue considered in this judgment is whether the appeal filed by the appellant was within the permissible time limit as prescribed under Section 85 of the Finance Act, 1994. Additionally, the issue of whether the Commissioner (Appeals) had the authority to condone the delay beyond the statutory period was examined. The appellant also raised concerns regarding the denial of natural justice due to the lack of a personal hearing before the dismissal of the appeal on the grounds of limitation.
ISSUE-WISE DETAILED ANALYSIS
1. Timeliness of the Appeal Filing
- Relevant Legal Framework and Precedents: Section 85 of the Finance Act, 1994, stipulates that an appeal must be filed within two months of receiving the order from the adjudicating authority. The Commissioner (Appeals) may condone a delay of up to 30 additional days if sufficient cause is shown. The Supreme Court's decision in Singh Enterprises v. CCE, Jamshedpur, established that delays beyond this period cannot be condoned.
- Court's Interpretation and Reasoning: The Tribunal noted that the appellant received the order on 29.07.2022, and the appeal should have been filed by 29.09.2022. Even with the maximum allowable extension, the deadline would have been 29.10.2022. The appeal was filed on 30.12.2022, beyond the permissible period.
- Key Evidence and Findings: The appellant acknowledged the receipt date of the order and the subsequent filing date of the appeal, which confirmed the delay.
- Application of Law to Facts: The Tribunal applied the statutory time limits and the Supreme Court's interpretation to conclude that the appeal was time-barred.
- Treatment of Competing Arguments: The appellant argued that the delay was due to the Chartered Accountant's failure to file the appeal timely. However, the Tribunal held that statutory limits are strict and cannot be extended due to third-party negligence.
- Conclusions: The Tribunal concluded that the appeal was filed beyond the permissible period, and the delay could not be condoned under the statute.
2. Denial of Natural Justice
- Relevant Legal Framework and Precedents: The principles of natural justice require that parties be given a fair opportunity to present their case. The appellant cited the Gujarat High Court's decision in Hitech Sweet Water Technologies Pvt. Ltd. v. State of Gujarat, which emphasized the need for personal hearings.
- Court's Interpretation and Reasoning: The Tribunal acknowledged the appellant's claim of not being granted a personal hearing before the dismissal of the appeal on limitation grounds.
- Key Evidence and Findings: The appellant did not receive a personal hearing, which they argued was a denial of natural justice.
- Application of Law to Facts: While the Tribunal recognized the importance of personal hearings, it found that the statutory time limits were clear and binding, thus limiting the scope for considering the merits of the case.
- Treatment of Competing Arguments: The Tribunal did not find sufficient grounds to override the statutory limits based on procedural fairness arguments.
- Conclusions: The Tribunal held that the statutory time limits took precedence over procedural fairness concerns in this context.
SIGNIFICANT HOLDINGS
- Verbatim Quotes of Crucial Legal Reasoning: "The Commissioner of Central Excise (Appeals) as also the Tribunal being creatures of Statute are vested with jurisdiction to condone the delay beyond the permissible period provided under the Statute."
- Core Principles Established: The statutory time limits for filing appeals are strict and cannot be extended beyond the period explicitly allowed by the statute. The provisions of the Limitation Act, 1963, do not apply to extend these limits.
- Final Determinations on Each Issue: The appeal was dismissed as time-barred, and the Tribunal upheld the decision of the Commissioner (Appeals) based on the statutory framework and the binding precedent of the Supreme Court in Singh Enterprises.
The Tribunal concluded that the appeal was filed beyond the permissible period and could not be entertained. The statutory framework and binding judicial precedents were decisive in determining the outcome of the appeal.
