TaxTMI Updates e-Newsletter
May 03,2024

Transition of input tax credit under Section 140 - penalty under Section 74 - interest on delayed payment and undue claim under Section 50 - recovery and verification of wrongly availed credit under Rule 121 and Sections 73/74 - restitution of erroneous refund

Transition of input tax credit under Section 140 - Rule 117(3) crediting of TRAN-1 - Rule 121 verification of TRAN-1 credit - Entitlement to transition and retention of input tax credit availed under CENVAT Credit Rules by filing TRAN-1 - HELD THAT: - The Court found that the petitioner was not entitled to claim input tax credit on basic customs duty under the CENVAT Credit Rules, 2004, and therefore could not transition that amount under Section 140 of the CGST Act, 2017. Rule 117(3) provides for crediting the TRAN-1 amount to the electronic ledger, but Rule 121 permits verification and initiation of proceedings where credit has been wrongly availed. The Department's grant of refund was a mistake in sanctioning the claim, which does not validate the entitlement; the petitioner did not dispute that the credit was not admissible under the pre-existing law. The Court treated the matter as one of erroneous credit/ refund subject to recovery proceedings under the GST scheme. [Paras 19, 20, 21, 22, 29]

The petitioner was not entitled to transition the contested amount as input tax credit and the refund sanctioned by the Department resulted from a departmental mistake.

Penalty under Section 74 - recovery under Sections 73 and 74 - Sustainability of penalty imposed under Section 74 for the erroneous refund - HELD THAT: - The appellate authority concluded that the ingredients for invoking Section 74 (fraud, wilful misstatement or suppression of facts) were absent and set aside the penalty. The High Court, while recording that the Department issued notice under Section 74 upon discovering the error, accepted the appellate conclusion that penalty under Section 74 could not be sustained on the facts because there was no fraud or suppression. The Court noted the distinction between proceedings under Section 73 and Section 74 and recognised the appellate authority's power to set aside the penalty where the statutory threshold for Section 74 was not made out. [Paras 2, 22, 23, 34]

The penalty levied under Section 74 was not sustainable on the facts and was set aside.

Interest on delayed payment and undue claim under Section 50 - Section 50(3) for undue/excess claim - Applicability and sustainment of interest demand under Section 50 on the erroneous refund - HELD THAT: - The Court held that interest under Section 50 is payable where tax or amounts due remain unpaid and that Section 50(3) applies to undue or excess claims of input tax credit. The statutory scheme (including Sections 73 and 74) contemplates recovery of tax along with interest payable under Section 50. Even though the petitioner had not been legitimately entitled to the credit, having received the erroneous refund and retained the benefit for a period, restitution with interest was required. The appellate authority's conclusion that interest at the prescribed rate was automatically demandable on confirmation of tax dues was endorsed by the Court, given the delay in repayment and the statutory mandate to calculate interest from the date the tax was due. [Paras 24, 25, 26, 30, 34]

The demand for interest under Section 50 on the erroneously refunded amount was upheld.

Final Conclusion: The High Court dismissed the writ petition and upheld the appellate order in so far as it set aside the penalty under Section 74 but sustained the demand for interest under Section 50 on the erroneous refund; the petitioner was held not entitled to transition the disputed input tax credit and restitution with interest was required.

Cancellation of registration - application of mind - reasons essential in quasi-judicial orders - opportunity of hearing - de novo adjudication

Cancellation of registration - application of mind - reasons essential in quasi-judicial orders - Validity of the original order cancelling registration in view of absence of reasons and application of mind - HELD THAT: - The Court found that the impugned original order cancelling the petitioners' registration did not disclose any application of mind as it contains contradictory statements regarding the filing of a reply to the show-cause notice and is otherwise devoid of reasons. Reliance was placed on earlier decisions of this Court emphasising that reasons are the "heart and soul" of judicial or quasi-judicial orders and that an order without application of mind cannot stand under Article 14. In light of that defect the original cancellation order was held to be unsustainable and was set aside. The Court directed that the petitioner be permitted to file a reply to the show-cause notice and that the adjudicating authority must consider the matter afresh after granting an opportunity of hearing. [Paras 7]

The original order cancelling registration is quashed and set aside; petitioner to file reply within three weeks and the adjudicating authority to proceed de novo after hearing the petitioner.

De novo adjudication - opportunity of hearing - Validity of the appellate order and directions for further proceedings - HELD THAT: - The appellate order arising under Section 107 was also quashed insofar as it flowed from and effectively endorsed the flawed original order. Because the original cancellation order was set aside for want of reasons and application of mind, the appellate order could not be allowed to operate as a bar to fresh consideration. The Court therefore quashed the appellate order and remitted the matter for fresh adjudication, directing the petitioner to file a reply within the specified time and requiring the adjudicating authority to pass a fresh order after providing an opportunity of hearing and considering the petitioner's defence. [Paras 7]

The appellate order is quashed and set aside and the matter is remitted for de novo adjudication after the petitioner files its reply and is afforded a hearing.

Final Conclusion: Writ petition allowed; both the original order of cancellation and the appellate order are quashed and set aside. Petitioner permitted to file reply to the show-cause notice within three weeks and the adjudicating authority directed to proceed afresh, after hearing the petitioner, and pass a reasoned order.

Service of notice - service by registered post returned unclaimed - opportunity of hearing - decide dispute on merits - quashing of order - remand for fresh decision

Service of notice - service by registered post returned unclaimed - Validity of the impugned order in view of alleged non-service of notice - HELD THAT: - The court noted the petitioner challenged the order on the ground that no notice was served. The opposite parties asserted notices were sent by registered post but the short counter affidavit did not produce postal receipts to substantiate dispatch to the correct address. The court emphasised that adjudication should proceed on merits and that denial of hearing on hyper-technical grounds should be avoided. In the absence of conclusive proof of service on the record and in the interest of affording the petitioner an opportunity to be heard, the impugned order was quashed and set aside to enable fresh adjudication after providing service and hearing. [Paras 6, 7]

Impugned order quashed for want of adequate opportunity of hearing; matter remitted for fresh decision after proper service and hearing.

Opportunity of hearing - decide dispute on merits - remand for fresh decision - Direction for further proceedings and scope of remand - HELD THAT: - The court directed that the petitioner shall appear before the Principal Commissioner on the specified date and file its reply/documents. Thereafter, after affording adequate opportunity of hearing, the Principal Commissioner was directed to decide the matter on merits and in accordance with law expeditiously. The remand covers adjudication of the claimed service tax liability and the penalties imposed, permitting fresh consideration after hearing the petitioner. [Paras 6, 7]

Matter remitted to the Principal Commissioner for fresh adjudication on merits after giving the petitioner an opportunity to file documents and be heard; decision to be rendered expeditiously.

Final Conclusion: Writ petition allowed; the impugned order dated 08.11.2024 is quashed and the matter is remitted to the Principal Commissioner, CGST & Central Excise Commissionerate, Lucknow for fresh adjudication of the tax liability and penalties after proper service and an opportunity of hearing to the petitioner.

Grant of bail - offences under the CGST Act involving clandestine supply without issuance of invoices - compoundable offence - investigation complete as a factor favouring bail - risk of tampering with evidence and intimidating witnesses - conditions of bail including personal bond, sureties and passport deposition

Grant of bail - investigation complete as a factor favouring bail - compoundable offence - Applicant entitled to be enlarged on bail during pendency of trial - HELD THAT: - The Court considered the nature of the allegations that the applicant, a director of the company, was involved in clandestine supply of goods without issuance of GST invoices and consequent evasion of GST; the stage of investigation; that nothing was recovered from the applicant's premises though recovery was from another place; the fact of arrest and continued custody; and that the offence is compoundable and punishable with imprisonment of up to five years. While the DGGI opposed bail on the basis of statements of two employees implicating the applicant, the Court, without expressing any opinion on the merits, found that the factors relied upon by the applicant - completion of investigation, absence of recovery from his premises, and the compoundable character and limited penal severity of the offence - cumulatively weighed in favour of bail.

Bail allowed and applicant to be released on furnishing a personal bond and two heavy sureties each in like amount to the satisfaction of the trial court, subject to specified conditions aimed at preventing tampering, intimidation of witnesses, non-departure from the country and ensuring attendance at trial.

Final Conclusion: Bail application allowed; applicant released on bail subject to furnishing bond and sureties and complying with enumerated conditions, with liberty to the prosecution to move for cancellation on breach.

Cancellation of registration - order without application of mind - requirement of reasons in quasi-judicial orders - violation of Article 14 and Article 19 by non-reasoned orders - limitation on appeals under the UP GST Act - remand for fresh adjudication after opportunity of hearing

Order without application of mind - requirement of reasons in quasi-judicial orders - violation of Article 14 and Article 19 by non-reasoned orders - Impugned original order of cancellation was without application of mind and without reasons and therefore unsustainable. - HELD THAT: - The Court examined the original cancellation order and found it internally contradictory and devoid of any application of mind (the order both records that a reply was filed and that no reply was submitted). Relying on established authority of this High Court that administrative or quasi-judicial orders must indicate reasons because reasons are the "heart and soul" of such orders, and noting that a non-reasoned order affecting the right to carry on business engages Article 14 (and the right under Article 19), the Court concluded that the cancellation order does not satisfy the requirements of reasoned decision-making and is therefore liable to be set aside. The reasoning follows the view expressed in the cited Division Bench authority where a similarly non-reasoned cancellation order was quashed and the matter remanded for fresh consideration. [Paras 3, 4, 6, 7]

Original order of cancellation set aside as made without application of mind and without reasons.

Limitation on appeals under the UP GST Act - doctrine of merger - remand for fresh adjudication after opportunity of hearing - Consequential appellate order and appeal-stage disposition and remedial directions. - HELD THAT: - Although the appeal was time barred under the statutory scheme, the Division Bench precedent considered the original order itself and quashed it for want of reasons. Applying that approach, the Court quashed both the appellate order and the original cancellation order. The petitioner was permitted to file a reply to the show cause notice within three weeks, and the adjudicating authority was directed to proceed de novo after granting an opportunity of hearing and considering the petitioner's defence. The direction implements remedial fairness by permitting fresh adjudication on merits despite the barred appeal because the foundational order was non-reasoned. [Paras 6, 7, 8]

Appellate order quashed; petitioner permitted to file reply within three weeks; matter remanded for de novo adjudication after opportunity of hearing.