Condonation of delay in filing appeal - whether the appeal filed by the appellant was within the permissible time limit as prescribed under Section 85 of the Finance Act, 1994? - HELD THAT:- The fact of the receipt of the order is not in dispute. It is not even the case of the Appellant that the Order of the Adjudicating Authority was not received by the Appellant on 29.07.2022 and Appeal was to be filed within 60 days i.e. up to 29.09.2022. The Commissioner (Appeals) chould have condoned the delay further by one month i.e. upto 29.10.2022. However, the Appeal was filed before the Commissioner (Appeals) on or after that date. That being so Commissioner (Appeals) has rightly held that in view of the Hon’ble Supreme Court decision in the case of Singh Enterprises [2007 (12) TMI 11 - SUPREME COURT] he could not have condoned the delay and dismissed the Appeal.
The Appellant had filed the appeal before the Commissioner (Appeals) beyond the period which could have been condoned by the Commissioner (Appeals) as per Section 35 of the Central Excise Act. Judgment relied upon by Commissioner (Appeals) has clearly laid down that Commissioner (Appeals) has no Authority to condone the delay beyond 30 days.
Conclusion - The appeal is filed beyond the permissible period and could not be entertained.
Appeal is dismissed.
The core legal questions considered in this judgment involve:
1. Whether the penalties imposed for shortages of raw materials and finished goods are justified given that the appellant paid the duty before the issuance of the Show Cause Notice.
2. Whether the amount collected by the appellant as transportation insurance, which exceeded the actual premium paid, should be included in the assessable value for the purpose of calculating central excise duty.
ISSUE-WISE DETAILED ANALYSIS
1. Penalties for Shortages of Raw Materials and Finished Goods
Relevant legal framework and precedents: The relevant provision is Section 11A(2B) of the Central Excise Act, 1944, which states that if the central excise duty along with interest is paid before the issuance of a Show Cause Notice, the notice need not be issued.
Court's interpretation and reasoning: The Court observed that the appellant had already paid the central excise duty and interest on the shortages of raw materials and finished goods before the issuance of the Show Cause Notice. Therefore, under Section 11A(2B), the issuance of the notice was unnecessary, and consequently, the penalties were not warranted.
Key evidence and findings: The appellant admitted to the shortages during the stock verification and paid the corresponding duty amounts of Rs.40,445/- for inputs and Rs.18,031/- for finished goods.
Application of law to facts: The Court applied Section 11A(2B) to conclude that since the duty was paid before the issuance of the Show Cause Notice, the penalties imposed were not justified.
Treatment of competing arguments: The Revenue argued that the appellant admitted to the shortages and thus penalties were justified. However, the Court found that the payment of duty before the notice negated the need for penalties.
Conclusions: The Court set aside the penalties imposed on the appellant for the shortages of raw materials and finished goods.
2. Inclusion of Transportation Insurance in Assessable Value
Relevant legal framework and precedents: Section 4 of the Central Excise Act, 1944, defines "transaction value" for the purpose of duty calculation. The Tribunal's decision in TCP Ltd. v. Commissioner of C.Ex., Madurai was cited, which held that excess amounts collected over actual insurance charges are not includable in the assessable value.
Court's interpretation and reasoning: The Court noted that the appellant collected 1% of the value as transportation insurance from customers but paid a lower actual premium. The Court referenced the Tribunal's decision in TCP Ltd., which established that such excess amounts are not part of the assessable value.
Key evidence and findings: The appellant collected more than the actual insurance premium paid, leading to a demand of Rs.1,21,936/-. However, the Court found this demand unsustainable based on the established precedent.
Application of law to facts: The Court applied the precedent from TCP Ltd. to determine that the excess insurance charges collected should not be included in the assessable value.
Treatment of competing arguments: The Revenue maintained that the appellant's acceptance of liability justified the demand. However, the Court's reliance on the TCP Ltd. precedent led to the conclusion that the demand was not sustainable.
Conclusions: The Court set aside the demand of Rs.1,21,936/- related to transportation insurance and ruled that no penalty or interest was applicable.