Final Conclusion: Writ petition allowed; both the original cancellation order and the appellate order quashed and set aside; petitioner permitted to file reply within three weeks and adjudicating authority directed to proceed anew after hearing the petitioner.

Requirement of a valid e-way bill during transit - intention to evade tax (mens rea) in imposition of penalty - detention, seizure and release and statutory penalty under Section 129 - extension and re-validation of e-way bill under Rule 138 - judicial review of arbitrariness and proportionality in penalty

Intention to evade tax (mens rea) in imposition of penalty - requirement of a valid e-way bill during transit - Whether imposition of penalty under the statute can be sustained without any finding or proof of an intention to evade tax where the e-way bill had expired during transit. - HELD THAT: - The court held that although the statutory scheme prescribes detention and fixed percentages of penalty where goods are transported without valid documents, the absence of any allegation or material on record indicating an intention to evade tax is a relevant circumstance which the adjudicating authority and appellate authority must consider. The authorities did not draw any adverse inference of mens rea and there was no finding that the appellant sought to evade tax. In these peculiar facts, where e-way bill had been generated, tax payment was shown, and the appellant's factual averments of breakdowns were not found to be wholly untrue, the court concluded that rigid affirmation of the maximum penalty without consideration of lack of mens rea would be harsh. The court therefore applied judicial scrutiny for proportionality and fairness in the exercise of adjudicatory power under the statute. [Paras 15, 16, 18, 21, 22]

Penalty could not be sustained in full without considering absence of intention to evade tax; some lenience warranted.

Extension and re-validation of e-way bill under Rule 138 - judicial review of arbitrariness and proportionality in penalty - Whether the adjudicating authority applied its mind to the appellant's specific factual submissions regarding breakdowns and the possibility of extending the e-way bill, and whether the calculation of assessable value was properly addressed. - HELD THAT: - The court found that Rule 138 provides for extension/re-validation of e-way bills and the appellant had pleaded breakdowns and produced a receipt for crane charges; however the adjudicating authority's order did not deal with the appellant's specific reply nor set out reasons recording satisfaction that maximum penalty was warranted. The appellate authority did accept that the adjudicating authority had computed penalty on a higher value than the invoice value, indicating lack of proper application of mind. In the absence of reasoned rejection of the appellant's factual averments and without adequate opportunity given on the enhancement of assessable value, the court treated the adjudication as arbitrary in part. [Paras 19, 20, 21, 22, 23]

Adjudicating authority failed to adequately address factual submissions and erred in computing enhanced assessable value; its approach was arbitrary in part.

Detention, seizure and release and statutory penalty under Section 129 - judicial review of arbitrariness and proportionality in penalty - What relief is appropriate in view of the findings that (a) there was no proof of intention to evade tax, (b) the e-way bill had expired and was not extended, and (c) the adjudicating authority erred in part in computation of value. - HELD THAT: - Balancing the statutory mandate of fixed penalty percentages with factual absence of mens rea and the adjudicatory defects, the court exercised its supervisory power to moderate the consequence. It held that the appellant cannot be wholly exonerated for failing to extend the e-way bill for four days, but that imposition of the full penalty was harsh and caused grave prejudice. Accordingly, the court directed retention of a specified sum from amounts already paid and refund of the balance within a stipulated period, without interest, thereby granting partial relief. [Paras 18, 21, 23, 24]

Appeal partly allowed; specified portion of amount to be retained and balance refunded within three months, without interest.

Final Conclusion: The appeal is partly allowed: having found no material to show intention to evade tax and noting arbitrariness in adjudication and computation of value, the court reduced the consequence by directing retention of a portion of the amount paid and ordered refund of the balance within three months without interest.

Reverse charge mechanism under Section 9(3) read with applicable notifications - ineligible Input Tax Credit - tax collected at source (TCS) - outward supply - discrepancy between GSTR-1 and GSTR-3B - assessment of applicable tax rate - remittal as condition for reconsideration

Reverse charge mechanism under Section 9(3) read with applicable notifications - Failure to examine whether items alleged under Sl.nos.6 to 20 fall within the reverse charge mechanism - HELD THAT: - The Court found that the respondents did not satisfy themselves, by reference to Section 9(3) read with the relevant notifications, whether the goods or services in question were liable to tax on reverse charge. The impugned order confirmed tax proposals for most of these items without recording reasons showing application of mind to the central threshold question whether the supplies were notified for reverse charge. Accordingly those conclusions could not stand without fresh consideration.

Findings in respect of Sl.nos.6 to 20 set aside and matter remanded for reconsideration with specific examination of applicability of reverse charge under Section 9(3) and the notifications

Ineligible Input Tax Credit - tax collected at source (TCS) - outward supply - Validity of the finding that purchases (noted under Sl.no.24) constituted outward supplies and denial of ITC despite TCS being collected - HELD THAT: - The impugned order treated the transactions as outward supplies and imposed tax accordingly, but the Court observed that this conclusion proceeded without proper application of mind to the petitioner's reply that tax had been collected at source on the purchases and without requiring production of book value of vehicles. The recorded finding that the taxpayer "failed to report the outward supply" was therefore based on an incorrect approach to the material before the authority and called for fresh consideration.

The finding under Sl.no.24 is set aside for reconsideration; respondents directed to re-examine the issue of ITC eligibility in light of TCS and the petitioner's explanations, and to afford a reasonable opportunity of hearing

Discrepancy between GSTR-1 and GSTR-3B - assessment of applicable tax rate - remittal as condition for reconsideration - Correctness of tax demand for Sl.nos.1 to 4 where tax was levied at 24% instead of 12% and whether the petitioner's explanations should have been accepted - HELD THAT: - The Court noted that the respondents were not fully satisfied with the documentary evidence produced by the petitioner regarding reconciliation and rectification of discrepancies (or reduced payments after measurement), and that failure to supply all relevant documents had contributed to the impasse. Rather than finally adjudicating the dispute on the present record, the Court put the petitioner on terms: it accepted the petitioner's offer to remit 10% on the assumption that tax is leviable at 12% and directed a fresh adjudication thereafter. The respondents must provide a reasonable opportunity, including personal hearing, before passing a fresh order.

Impugned findings as to Sl.nos.1 to 4 set aside subject to condition that petitioner remits 10% of the disputed tax (on assumed 12% rate); upon receipt, respondents to grant hearing and decide afresh within three months

Final Conclusion: Impugned order dated 09.11.2023 set aside. Matters concerning applicability of reverse charge for Sl.nos.6-20 and eligibility of ITC in Sl.no.24 remanded for fresh consideration after affording opportunity of hearing; findings on Sl.nos.1-4 set aside subject to the petitioner remitting 10% on the assumed 12% rate, after which the respondents shall reconsider and pass a fresh order within three months.

Input Tax Credit - show cause notice - order under Section 73 of the Central Goods and Services Tax Act, 2017 - failure to consider reply / non-application of mind - remand for re-adjudication - opportunity of personal hearing - speaking order

Failure to consider reply / non-application of mind - Input Tax Credit - show cause notice - Impugned order set aside on ground that Proper Officer did not consider petitioner's detailed reply and recorded a cryptic finding that the reply was unsupported by complete documents. - HELD THAT: - The Court found that the show cause notice raised separate heads including excess claim of ITC and ITC from cancelled/non-existent suppliers and that the petitioner had filed a detailed reply with supporting documents. The impugned order merely states the reply was not supported with complete relevant documents and proceeds to create a demand, which indicates non-application of mind. The Proper Officer was required to consider the reply on merits and, if additional documents were necessary, to specifically call for them or afford an opportunity to clarify; absence of such steps rendered the order unsustainable. The Court therefore set aside the impugned order for want of proper adjudication. [Paras 6, 7, 8]

Impugned order dated 28.12.2023 set aside for failure to consider petitioner's reply and for non-application of mind.

Remand for re-adjudication - opportunity of personal hearing - speaking order - order under Section 73 of the Central Goods and Services Tax Act, 2017 - Matter remitted to Proper Officer for re-adjudication with directions to permit filing of reply, grant personal hearing and pass a fresh speaking order within statutory period. - HELD THAT: - The Court directed that the petitioner shall file a reply within 30 days. Thereafter the Proper Officer is to re-adjudicate the show cause notice after giving an opportunity of personal hearing and pass a fresh speaking order in accordance with law within the period prescribed under Section 75(3) of the Act. The remand requires fresh consideration on merits and compliance with principles of natural justice and reasoned decision-making. [Paras 9]

Matter remitted to the Proper Officer for re-adjudication; petitioner to file reply in 30 days; Proper Officer to grant personal hearing and pass a fresh speaking order within the period under Section 75(3).

Speaking order - opportunity of personal hearing - Court expressly refrained from adjudicating merits of competing contentions and reserved rights of parties. - HELD THAT: - The Court clarified that it has neither considered nor commented upon the merits of contentions of either party and that all rights and contentions are reserved. This underscores that the remand is for fresh adjudication on merits by the Proper Officer and not a substantive determination by the Court. [Paras 10]

No adjudication on merits; rights and contentions of parties reserved.

Challenge to administrative action left open - Challenge to Notification No. 9 of 2023 (initial extension of time) left open for consideration. - HELD THAT: - The Court noted that the petitioner's challenge to Notification No. 9 of 2023 insofar as it pertains to the initial extension of time is not adjudicated and is left open, thereby permitting future consideration of that challenge. [Paras 11]

Challenge to Notification No. 9 of 2023 left open.