SIGNIFICANT HOLDINGS
Preserve verbatim quotes of crucial legal reasoning: The Court stated, "We agree with the submission of the appellant that since the appellant had paid the central excise duty along with interest before issuance of the Show Cause Notice, as per Section 11A(2B) of the Act, there was no necessity to issue the Show Cause Notice for these demands."
Core principles established: The judgment reinforced that penalties are not warranted when duty and interest are paid before the issuance of a Show Cause Notice. Additionally, excess amounts collected over actual insurance charges are not includable in the assessable value.
Final determinations on each issue:
(i) The demands of Rs.40,445/- and Rs.18,031/- for shortages of inputs and finished goods, respectively, were upheld, but no penalties were imposed.
(ii) The demand of Rs.1,21,936/- for transportation insurance was set aside, with no penalties or interest applicable.
Levy of penalty for shortages of raw materials and finished goods - appellant paid the duty before the issuance of the SCN - HELD THAT:- Appellant were unable to fully explain the shortage of raw materials and finished goods at the time of stock verification and, in order to put an end to the litigation, they paid the duty and hence, penalty should not have been imposed in respect of these demands. The submission of the appellant agreed that since the appellant had paid the central excise duty along with interest before issuance of the SCN, as per Section 11A(2B) of the Act, there was no necessity to issue the Show Cause Notice for these demands. as the duty involved has already been paid. Accordingly, the SCN for these issues need not have been issued. In these facts and circumstances, the penalties imposed on the appellant on these issues are not warranted and hence, the penalties imposed on the appellant on these demands are set aside.
Regarding the liability to central excise duty amounting to Rs.1,21,936/- on transport insurance, the appellant has collected transport insurance charges @ 1% on the value from the customers and deducted the same from the assessable value. However, the actual premium paid by them was found to be less than the 1% collected. In this regard, it is observed that the profit earned by the appellant on the transport insurance is not liable to be included in the assessable value, as has been held by the Tribunal in the case of TCP Ltd. v. Commissioner of C.Ex., Madurai [2007 (10) TMI 512 - CESTAT, CHENNAI].
Conclusion - i) The demands of Rs.40,445/- and Rs.18,031/- (inclusive of cesses), along with interest, confirmed on account of shortage of inputs and shortage of finished goods respectively, already paid by the appellant, are upheld. No penalty is imposable in respect of these demands. ii) The demand of Rs.1,21,936/- confirmed on account of inclusion of transit insurance in the assessable value is set aside. No penalty is imposable on the appellant in respect of this issue.
Appeal disposed off.
Issues: (i) Whether a claimant seeking refund on finalisation of provisional assessment must establish that the incidence of duty was not passed on to the ultimate buyer; (ii) Whether refund orders can be sustained without verification extending beyond the immediate dealer to the ultimate customer.
Issue (i): Whether a claimant seeking refund on finalisation of provisional assessment must establish that the incidence of duty was not passed on to the ultimate buyer.
Analysis: Section 12B of the Central Excise Act, 1944 creates a rebuttable presumption that the incidence of duty has been passed on to the buyer. Refund under Section 11B of the Central Excise Act, 1944 is available only when the claimant establishes that the duty was borne by it and that the burden was not passed on to any other person. The expression "buyer" is not confined to the first buyer and may extend downstream to the ultimate customer.
Conclusion: The claimant must conclusively show that the duty burden did not reach the ultimate buyer; proof limited to the immediate dealer is insufficient.
Issue (ii): Whether refund orders can be sustained without verification extending beyond the immediate dealer to the ultimate customer.
Analysis: The record showed only limited verification regarding the first buyers, while the materials did not establish that the dealers had not passed on the duty incidence further downstream. In the light of the principles reiterated in the governing precedent, verification of nil unjust enrichment must extend to the stage of the ultimate consumer. Where such verification is absent, the refund sanction cannot be treated as legally complete.
Conclusion: The refund sanction could not be sustained without further verification up to the ultimate customer.
Final Conclusion: The matter was sent back for fresh verification on unjust enrichment, with directions to examine whether the duty burden had been borne throughout the chain up to the final buyer.