Final Conclusion: Impugned order dated 28.12.2023 set aside for non-application of mind; matter remitted to the Proper Officer for re-adjudication after petitioner files reply within 30 days, with an opportunity of personal hearing and a fresh speaking order to be passed within the statutory period; Court did not decide merits and reserved parties' rights; challenge to Notification No. 9 of 2023 left open.

Cancellation of GST registration - Closure of business - Non-speaking order - Suspension of registration on application - Interest of revenue - Power to recover tax, penalty and interest - Retrospective cancellation subject to show cause and hearing

Cancellation of GST registration - Closure of business - Non-speaking order - Suspension of registration on application - Registration of the petitioner was to be treated as cancelled with effect from 30.05.2023 and the departmental rejections were unsustainable. - HELD THAT: - The petitioner applied for cancellation of GST registration on 30.05.2023 on the ground of closure of business; subsequent applications were rejected by orders which did not give any particulars or reasons but merely recorded that the reply was not satisfactory. The Court found no cogent reason shown by the department to deny cancellation where the assessee has ceased business. The Court noted that on filing an application for cancellation the registration is automatically suspended and no business can be carried on under the registration. In the absence of any specific ground showing that the interest of revenue was at stake, the departmental rejection-being non speaking and without particulars-could not be sustained. Accordingly, the registration was directed to be treated as cancelled ab initio from the date of the first application, namely 30.05.2023. [Paras 6, 9, 11, 12]

Registration treated as cancelled with effect from 30.05.2023.

Interest of revenue - Power to recover tax, penalty and interest - Retrospective cancellation subject to show cause and hearing - Department's rights to recover dues and to retrospectively cancel registration subject to due process were preserved. - HELD THAT: - While cancellation was directed in favour of the petitioner, the Court made clear that such cancellation does not preclude the department from taking action for recovery of any tax, penalty or interest that may be due. The Court also recognised the departmental power to effect retrospective cancellation where circumstances warrant, but emphasised that such retrospective action must follow law by issuing a proper show cause notice and providing an opportunity of hearing before any retrospective cancellation is recorded. [Paras 10, 13]

Department may recover dues and may retrospectively cancel registration after issuing show cause notice and hearing.

Final Conclusion: Petition allowed by directing that the petitioner's GST registration be treated as cancelled with effect from 30.05.2023; departmental rights to recover tax, penalty or interest and to pursue retrospective cancellation remain preserved subject to issuance of a proper show cause notice and opportunity of hearing.

Netting of excluded income for computation of deduction under developmental deduction provisions - exclusion of net profit and not gross profit when income is disqualified from deduction - nexus between income and expenses for allowing netting - deduction u/ss 80I, 80IA, 80HH and 80HHC - treatment of receipts from sale of scrap/empty containers/gunny bags as eligible business income for deduction purposes - interest and other receipts characterised as derived from eligible business - expansion of existing business - tests for distinguishing new unit from expansion and consequences for treatment of pre-operative or project expenditure - allowance of depreciation where expenditure is capitalised as part of project expansion

HC [2014 (10) TMI 396 - GUJARAT HIGH COURT] decided appeal in favour of assessee

HELD THAT:- There is no reason to dispute the tax effect calculation submitted by the learned counsel appearing for the respondent. The tax effect is below the threshold limits. Therefore, the Special Leave Petition is disposed of.

However, question of law, if any, is kept open.

Validity of Revision u/s 263 - requirement of prior enquiry before exercise of revisionary jurisdiction -ITAT has set aside the said order of the Principal CIT as noted “this is not a case of inadequacy of enquiry. It is a case of absence of enquiry” - HC [2023 (3) TMI 1480 - ORISSA HIGH COURT] confirmed that ITAT appears to be a plausible one and not erroneous in law - HELD THAT:- We are not inclined to interfere with the impugned judgment and hence, the special leave petition is dismissed.

Exemption under Section 54 of the Income-tax Act - revisionary jurisdiction under Section 263 of the Income-tax Act - prejudice to the revenue as test for sustaining a revisionary order - procedural lapse versus substantive prejudice

Exemption under Section 54 of the Income-tax Act - revisionary jurisdiction under Section 263 of the Income-tax Act - prejudice to the revenue as test for sustaining a revisionary order - procedural lapse versus substantive prejudice - Validity of the Commissioner's order under Section 263 quashing the assessment on the ground that conditions of Section 54 were not complied with, notwithstanding the Assessing Officer's prior enquiry and allowance of the claim. - HELD THAT: - The Tribunal found that the Assessing Officer had conducted a detailed inquiry into the sale of the residential property, examining the written reply, sale deed, evidence of purchase of the new property and the computation supporting the claim under Section 54. The revisional authority did not dispute the quantum of capital gain or that the amount was invested in purchase/construction of a residential house. In those circumstances the High Court accepted the Tribunal's conclusion that, although there may have been procedural non-compliance by the assessee in observing the technical requirements of Section 54, no real prejudice to the revenue had been shown. The Court endorsed the principle that exercise of revisionary jurisdiction under Section 263 requires prejudice to revenue; mere procedural lapses, particularly where the AO has inquired into and allowed the claim, do not warrant setting aside the assessment. The Court also observed that initiation of revision proceedings over a petty amount and in respect of an assessee of modest means was unnecessary where no substantive loss to revenue was demonstrated. [Paras 6, 7, 8, 9]

The Tribunal's order setting aside the Commissioner's revision under Section 263 and allowing the assessee's appeal was upheld; the Section 263 order was quashed for lack of prejudice to the revenue despite procedural lapse.

Final Conclusion: No substantial question of law arises; the Tribunal's order allowing the assessee's appeal and setting aside the revisionary order under Section 263 is maintained and the revenue's appeal is dismissed.

Reference to Departmental Valuation Officer (DVO) without rejection of books of account - reliance on DVO report - Section 142A reference to valuer - binding precedent in Sargam Cinema regarding DVO reference - remand for determination whether books of account were rejected

Reference to Departmental Valuation Officer (DVO) without rejection of books of account - reliance on DVO report - binding precedent in Sargam Cinema regarding DVO reference - Validity of making a reference to the DVO and relying on the DVO report where books of account were not rejected - HELD THAT: - The Court applied the principle laid down in Sargam Cinema that a reference to the Departmental Valuation Officer and reliance upon the DVO's report cannot stand where the books of account have not been rejected. The Court observed that this principle has been consistently followed and is determinative of the present controversy. Because the question whether the books of account were rejected was critical, reliance on the DVO report without such rejection would be misconceived. The Tribunal's conclusion rejecting the cross-objection without addressing this aspect was therefore erroneous. [Paras 5, 7, 11]

The Tribunal erred in refusing to deal with the challenge to the DVO reference and reliance on the DVO report; Sargam Cinema's principle applies.

Section 142A reference to valuer - remand for determination whether books of account were rejected - Remand to determine whether the assessing officer had rejected the books of account before making the Section 142A reference and consequent consequences for the addition - HELD THAT: - The Court found that the Tribunal did not examine whether the assessing officer had rejected the assessee's books of account prior to making the reference under Section 142A. Because that factual and legal precondition is decisive, the matter was remitted to the Tribunal with directions to first determine if the books were rejected before the DVO reference. Only if the Tribunal finds that the books were rejected before reference was made would the question of sustaining the addition based on the DVO report survive for adjudication; otherwise reliance on the DVO report would be invalid. [Paras 12, 13]

Matter remitted to the Tribunal to decide whether the books of account were rejected before the DVO reference; further consideration of the addition to follow only if rejection is established.

Final Conclusion: The Tribunal's order is set aside and the matter is remitted to the Tribunal to first determine whether the books of account were rejected prior to reference to the DVO; the Tribunal shall then decide the validity of the addition based on that finding, in line with the Sargam Cinema principle.

Reopening of assessment on belief of escapement of income - verification of third party data (INSIGHT portal) and accounting in books - fishing enquiry and requirement of relevant material to form belief - limits on reassessment where initial basis of belief is accepted - sanction/approval by supervisory authority requiring application of mind

Reopening of assessment on belief of escapement of income - verification of third party data (INSIGHT portal) and accounting in books - fishing enquiry and requirement of relevant material to form belief - limits on reassessment where initial basis of belief is accepted - Validity of the notice and order recommending reassessment where the Assessing Officer accepted that the INSIGHT portal transactions were reflected in the assessee's books and income was offered to tax, yet proceeded to treat the case as one of escapement of income on the basis of suspicion arising from third party search material. - HELD THAT: - The Court held that issuance of a reassessment notice requires relevant material enabling formation of a reasonable belief that income has escaped assessment and that mere suspicion or a fishing enquiry is impermissible. The impugned order itself records that the transactions reported on the INSIGHT portal were accounted for in the assessee's books and that income arising therefrom was offered to tax. Notwithstanding that acceptance, the AO proceeded to rely on unparticularised suspicion derived from search action against a third party and the absence of certain documents from that third party to treat the assessee's subcontract receipts as potentially accommodation entries. Relying on the settled principle that at the notice stage the test is existence of relevant material for a reasonable belief (as explained in Rajesh Jhaveri and applied in subsequent decisions), the Court found paragraph 6 and 6.1 of the impugned order amounting at best to suspicion and not to material justifying reopening. Further, once the AO has accepted the assessee's explanation that the transactions were accounted and taxed, he cannot proceed to treat the case as one where income has escaped assessment without fresh relevant material pointing to escapement; the Division Bench's exposition in Jet Airways was applied to hold that where the initial basis of belief is negatived, the AO cannot independently proceed to assess other income under the same notice. Consequently the notice and order under challenge could not be sustained. [Paras 6, 11]

Impugned order dated 21st April 2023 under Section 148A(d) and the notice dated 21st April 2023 under Section 148, insofar as they proceed despite the AO having accepted that the transactions were accounted for and income offered, cannot be sustained and are quashed.