Ratio Decidendi: A refund claim under the excise law succeeds only if the claimant proves that the duty incidence was not passed on at any stage to another person, including the ultimate consumer, and limited verification at the dealer level does not satisfy that requirement.
Refund upon finalisation of provisional assessments - requirement to prove conclusively that the incidence of duty burden has not been passed on to the ultimate buyer - compliance to the principle of the doctrine of unjust enrichment - HELD THAT:- It is evident from the records that the Original Authority in the denova Order-in-Original No. 08/2016 dated 05.08.2016 has arrived at the decision that the appellant has borne the excise duty burden and not passed on to the dealers after scrutinizing the credit notes, Chartered Accountant’s certificate, extract of ledger for discounts, etc., and ordered for sanction of the refunds. Whereas in the impugned orders dated 14.09.2017, the Commissioner of GST and Central Excise (Appeals), Coimbatore has held that refund claims were hit by the bar of unjust enrichment as the appellant has not conclusively established that the burden of excise duty in relation to which such refunds are claimed has not been passed on by him to any other person (ultimate consumer) and the verification process done by the Original Adjudicating Authority was only confined to the first buyers i.e., Dealers. Whether the incidence of duty was passed on to any other downstream buyer was not verified by the Original Adjudicating Authority and also from the records, it was ascertained that the assessee has not submitted any such evidence.
An in-depth examination of the Hon’ble Supreme Court’s judgment in the case of Addison & Co. Ltd. [1997 (3) TMI 98 - SUPREME COURT] makes it clear that there is a presumption that the full incidence of duty burden has been passed on to the buyer of the goods. The refund of any duty can be made only to the person who bears the incidence of duty and it is necessary to conduct verification as to ascertain who actually have borne the burden of duty. It has been categorically laid down that refund can be granted only to the person who has paid the duty and borne the duty and not to anyone else. If the ultimate customer cannot be identified the amount should be credited to the Consumer Welfare Fund established under Section 12 C of the Central Excise Act, 1944 to be utilised for the benefit of consumers in general.
The appellant would be eligible for refunds sanctioned only when it is proved that incidence of duty has not only been passed on to the dealers but also by the dealers to the ultimate customers. Herein, the appellant has proved that the excise duty burden has been borne by him and not passed on to the dealers. But whether there is any evidence as to their dealers having not passed on the duty incidence to the ultimate customers of Motor Cycles is not forth coming as a second stage verification has not been carried out. As such, the appellant is required to prove conclusively that the incidence of duty burden has not been passed on to the ultimate buyers so as to be eligible for the refund claims arising on account of finalisation of provisional assessment after allowing abatements.
The sanction of the refund claims by the Original Adjudicating Authority without conducting verification as to whether the dealers of the Motor Cycles have not passed on the incidence of duty to the ultimate customer is not legal and proper. Refund of excess excise duty paid at the time of provisional assessments, could be legally sanctionable only to those persons which include ultimate customers who must have borne the burden of excise duty paid.
Conclusion - The appellant failed to conclusively prove that the duty burden was not passed on to the ultimate consumers, thus affecting their eligibility for refunds.
The appeals are allowed by way of remand.
Issues: (i) Whether the High Court was justified in setting aside the NCDRC order and enhancing the rate of interest from 9% p.a. to 15% p.a. and awarding enhanced compensation; and (ii) Whether the compensatory award of Rs. 10,00,000/- should be maintained.
Issue (i): Whether the High Court was justified in enhancing the rate of interest from 9% p.a. (as awarded by NCDRC) to 15% p.a.