Sanction/approval by supervisory authority requiring application of mind - reopening of assessment on belief of escapement of income - Validity of the Principal Commissioner of Income Tax's approval of the draft order recommending reassessment where the approval was given without apparent application of mind. - HELD THAT: - The Court observed that the PCIT's approval merely records that the draft order was perused and the case found fit for issue of notice, but the surrounding material (including the notice under Section 148A(b) and the AO's acceptance that the transactions were accounted for) shows that no real application of mind occurred. The approval was therefore mechanical. Where sanction or approval is a condition precedent to issue of a notice, it must involve consideration of the material; a mechanistic or rubber stamp approval does not validate an otherwise unsustainable reassessment action. The Court accordingly held that the sanction/approval was granted without proper application of mind and could not save the impugned exercise of reopening. [Paras 12, 13]

The approval granted by the Principal Commissioner is quashed as having been given without application of mind, and cannot sustain the impugned reassessment proceedings.

Final Conclusion: Writ petition allowed; impugned order dated 21st April 2023 under Section 148A(d) and the notice dated 21st April 2023 under Section 148 are quashed on the grounds stated, and the Petition is disposed accordingly.

Reopening of assessment - Validity of notice under Section 148A(b)/(d) - Non-application of mind - Reliance on intelligence/portal material without particularisation - Quashing of reassessment order

Validity of notice under Section 148A(b)/(d) - Reliance on intelligence/portal material without particularisation - Non-application of mind - Impugned order dated 24th March 2023 under Section 148A(d) (and consequential notice under Section 148) for AY 2016-17 was legally unsustainable and liable to be quashed. - HELD THAT: - The Court found that the notice and the order under challenge were founded on an enclosure which did not particularise the alleged escapement: the Insight Portal extract referred only to a primary source indicating a fictitious LTCG benefit but did not explain how the petitioner was involved, whether any sale occurred, or how manipulation was effected. Further, the impugned order included two items (purchase and sale figures) which were not supported by the enclosure to the Section 148A(b) notice and which had already been the subject-matter of prior reassessment proceedings and an assessment order. The inclusion of those items without distinct supporting information, coupled with the AO's and PCCIT's failure to address this overlap or to apply independent mind, demonstrated total non-application of mind. In these circumstances the impugned order could not be sustained; it amounted to initiation of proceedings without legally adequate material and without proper consideration of the scope and content of the intelligence relied upon. [Paras 6, 7]

Impugned order dated 24th March 2023 under Section 148A(d) and the consequential notice under Section 148 are quashed and set aside for want of proper material and non-application of mind.

Final Conclusion: The petition is allowed; the order dated 24th March 2023 under Section 148A(d) and the consequential order under Section 148 for AY 2016-17 are quashed and set aside.

Tax Collected at Source (TCS) liability under Section 206C - declaration in Form 27C and its timeliness - non-delivery/late delivery of buyer's declaration to tax authorities under Section 206C(1B) - Form 27BA and proviso to Section 206C(6A) - verification of buyer's returns - assessment-stage verification and remand to Assessing Officer

Declaration in Form 27C and its timeliness - Tax Collected at Source (TCS) liability under Section 206C - Belated submission of Form 27C collected from buyers does not, by itself, disentitle the seller from the benefit of non-collection of TCS where the declaration is genuine and was furnished to the seller, notwithstanding that no specific time is prescribed for the buyer to furnish Form 27C. - HELD THAT: - The Tribunal examined Section 206C(1A) and (1B) and held that while Section 206C(1B) imposes an obligation on the person responsible for collecting tax to deliver a copy of the declaration to the prescribed authority by the seventh day of the month following its receipt, the statute does not prescribe any specific time within which the purchaser must furnish the declaration to the seller. Consequently, delay in receipt and belated submission of Form 27C to tax authorities cannot, as a matter of law, be the sole basis to deny the statutory benefit if the seller demonstrates that the declarations were furnished to him by the buyers and the genuineness of those declarations is not disputed. The Tribunal relied on precedents applying the same principle and concluded that it would be onerous to deprive a seller of relief where there is no lack on his part in forwarding declarations to the authorities once received. The Tribunal therefore allowed the principle that Form 27C, even if filed belatedly, may be considered subject to verification of genuineness by the Assessing Officer. [Paras 7, 8]

Belatedly filed Form 27C may be admitted and relied upon for discharging TCS liability if genuine; Assessing Officer to verify and grant relief where declarations are in order.

Form 27BA and proviso to Section 206C(6A) - verification of buyer's returns - assessment-stage verification and remand to Assessing Officer - Verification of Form 27BA and the applicability of the proviso to Section 206C(6A) in respect of buyers who have filed returns is a matter requiring factual verification and therefore is remanded to the Assessing Officer for compliance with directions of the CIT(A). - HELD THAT: - The CIT(A) had directed verification of the assessee's claim in respect of 17 buyers for whom Form 27BA was produced and for whom the proviso to Section 206C(6A) might apply, reducing the demand if returns reflected the amounts. The Tribunal observed that the Assessing Officer had not yet carried out the necessary verification. Given that the applicability of the proviso and entitlement to reduction of demand depends on examination of the buyers' returns and the correctness of the Form 27BA submissions, the Tribunal restored the matter to the Assessing Officer to undertake veracity checks and, if the Forms and returns are found in order, to grant relief in accordance with law. [Paras 4, 9]

Matter remitted to the Assessing Officer to verify Form 27BA and buyers' returns as directed by the CIT(A) and to grant relief if verification is in order.

Final Conclusion: The Tribunal held that there is no statutory time-limit on the purchaser for furnishing Form 27C to the seller and that belatedly filed declarations, if genuine, can discharge the seller's TCS obligation; the case is restored to the Assessing Officer for verification of the genuineness of Form 27C and for carrying out the CIT(A)'s directions in respect of Form 27BA, with relief to be granted if verifications are satisfactory. The appeal is allowed for statistical purposes.

Penalty under section 271(1)(c) for concealment/inaccurate particulars - additions based on estimation - onus of proving genuineness of purchases - scope of penalty where additions are estimated - Explanation 1 to section 271(1)(c) - failure to offer explanation or false explanation

Penalty under section 271(1)(c) for concealment/inaccurate particulars - additions based on estimation - onus of proving genuineness of purchases - scope of penalty where additions are estimated - Deletion of penalty levied under section 271(1)(c) for AY 2009-10 - HELD THAT: - The Tribunal examined whether penalty under section 271(1)(c) could be sustained where the additions for bogus purchases were made on an estimated basis. The assessment addition was initially made @25% of disputed purchases, reduced to 12.5% by the first appellate authority and finally to 6% by the Tribunal itself. The Tribunal found that the entire course of making the addition - from assessment through appellate orders - was estimation-based and that there was no definite finding quantifying deliberate concealment by the assessee. It noted the accepted legal position that penalties under section 271(1)(c) are not sustainable where additions rest purely on estimation. The Tribunal relied on decisions of the jurisdictional High Court including CIT vs Subhas Trading Co., Navjivan Oil Mills vs CIT, CIT vs Valimkbhai H. Patel and ITO vs Bombaywala Readymade Stores, and other High Court authorities reaching the same conclusion, and respectfully followed those precedents to hold that penalty could not be sustained in the facts of the case. [Paras 6, 7]

Penalty under section 271(1)(c) deleted for AY 2009-10; Revenue's appeal dismissed.

Penalty under section 271(1)(c) for concealment/inaccurate particulars - additions based on estimation - scope of penalty where additions are estimated - Deletion of penalty levied under section 271(1)(c) for AY 2008-09 - HELD THAT: - Facts and legal questions for AY 2008-09 are identical to AY 2009-10. Having followed the reasoning applied in the consolidated appeals and the Tribunal's reduction of estimated additions to 6% of disputed purchases, the Tribunal held that, for the same reasons, penalty under section 271(1)(c) could not be sustained where additions were founded on estimation rather than a definite finding of concealment. The Tribunal therefore upheld the first appellate authority's deletion of the penalty. [Paras 8]

Penalty under section 271(1)(c) deleted for AY 2008-09; Revenue's appeal dismissed.

Final Conclusion: Both Revenue appeals challenging deletion of penalties under section 271(1)(c) for AY 2008-09 and 2009-10 are dismissed; penalties are not sustainable where additions are made solely on estimation and no definite finding of concealment is recorded.

Penalty under section 271BA - failure to furnish report under section 92E - bonafide belief regarding return filing obligation - submission of Form 3CEB during scrutiny assessment - transfer pricing adjustment not made in assessment

Penalty under section 271BA - failure to furnish report under section 92E - bonafide belief regarding return filing obligation - submission of Form 3CEB during scrutiny assessment - transfer pricing adjustment not made in assessment - Deletion of penalty imposed under section 271BA for alleged failure to furnish report under section 92E - HELD THAT: - The assessee, a resident of USA, did not file a return initially having been under a bonafide belief that no return was required because its income had been subjected to tax deduction at source. Following issuance of notice under section 148, the assessee filed its return declaring royalty income which had TDS under Article 12 of the India-USA DTAA. The Assessing Officer levied penalty under section 271BA for non-filing of the Accountant's Report under section 92E, yet the assessment under section 143(3) r.w.s. 147 was framed at the returned income and no transfer pricing adjustment was made. The assessee furnished the report under section 92E (Form 3CEB) during the course of scrutiny proceedings. Considering the bona fides of the assessee, the subsequent filing of the report during assessment proceedings, and the absence of any transfer pricing adjustment in the assessment, the Tribunal found the case not fit for levy of penalty under section 271BA and directed deletion of the penalty. [Paras 5, 6]

Penalty under section 271BA deleted and appeal allowed.

Final Conclusion: The appeal is allowed; the penalty under section 271BA imposed for alleged non furnishing of the report under section 92E is deleted.

Penalty under section 271(1)(c) for concealment or furnishing of inaccurate particulars - Deemed income for transfer pricing adjustment under Explanation 7 to Section 271(1)(c) - Associated enterprise loan and arm's length interest imputation - Bona fide explanation and disclosure in Form 3CEB

Penalty under section 271(1)(c) for concealment or furnishing of inaccurate particulars - Bona fide explanation and disclosure in Form 3CEB - Whether penalty under section 271(1)(c) could be sustained for the years in question in respect of interest-free loans advanced to an associated enterprise where the assessee had disclosed the transaction in Form 3CEB and provided explanations that the loans were out of own funds and in the nature of equity/quasi-equity. - HELD THAT: - The Tribunal noted that the assessee had disclosed the international transaction in Form 3CEB and explained that the working capital loans were advanced out of its own funds and were in the nature of start-up equity/quasi-equity to promote business in the region. Although the Transfer Pricing Officer made an upward adjustment and interest was imputed, the assessee had furnished reasons for not charging interest and had sought to justify the position under TP provisions. The Tribunal found that the assessee's explanations had been placed before the tax authorities and were not shown to be mala fide or inherently unreasonable. On that basis the Tribunal concluded that the explanations could not be said to amount to furnishing of inaccurate particulars or concealment of income warranting penalty. Accordingly the penalty imposed by the AO and confirmed by the CIT(A) was deleted. [Paras 8]

Penalty under section 271(1)(c) deleted for both assessment years on merits.

Deemed income for transfer pricing adjustment under Explanation 7 to Section 271(1)(c) - Associated enterprise loan and arm's length interest imputation - Whether the transfer pricing adjustment treated as income under Explanation 7 to Section 271(1)(c) necessarily attracts penalty where the assessee had not charged interest on loans to its associated enterprise. - HELD THAT: - The Tribunal recorded that the Revenue relied on Explanation 7 which deems a transfer pricing adjustment to be income for the purpose of penalty. However, the Tribunal observed that even if an adjustment is made, penalty can be sustained only if the assessee furnished inaccurate particulars or concealed income. In the present case, the assessee had disclosed the transaction and provided bona fide explanations (loans out of own funds; characterization as equity/quasi-equity; start-up support) which were not shown to be dishonest. The Tribunal therefore held that the existence of a TP adjustment under Explanation 7 did not automatically establish concealment or inaccurate particulars sufficient to sustain penalty, and accordingly the penalty could not be upheld. [Paras 8]

Explanation 7 alone did not sustain penalty in the facts; penalty therefore deleted.

Final Conclusion: Both appeals are allowed on merits and the penalties under section 271(1)(c) imposed for A.Yrs. 2009-10 and 2010-11 are deleted, the Tribunal finding that the assessee's disclosures and bona fide explanations precluded a finding of concealment or furnishing of inaccurate particulars.

Rectification of assessment as a "mistake apparent from record" under section 154 of the Income Tax Act - Scope of internal audit objections in triggering rectification proceedings - Condonation of delay in filing appeal - Remand for fresh consideration and requirement of a detailed speaking order

Condonation of delay in filing appeal - Whether the delay in filing the appeal ought to be condoned and the appeal admitted for hearing. - HELD THAT: - The assessee's appeal was filed 257 days beyond the limitation period and a condonation petition explaining the delay was placed before the Tribunal. Having heard both parties on this preliminary issue and having regard to the reasons furnished in the petition, the Tribunal exercised its discretion to condone the delay and admitted the appeal for hearing. This admission enabled consideration of the substantive contentions and justified remand directions subsequently given by the Tribunal. [Paras 3]

Delay condoned and the appeal admitted for hearing.

Rectification of assessment as a "mistake apparent from record" under section 154 of the Income Tax Act - Scope of internal audit objections in triggering rectification proceedings - Remand for fresh consideration and requirement of a detailed speaking order - Whether the order of the Assessing Officer under section 154 increasing the rate of profit from 2% to 8% on the basis of an internal audit objection was sustainable, and whether the matter should be remanded to the ld. CIT(A) for fresh consideration. - HELD THAT: - The Assessing Officer initiated rectification proceedings under section 154 to alter the profit rate from the earlier acceptance of commission at 2% to an assessment at 8%, apparently on the basis of an internal audit party report. The ld. CIT(A) confirmed the rectification, observing that the appellant had not responded to faceless appellate notices and treating the issue as one of "mistake apparent on the record." The Tribunal noted that the rectification was founded on the internal audit party's objection and that, prima facie, relying solely on such an audit report to effect a substantive change in the nature or quantum of income may not be permissible in law. Given the assessee's expressed willingness to produce records and the ld. CIT(A)'s own finding that no reply had been furnished during appellate proceedings, the Tribunal considered it appropriate to remand the matter to the ld. CIT(A) for examination of whether the Assessing Officer was entitled to rectify the assessment on the basis of the internal audit objections, and to decide the issue in accordance with law after affording the assessee opportunity to place material before the ld. CIT(A). The Tribunal directed that the ld. CIT(A) pass a detailed speaking order dealing with the assessee's contentions and not be influenced by observations in the remand order. [Paras 5, 8]

Matter remanded to the ld. CIT(A) to examine and decide, in accordance with law and after giving the assessee an opportunity to produce records, whether the Assessing Officer could rectify the assessment under section 154 on the basis of internal audit objections; ld. CIT(A) to pass a detailed speaking order.

Final Conclusion: Delay in filing the appeal was condoned and, for reasons stated, the Tribunal remanded the assessment-rectification issue to the ld. CIT(A) for fresh adjudication on the question whether the AO could validly invoke section 154 on the basis of internal audit objections; the ld. CIT(A) was directed to decide the remanded issue in accordance with law and to pass a detailed speaking order. The appeal is treated as allowed for statistical purposes.

Disallowance of commission expenses - allowability of legal and professional charges - disallowance of interest on diversion of funds - tax deduction at source on payments to non-residents - verification and remand for fresh adjudication - non-appearance of assessee and adjudication in absence

Disallowance of commission expenses - tax deduction at source on payments to non-residents - verification and remand for fresh adjudication - Deletion by the CIT(A) of additions disallowing commission paid to domestic and foreign agents - HELD THAT: - The Tribunal observed that the Assessing Officer had disallowed commission claimed by the assessee after finding that supporting evidence of services by agents was not placed on record. The CIT(A) restored the claim relying on documents and additional evidence furnished on appeal. The Revenue challenged the CIT(A)'s deletions on grounds that the assessee failed to prove actual delivery of services and that certain payments to non-resident agents might constitute taxable fees requiring TDS. The Tribunal found these contentions to require fresh verification because the assessee had not clarified several aspects or fully availed earlier opportunities; accordingly, the question of allowability and the TDS consequence must be re-examined and adjudicated afresh. [Paras 13]

Remanded for fresh verification and adjudication; deletion by CIT(A) set aside and matter reopened to Revenue for reconsideration.

Allowability of legal and professional charges - tax deduction at source on payments to non-residents - verification and remand for fresh adjudication - Deletion by the CIT(A) of additions disallowing legal and professional charges paid to foreign consultants - HELD THAT: - The Assessing Officer disallowed legal and professional payments for want of adequate proof. The CIT(A) allowed the claim on the basis of documents produced on appeal. The Tribunal noted that the Revenue's challenge raises verifiable issues about the genuineness and situs of services and potential TDS implications which were not conclusively addressed by the assessee at assessment. These matters require fresh examination rather than summary acceptance of the appellate record. [Paras 7, 9, 13]

Deletion by CIT(A) set aside for fresh verification and adjudication by the assessing authority.

Disallowance of interest on diversion of funds - verification and remand for fresh adjudication - Deletion by the CIT(A) of addition disallowing interest on the ground of alleged diversion of interest-bearing funds to sister concerns - HELD THAT: - The Assessing Officer held that interest-bearing funds were diverted for non-business purposes and disallowed interest; the CIT(A) restored the claim observing availability of interest-free funds and advances. The Tribunal observed that the CIT(A)'s conclusion did not demonstrate how interest-free funds were actually applied in lieu of interest-bearing funds and that the Revenue's contention as to diversion merits fresh scrutiny. Consequently, the question of allowability of interest requires re-examination and factual verification. [Paras 10, 13]

Matter remanded for fresh verification and adjudication; CIT(A)'s deletion set aside.

Non-appearance of assessee and adjudication in absence - verification and remand for fresh adjudication - Effect of prolonged non-representation by the assessee before the Tribunal - HELD THAT: - The Tribunal recorded that the assessee failed to appear despite service of notices and multiple postings; no adjournment requests were filed. In view of the assessee's prolonged non-representation and the outstanding factual issues identified by the Revenue that require verification, the Tribunal proceeded to hear the matter with the Revenue present and allowed the appeals of the Revenue in the terms recorded, while directing fresh verification of the contested claims by the assessing authority. [Paras 3, 13, 14]

Proceedings conducted in absence of the assessee; Revenue appeals allowed and contested issues remitted for fresh consideration.

Final Conclusion: Both Revenue appeals are allowed; the Tribunal set aside the deletions made by the CIT(A) and remitted the matters relating to commission expenses, legal and professional charges, and interest disallowance for fresh verification and adjudication by the assessing authority, proceedings having been conducted in the absence of the assessee.

Penalty under section 271(1)(c) - concealment of income - voluntary disclosure in response to notice under section 148 - survey under section 133A - Explanation 4 to section 271(1)(c) - doctrine that bona fide disclosure in revised return after search/survey negative for penalty

Penalty under section 271(1)(c) - concealment of income - voluntary disclosure in response to notice under section 148 - Explanation 4 to section 271(1)(c) - survey under section 133A - doctrine that bona fide disclosure in revised return after search/survey negative for penalty - Whether penalty under section 271(1)(c) is leviable where the assessee disclosed additional income in the return filed in response to notice under section 148 consequent to a survey under section 133A - HELD THAT: - The Tribunal noted that during survey under section 133A bogus or inflated bought-note purchases supported by self-made vouchers and not entered in stock register were detected. Consequent to survey and on being confronted, the partner made a sworn statement and the assessee filed a return in response to notice under section 148 disclosing additional income. The AO imposed penalty under section 271(1)(c) treating the declared amount as concealment and applied Explanation 4 to compute tax sought to be evaded; the CIT(A) confirmed the penalty. The Tribunal examined the facts and held that declaration of additional income in the return filed in response to notice subsequent to survey/search is a bona fide disclosure in the factual matrix where the disputed purchases were supported by self-made vouchers and could not be substantiated. Relying on the principle that a voluntary disclosure made in such circumstances to meet the Department's objections and to end litigation is to be treated as bona fide and is not necessarily concealment attracting penalty, the Tribunal deleted the penalty. The Tribunal applied this reasoning to both assessment years on identical facts and allowed the appeals. [Paras 5, 6]

Penalty under section 271(1)(c) deleted; appeals allowed for the assessment years 2014-15 and 2015-16.