Analysis: The question required assessment of whether interference by the High Court under Article 227 was warranted in modifying a fact-sensitive, reasoned determination made by the NCDRC which had considered delay, option for refund by the allottee, and the circumstances of the allotment. Precedent establishes that where possession is not delivered within specified time, the allottee is entitled to refund with reasonable interest; the appropriate rate depends on the facts and equitable balancing. The NCDRC's award of 9% p.a. followed evaluation of evidence and choice of refund by the complainant. The High Court's enhancement to 15% p.a. was not shown to be compelled by the factual matrix or legal standards applicable to such consumer disputes.
Conclusion: The High Court's enhancement of interest to 15% p.a. was not justified; the NCDRC's award of interest at 9% p.a. is restored.
Issue (ii): Whether the compensation awarded of Rs. 10,00,000/- should be sustained.
Analysis: Consideration was given to the nature of the respondent (an instrumentality of the State), the course of conduct, and proportionality of the compensatory sum relative to ends of justice. The Court found that a reduction would adequately meet justice without unduly penalising the public authority, having regard to deposits already made and the factual circumstances.
Conclusion: The compensation is reduced from Rs. 10,00,000/- to Rs. 7,50,000/-.
Final Conclusion: The appeal is partly allowed by setting aside the High Court's enhancement of interest to 15% p.a., restoring the NCDRC's award of interest at 9% p.a., and reducing the compensation awarded to Rs. 7,50,000/-. The remainder of the NCDRC order as to refund with interest is maintained.
Ratio Decidendi: Where a specialised forum has made a reasoned, fact-based determination of refund and a reasonable rate of interest for delay, supervisory interference is improper unless the rate or compensation is shown to be legally unsupportable or manifestly excessive; courts should restore a fact-based reasonable award and may moderate excessive compensation in the interest of proportionality.
Modification of National Consumer Disputes Redressal Commission's (NCDRC) order by awarding an increased interest rate of 15% per annum on the refund amount - delay on the part of the respondent in not completing the construction within the agreed period - HELD THAT:- The NCDRC having taken note of the relevant aspects including the factum of delay and the fact that petitioner had opted for refund of money deposited, rightly held that as a home buyer, petitioner cannot be compelled to take possession of the flat after such long time, and as such ordered for refund of entire amount deposited with interest of 9% p.a.
Placing reliance on the law laid down by this Court in Bangalore Development Authority v. Syndicate Bank, [2007 (5) TMI 565 - SUPREME COURT] wherein a coordinate Bench of this Court dealing with the question of grant of relief to a consumer in cases of delay of delivery of possession held that when possession of the allotted plot/flat/house is not delivered within the specified time, the allottee is entitled to a refund of the amount paid with reasonable interest thereon from the date of payment till the date of refund.
In the present case, the High Court by the impugned order modified the finding of NCDRC and awarded interest @ 15% p.a. primarily relying upon the judgment of this Court in ‘Rohit Chaudhary and another v. Vipul Ltd. [2023 (9) TMI 1569 - SUPREME COURT], wherein this Court in order to balance the equities and to compensate the loss caused to the purchaser/complainant who had booked an office premise for his use, directed the refund of the amount paid along with interest @ 12% p.a. from the date of complaint till the date of payment. However, the issue in the instant case relates to allotment of a 3 BHK flat after payment of sale consideration and delay in delivery of same. As such, the NCDRC considering the entirety of the facts and circumstances of the case, had awarded interest @ 9% p.a., which in our view was fair and reasonable. The interest @ 15% p.a. awarded by High Court is excessive. Therefore, the impugned order hereby is setaside and the order dated 27.07.2022 passed by NCDRC in so far as it relates to award of interest @ 9% on the respective deposit till the date of actual payment is restored.
Conclusion - i) The NCDRC's award of 9% interest per annum is deemed fair and reasonable, considering the complainant's choice for a refund and the delay in possession. ii) The High Court's enhancement of interest to 15% per annum is excessive and not justified under the circumstances. iii) The compensation amount is reduced from Rs. 10,00,000 to Rs. 7,50,000 to balance the interests of justice, considering the appellant's status as a state instrumentality.
The appeal stands partly allowed.
TaxTMI 