Final Conclusion: On the facts that the additional income was disclosed in returns filed in response to notice under section 148 after a survey under section 133A and the disputed purchases were supported by self-made vouchers, the Tribunal held the disclosure to be bona fide and deleted the penalties under section 271(1)(c) for AY 2014-15 and AY 2015-16, allowing the appeals.

Deduction under section 80P(1) read with section 80P(2)(a)(i) - Meaning of "co-operative bank" under the Banking Regulation Act, 1949 - Banking activity as eligible business for section 80P - Interaction of bye laws and the Kerala Co operative Societies Act with the Banking Regulation Act - Remand for determination on bye laws and quantum of deduction

Deduction under section 80P(1) read with section 80P(2)(a)(i) - Banking activity as eligible business for section 80P - Legal principle that eligibility for deduction under section 80P(1) r/w section 80P(2)(a)(i) depends on whether the assessee is a "co operative bank" as defined in the Banking Regulation Act, and that carrying on banking business (including acceptance of deposits from and lending to non members) does not by itself defeat the claim for deduction. - HELD THAT: - The Tribunal, following its earlier decisions and the Apex Court in Mavilayi Service Co operative Bank Ltd., explained that a society satisfying the definition of a society under section 2(19) of the Act can claim deduction under section 80P(1). The determinative test is whether the society is a "co operative bank" as defined in the Banking Regulation Act; if it is a co operative bank, section 80P(4) operates to exclude deduction. The Kerala Co operative Societies Act permits a society, by its bye laws, to accept deposits from and lend to non members; such activities may amount to banking as per section 5(b) of the Banking Regulation Act. Even where advances are predominantly for non agricultural purposes (thus rendering the entity not strictly a PACS for BRA purposes), that circumstance does not preclude a claim under section 80P(2)(a)(i). Consequently, income from business with non members is not automatically excluded from the deduction where the society is otherwise eligible under section 80P(2)(a)(i).

Banking activity per se, including dealings with non members permitted by bye laws, does not bar deduction under section 80P(1) r/w section 80P(2)(a)(i); the crucial question is whether the assessee is a "co operative bank" under the Banking Regulation Act.

Interaction of bye laws and the Kerala Co operative Societies Act with the Banking Regulation Act - Remand for determination on bye laws and quantum of deduction - Orders of the revenue denying deduction were set aside and the matter was remitted to the Assessing Officer for fresh determination of (a) whether the assessee is a "co operative bank" for the purposes of section 80P, by examining its bye laws read with the Kerala Act and the Banking Regulation Act, and (b) the quantum of deduction if eligible, including the extent to which income from banking and from dealings with non members qualifies. - HELD THAT: - The Tribunal noted that the assessee's bye laws (a certified translated copy in full) were not on record and are essential to determine the membership restriction and whether the society exercises powers under the Kerala Act to accept deposits and lend to non members. Given that factual and documentary materials bearing on the legal characterisation remain unverified on the record, the Tribunal set aside the orders of the Assessing Officer and the CIT(A) and restored the matter to the file of the AO for adjudication on the identified points. The Tribunal clarified that if on such examination the assessee is found to be a co operative bank and its entire income arises from the business of banking, the deduction would be in full; otherwise the AO must determine the appropriate quantification consistent with law.

Matter remitted to the Assessing Officer to examine the bye laws in conjunction with the Kerala Act and the Banking Regulation Act and to determine, afresh, the assessee's status as a "co operative bank" and the resulting entitlement and quantum of deduction under section 80P(1) r/w section 80P(2)(a)(i).

Final Conclusion: The Tribunal allowed the appeals for statistical purposes, set aside the revenue orders, and remitted the matter to the Assessing Officer for fresh determination of whether the assessee is a "co operative bank" (on the basis of its bye laws read with the Kerala Co operative Societies Act and the Banking Regulation Act) and, accordingly, the entitlement and quantum of deduction under section 80P(1) r/w section 80P(2)(a)(i); if the assessee is a co operative bank with its entire income from banking, the deduction would be in full; stay petitions stood rendered unfruitful.

Non-application of mind - lack of inquiry - revision under section 263 - deduction under section 54B - de novo reassessment - requirement of a speaking order

Non-application of mind - lack of inquiry - revision under section 263 - requirement of a speaking order - Validity of the Pr. CIT's revision under section 263 on the ground that the assessment order suffered from lack of inquiry and non-application of mind. - HELD THAT: - The Tribunal held that Explanation 2(a) to section 263 and settled precedents require that the Assessing Officer undertake enquiry and verification when circumstances of a return call for it. The AO accepted the assessee's claim without making the necessary enquiries or recording findings on aspects material to the claim for exemption, and the assessment order was not a speaking order demonstrating application of mind. On this basis the Pr. CIT's exercise of revision under section 263 was upheld to the extent that the assessment order is vitiated by lack of inquiry and non-application of mind. The Tribunal clarified that while the revisionary authority could not substitute its own findings on merits, the direction for de novo consideration was justified because the AO had failed to make the requisite enquiries and findings. [Paras 4, 5]

The revision under section 263 is valid insofar as the assessment is vitiated by lack of inquiry and non-application of mind; the matter is remitted for de novo assessment by the AO.

Deduction under section 54B - de novo reassessment - Whether the assessee's claim for deduction under section 54B was properly verified and decided by the AO, and the consequent direction for fresh adjudication. - HELD THAT: - The Tribunal recorded that the specific statutory conditions relevant to section 54B-use of the original land for agricultural purposes in the two years preceding transfer, and the nature and use of the land purchased-were not examined by the AO nor were factual findings recorded. The Pr. CIT's objections identifying infirmities (fitness of lands for agriculture, incomplete registration/transfer formalities, concurrent claims by the seller, and non-examination of possession/use) are germane to the section 54B claim. Given the AO's failure to make requisite enquiries and findings, the Tribunal directed that the AO shall make a fresh assessment uninfluenced by the findings of the revisionary authority and decide the section 54B claim after due verification and speaking findings of fact. [Paras 4, 5]

The question of entitlement to deduction under section 54B is remitted to the AO for fresh de novo adjudication after proper enquiry and recording of reasons and findings of fact.

Stay application - Maintainability of the assessee's stay petition against the revision order. - HELD THAT: - The Tribunal observed that the impugned revision order did not by itself create any demand against the assessee and therefore the stay application was not maintainable. Consequential relief by way of stay could not be granted in the absence of an operative demand arising from the order under challenge. [Paras 5]

The stay petition is dismissed as not maintainable.

Final Conclusion: The Tribunal partly allowed the appeal by upholding the revision under section 263 to the extent that the assessment is vitiated by lack of inquiry and non-application of mind, remitted the matter to the AO for fresh de novo assessment and adjudication of the section 54B claim with speaking findings, and dismissed the stay petition as not maintainable.

Reason to believe - benami transaction - benamidar - beneficial owner - show cause notice under Section 24(1) - provisional attachment under Section 24(3) - prospective operation of the 2016 Amendment - strict interpretation of taxing/statutory provisions

Reason to believe - benami transaction - show cause notice under Section 24(1) - strict interpretation of taxing/statutory provisions - Validity of the show cause notice dated 05.01.2023 under Section 24(1) of the Benami Transactions Act, 1988 - HELD THAT: - The Court held that issuance of a notice under Section 24(1) requires that the Initiating Officer have material in his possession and that such material be sufficient to give rise to a 'reason to believe'. Mere oral statement of a contractor, without any explanation of the basis of his knowledge, documentary support or other material referenced in the notice, did not constitute material in possession capable of forming a reason to believe. The Court applied the principle that 'reason to believe' must have a rational connection with relevant material and invoked strict interpretation of taxing/statutory powers to conclude that the Initiating Officer lacked jurisdiction to issue the impugned notice on the basis of the bare statement and unreferenced subsequent material. [Paras 15, 16, 17, 21, 23]

The show cause notice dated 05.01.2023 under Section 24(1) was issued without relevant material to constitute a reason to believe and is set aside.

Provisional attachment under Section 24(3) - reason to believe - Validity of the provisional attachment order dated 05.01.2023 under Section 24(3) of the Benami Transactions Act, 1988 - HELD THAT: - Section 24(3) empowers provisional attachment where the Initiating Officer is of the opinion that the person in possession of the property held benami may alienate the property during the notice period. The Court found no material in the impugned attachment order or placed before the Court demonstrating a satisfaction that the property was likely to be alienated. In absence of such material or recorded satisfaction, the provisional attachment could not be lawfully made. [Paras 24, 25, 26]

The provisional attachment order dated 05.01.2023 under Section 24(3) lacked basis and is set aside.

Prospective operation of the 2016 Amendment - benami transaction - Extent to which proceedings may be initiated in respect of transactions (purchase) prior to 25.10.2016 - HELD THAT: - Relying on the Supreme Court's conclusions in Union of India v. Ganpati Dealcom Ltd., the Court noted that the 2016 Amendment prescribed substantive provisions and that in rem forfeiture under the 2016 Act is punitive in nature and can only be applied prospectively. Consequently, proceedings in respect of transactions entered into prior to 25.10.2016 cannot be initiated or continued. The purchase of the land by the petitioner being prior to the amendment places that aspect outside the scope of valid initiation by the department, though the department proceeded only in relation to subsequent constructions. [Paras 3, 4, 5]

Proceedings in respect of transactions (purchase) prior to 25.10.2016 cannot be initiated; the Court recorded that the petitioner's purchase predates the 2016 Amendment and such initiation is impermissible.

Final Conclusion: Writ petition allowed. The show cause notice dated 05.01.2023 under Section 24(1) and the provisional attachment order dated 05.01.2023 under Section 24(3) are set aside; all consequential orders and proceedings based thereon stand non-est and void. The Court also recorded that transactions prior to 25.10.2016 fall outside valid initiation under the 2016 Amendment.

Doctrine of substantial compliance - strict construction of exemption clause - independent exemption conditions - essential stipulations for transitional export relief - transitional arrangements under Foreign Trade Policy

Independent exemption conditions - strict construction of exemption clause - Each exemption in Paragraph 2 of the Notifications is an independent exception and must be satisfied in its entirety to entitle an exporter to relief. - HELD THAT: - The Court accepted the DGFT clarification and held that the combined effect of the Notifications and the Trade Notice is to create discrete, objective criteria for transitional export relief. Each condition (i) to (v) was intended to operate independently to identify shipments in transition and contains unambiguous, verifiable stipulations. Allowing partial or mixed compliance would require subjective evaluation and risk arbitrariness, defeating the purpose of prescribing clear, verifiable tests for exemption. Therefore claimants seeking exemption must prove full compliance with a single condition to attract relief. [Paras 15, 27]

Exemptions stand independent; exporter must fulfil an entire condition to qualify for export relief.

Essential stipulations for transitional export relief - transitional arrangements under Foreign Trade Policy - The particular stipulations in conditions (ii) and (iii) - namely berthing/arrival and anchoring of the vessel, and handing over or entry of the consignment into the Customs station before the cut off time - are essential requirements and cannot be relaxed by applying substantial compliance. - HELD THAT: - The language of condition (ii) expressly requires vessels to have berthed/arrived and anchored before the Notification; condition (iii) requires physical handing over to Customs or entry into the Customs station with verifiable time stamping. These stipulations guard against mischief (such as post ban domestic consignments being passed off as pre ban exports) and are reasonable and verifiable prerequisites. Given the objective of the Notifications to avert a food crisis and ensure uniform enforcement, the Court held these requirements are of the essence and cannot be dispensed with on equitable grounds. [Paras 24, 25, 26]

Berthing/anchoring and physical entry/handing over to Customs are essential, non relaxable conditions for exemption.

Doctrine of substantial compliance - strict construction of exemption clause - The appellant is not entitled to export the remaining consignment on the basis of substantial compliance where it fails to satisfy any single exemption condition in its entirety. - HELD THAT: - Applying established authorities, fiscal exemption provisions must be construed strictly and a claimant bears the burden of proving entitlement. The doctrine of substantial compliance is equitable and applies only where non compliance is with procedural or directory requirements not going to the essence of the exemption. Here, the appellant admitted non fulfilment of essential stipulations and did not challenge the Notifications' vires; permitting export on an overall or subjective assessment of partial compliance would undermine the statutory scheme and the government's objective of protecting domestic food security. Consequently, substantial compliance cannot be invoked to override the clear, mandatory prerequisites. [Paras 29, 30, 31, 32, 33]

Substantial compliance unavailable where essential conditions of the exemption are not strictly met; appellant not entitled to export the 11,000 MT.

Final Conclusion: The appeal is dismissed; the appellant is not permitted to export the 11,000 MT as it has not satisfied any one exemption condition in its entirety and essential stipulations cannot be relaxed by invoking substantial compliance.

Power to impose safeguard duty - domestic industry and major share - serious injury and threat of serious injury - judicial review limited to illegality or arbitrariness - principles of natural justice in safeguard inquiry - effect of stay of interim injunction by superior court - operation of subordinate legislation upon vacation of injunction

Judicial review limited to illegality or arbitrariness - principles of natural justice in safeguard inquiry - Power to impose safeguard duty - Challenge to the final finding dated 16.7.2018 by the Directorate General (Safeguards) - HELD THAT: - The court held that the Central Government and the DGTR possess statutory power to impose safeguard duty and that judicial review in such matters is confined to whether the impugned action is without authority, irrational or arbitrary. On examination the DGTR's final finding had addressed relevant parameters (including imports, demand, domestic sales, and capacity utilisation), afforded stakeholders opportunity to be heard and applied the statutory scheme under Section 8B and the Rules of 1997. The court found no demonstration of eschewing relevant considerations or of reliance on irrelevant considerations that would render the final finding arbitrary or ultra vires. Accordingly, the challenge to the final finding was dismissed.

W.P.Nos.20477 of 2018 and 29498 of 2019 challenging the final finding dated 16.7.2018 are dismissed.

Effect of stay of interim injunction by superior court - operation of subordinate legislation upon vacation of injunction - Validity and operative date of the notification dated 30.7.2018 imposing safeguard duty - HELD THAT: - The notification issued on 30.7.2018 fell within the period when an interim injunction of the Orissa High Court prohibiting issuance of such notification was in force. Actions in disobedience of a court's interim order are inoperative while the order subsists. However, when the interim injunction was stayed by the Supreme Court on 10.9.2018, the prohibitory order ceased to operate from that date and the previously issued legislative notification became operative from 10.9.2018; the Central Government was not required to issue a fresh notification upon vacation of the injunction. Consequently the court held the notification to be inoperative only for the period prior to 10.9.2018 and operative from 10.9.2018 onwards.

W.P.Nos.20476 of 2018 and 29502 of 2019 are disposed of by holding that the notification will be operative from 10.9.2018.

Operation of subordinate legislation upon vacation of injunction - effect of stay of interim injunction by superior court - Validity of Bill of Entry No. 7474159 dated 2.8.2018 which imposed safeguard duty pursuant to the notification - HELD THAT: - The Bill of Entry dated 2.8.2018 was assessed during the subsistence of the Orissa High Court's interim injunction and therefore based upon a notification which was inoperative at that time. The court held that such assessment insofar as it sought to impose safeguard duty pursuant to the 30.7.2018 notification is illegal and arbitrary. The impugned self-assessment was quashed as having been made during the period when the prohibitory order was in force.

W.P. No. 20478 of 2018 is allowed and the Bill of Entry dated 2.8.2018 (No.7474159) is set aside to the extent it seeks to impose safeguard duty pursuant to the notification.

Power to impose safeguard duty - operation of subordinate legislation upon vacation of injunction - Challenge to Bill of Entry dated 6.8.2019 - HELD THAT: - The Bill of Entry dated 6.8.2019 was issued after the notification became operative (post-vacation of the interim injunction). The court found no ground to invalidate that assessment which was made when the notification was in force and therefore dismissed the petition challenging that Bill of Entry.

W.P. No. 29504 of 2019 is dismissed.

Effect of stay of interim injunction by superior court - operation of subordinate legislation upon vacation of injunction - Challenge to final assessment dated 30.11.2018 and letter dated 12.2.2020 insofar as they relate to Bills of Entry during the injunction period - HELD THAT: - The court held that assessments and consequential communications that pertain to Bills of Entry effected during the subsistence of the Orissa High Court's interim injunction are tainted by the fact that the notification was inoperative at that time. Accordingly those assessments and the letter which related to such Bills of Entry were set aside.

W.P. No. 4653 of 2020 is allowed; the final assessment dated 30.11.2018 and the letter dated 12.2.2020 are set aside insofar as they relate to Bills of Entry falling within the period when the interim injunction was in force.

Final Conclusion: The DGTR's final finding is upheld; the notification of 30.7.2018 is declared operative from 10.9.2018 (date of Supreme Court stay of the Orissa High Court injunction); assessments premised on the notification made during the subsistence of the injunction (notably the Bill of Entry dated 2.8.2018 and related assessments) are quashed, while challenges to assessments made after the notification became operative are dismissed.

Release of Integrated Goods and Services Tax - interest on refund under IGST - Rebate under Rebate of State and Central Taxes and Levies (ROSCTL) - formal application for ROSCTL - processing of ROSCTL claims in accordance with the handbook of procedure - Foreign Trade Policy 2015-2020 - processing in accordance with rules and law

Rebate under Rebate of State and Central Taxes and Levies (ROSCTL) - formal application for ROSCTL - processing of ROSCTL claims in accordance with the handbook of procedure - Foreign Trade Policy 2015-2020 - processing in accordance with rules and law - Release of ROSCTL pertaining to specified shipping bills and the procedural steps for its consideration - HELD THAT: - The court recorded that the petitioner's claim for ROSCTL relates to 13 shipping bills uploaded on the respondents' online portal and that respondent no.5/DGFT does not process claims merely on upload but requires a formal application under the handbook of procedure issued under the Foreign Trade Policy 2015-2020. The petitioner was directed, without prejudice to her rights, to submit a formal application in terms of the said procedure within one week. On receipt of such application the respondent was directed to process the same in accordance with the rules and law and the handbook within a maximum period of four weeks from the date of submission. The court thereby required fresh administrative consideration of the ROSCTL claims in accordance with the prescribed procedure and applicable law. [Paras 3, 4, 5, 6]

Petitioner to file formal ROSCTL application within one week; respondent to process it in accordance with the handbook of procedure and applicable law within four weeks.

Final Conclusion: Claim for IGST and interest was recorded as already allowed; the ROSCTL claims are to be pursued by the petitioner through a formal application, which the DGFT/respondent shall process in accordance with the handbook of procedure under the Foreign Trade Policy 2015-2020 and applicable law within four weeks of submission.

Penalty under Section 112(a) & (b) - Penalty under Section 114AA - Liability for acts rendering goods liable to confiscation under Section 111 - Admissibility of statement recorded under Section 108 and procedure prescribed by Section 138B - Right to cross-examination and principles of natural justice

Penalty under Section 112(a) & (b) - Penalty under Section 114AA - Liability for acts rendering goods liable to confiscation under Section 111 - Whether the penalties under Section 112(a) & (b) and Section 114AA imposed on Shri Sushil Aggarwal are sustainable. - HELD THAT: - The Tribunal found on the evidence and admissions that Shri Sushil Aggarwal acted not merely as an indenting agent but was actively involved at every stage of the import operation - placing orders, collecting original Bills of Lading from Bhalla, handing them to the CHA for clearance, tracking container movements, accompanying goods to the godown, participating in distribution and collection of sale proceeds and their distribution to other operators. As the person who placed orders and facilitated shipment, he must have been aware of the actual goods shipped and of mis-declaration in the Bills of Lading. These findings establish that he did acts and was concerned in dealings which rendered the goods liable to confiscation under Section 111 and that he knowingly used incorrect material, thereby attracting penalties under Section 112(a)/(b) and Section 114AA. The Tribunal therefore sustained the penalties imposed on him and found no infirmity requiring interference. [Paras 18, 19, 20, 21, 22]

Penalties under Section 112(a) & (b) and Section 114AA imposed on Shri Sushil Aggarwal are sustained; appeal dismissed.

Admissibility of statement recorded under Section 108 and procedure prescribed by Section 138B - Right to cross-examination and principles of natural justice - Penalty under Section 112(a) & (b) - Penalty under Section 114AA - Whether the penalties under Section 112(a) & (b) and Section 114AA imposed on Shri Sunil Aidasani @ Vicky are sustainable. - HELD THAT: - Allegations against Shri Aidasani that certain containers belonged to him were based on statements of Bhalla recorded under Section 108. The Tribunal held that for such statements to be relevant against another person, the procedure of Section 138B must be followed - namely, examination of the person making the statement and permitting cross-examination if the statement is proposed to be used against others. The procedure was not followed here, rendering Bhalla's statement irrelevant for proving the case against Aidasani. Further, neither Section 112 nor Section 114AA prescribe penalty for failure to respond to summons or non-cooperation with investigation. In absence of admissible evidence establishing acts or knowledge attracting Sections 112/114AA, the penalties could not be sustained and were set aside. [Paras 25, 26, 27, 28, 29]

Penalties under Section 112(a) & (b) and Section 114AA imposed on Shri Sunil Aidasani are set aside; appeal allowed.

Penalty under Section 112(a) & (b) - Penalty under Section 114AA - Whether the penalties under Section 112(a) & (b) and Section 114AA imposed on Shri Naveen Gulabani are sustainable. - HELD THAT: - The allegation against Shri Gulabani was that he was an employee of the overseas supplier and that he did not respond to summons. The Tribunal observed that neither Section 112 nor Section 114AA makes one liable to penalty merely for being an employee of the overseas supplier or for failing to respond to summons or not cooperating with investigation. No admissible material was shown to establish acts or knowledge attracting liability under these provisions. Consequently, the penalties imposed on Shri Gulabani could not be sustained and were set aside. [Paras 30, 31, 32, 33]

Penalties under Section 112(a) & (b) and Section 114AA imposed on Shri Naveen Gulabani are set aside; appeal allowed.

Final Conclusion: The appeal of Shri Sushil Aggarwal is dismissed and the penalties upheld; the appeals of Shri Sunil Aidasani @ Vicky and Shri Naveen Gulabani are allowed and the penalties imposed on them under Sections 112(a)/(b) and 114AA are set aside with consequential relief.

Imposition of penalty under Section 114A of the Customs Act, 1962 - reduced penalty under Section 28(5) and (6) of the Customs Act, 1962 - computation of limitation and extension by Section 10 of the General Clauses Act, 1897 - classification of imported goods and voluntary payment of differential duty

Imposition of penalty under Section 114A of the Customs Act, 1962 - classification of imported goods and voluntary payment of differential duty - Validity of invoking penal consequences under Section 114A where the appellant accepted revised classification and voluntarily paid differential duty and interest. - HELD THAT: - The Tribunal noted that the appellant accepted the classification proposed by DRI and there was no evidence of a bona fide intention to claim the earlier classification or exemption. The appellant had voluntarily paid the differential basic customs duty and interest upon detection. In these circumstances the Tribunal held that the department was justified in invoking penal provisions under Section 114A; the initiation of penal consequences was not improper given the admission of wrong classification and the voluntary payment of duty and interest. [Paras 5]

Invocation of Section 114A was proper and justified in the facts of the case.

Reduced penalty under Section 28(5) and (6) of the Customs Act, 1962 - computation of limitation and extension by Section 10 of the General Clauses Act, 1897 - Whether the appellant was entitled to the benefit of reduced penalty at 15% under Section 28(5)/(6) despite paying the reduced amount on the next working day after the statutory last day which was a holiday. - HELD THAT: - The Tribunal recorded that the show cause notice was received on 15.11.2019 and the reduced penalty was paid on 16.12.2019, a day after the thirtieth day which fell on 14th/15th December being a Saturday and Sunday. Applying Section 10 of the General Clauses Act, 1897, the Tribunal held that where the last day of a prescribed period is a holiday, the time is extended to the next working day; payment on the next working day is therefore in due time. The Tribunal relied on the same principle as applied by the Gujarat High Court and concluded that the appellant had complied with the requirements of Section 28(5) read with Section 28(6) by depositing the reduced amount on the next working day. [Paras 6, 7, 9]

Appellant entitled to benefit of reduced penalty at 15% as payment made within extended time under Section 10 of the General Clauses Act.

Final Conclusion: The impugned order insofar as it imposed penalty equal to the duty is set aside; the appeal is allowed to the extent that the appellant is held liable only for the reduced penalty of 15%, which it has already paid.

Conclusive effect of payment under Section 28(6)(i) of the Customs Act - liability of a customs broker/authorized courier as mere facilitator and requirement of mens rea - violation of Regulation 12(ii) of the Courier Imports and Exports (Electronic Declaration and Processing) Regulations, 2010 by allowing an unauthorized executive to file CBEs - unsustainability of allegations under Regulation 12(i), 12(iii), 12(iv)-(vi) in absence of admissible evidence or knowledge of illegality - penal consequence under Section 117 of the Customs Act where proceedings against importer have been closed under Section 28(6)(i) - proportionality in sanction - reduction of penalty under Regulation 14 of the Courier Regulations - right to cross-examination in quasi-judicial proceedings - revocation of courier license and enforcement of bond and bank guarantee as excessive remedy for venial regulatory omissions

Conclusive effect of payment under Section 28(6)(i) of the Customs Act - penal consequence under Section 117 of the Customs Act where proceedings against importer have been closed under Section 28(6)(i) - Effect of closure of proceedings against the importer under Section 28(6)(i) on penal proceedings against the courier agent under Section 117 - HELD THAT: - The Tribunal held that once proceedings against the importer were set aside by invoking the conclusive effect of payment under Section 28(6)(i), the adjudicating authority had no power to grant immunity selectively but could not sustain a penal action under Section 117 against the courier when the importer's case had been closed under Section 28(6)(i). The Court observed that the statutory provision makes proceedings conclusive as to matters stated therein and, given the closure of proceedings against the importer and acceptance of duty and penalty by the importer, continuing or upholding a separate penalty under Section 117 against the courier was unsustainable. The Tribunal further noted the distinction between separate proceedings but concluded that penal action under Section 117 could not be sustained in these circumstances. [Paras 8, 9]

Penalty imposed under Section 117 of the Customs Act set aside.

Violation of Regulation 12(ii) of the Courier Imports and Exports (Electronic Declaration and Processing) Regulations, 2010 by allowing an unauthorized executive to file CBEs - Whether the appellant violated Regulation 12(ii) by engaging an executive who was not an authorized customs broker under Section 146 to file courier bills of entry - HELD THAT: - The Tribunal accepted the adjudicating authority's finding that the appellant appointed Shri M. Elias as an executive who was not authorized under Section 146 of the Customs Act to act as a customs broker and that there was no evidence of his authorization to carry out activities of the courier agent. On that basis, the Tribunal held that the allegation of breach of Regulation 12(ii) was sustainable. The finding rests on absence of evidence that the executive was duly authorized as required for filing electronic declarations. [Paras 11]

Violation of Regulation 12(ii) is sustainable.

Unsustainability of allegations under Regulation 12(i), 12(iii), 12(iv)-(vi) in absence of admissible evidence or knowledge of illegality - liability of a customs broker/authorized courier as mere facilitator and requirement of mens rea - Whether allegations of violations of Regulation 12(i), 12(iii) and Regulations 12(iv)-(vi) are established against the appellant - HELD THAT: - The Tribunal examined the evidence relied upon by the adjudicating authority and concluded that allegations under Regulation 12(i) (failure to obtain KYC/authorization) were unsustainable because the importer subsequently claimed ownership and duties/penalties were accepted and paid, and there was no provision mandating receipt of KYC by a customs broker authorized under Section 146. The allegation of subletting under Regulation 12(iii) lacked admissible evidence and the proprietor's explanation about appointing an executive during COVID could not be treated as subletting. With respect to Regulations 12(iv)-(vi), the Tribunal found no evidence that the appellant was aware of undervaluation or that prohibited/restricted goods were involved; following precedent, the Tribunal held that where an executive is involved in illegal import without the principal's knowledge, the broker cannot be held liable for such illegality absent mens rea. The Tribunal treated the lapses as supervisory/venial and not establishing culpability under those provisions. [Paras 10, 12, 13]

Allegations under Regulation 12(i), 12(iii) and 12(iv)-(vi) are unsustainable.

Right to cross-examination in quasi-judicial proceedings - Claim that denial of opportunity to cross-examine witnesses rendered the proceedings illegal - HELD THAT: - The appellant contended that statements on which the adjudicating authority relied were recorded without affording opportunity for cross-examination as required by Regulation 13A(4) and relied on authority recognizing cross-examination as a natural right in quasi-judicial proceedings. The Tribunal noted the contention but proceeded to decide on the merits of evidence and admissibility in relation to each allegation, accepting the importer's later admissions and payments which affected the substantive findings. The Tribunal did not set aside the entire proceeding on this ground; rather it considered evidence and reached conclusions issue-wise.

Denial of cross-examination was raised but did not invalidate the adjudication in toto; Tribunal resolved issues on available evidence.

Revocation of courier license and enforcement of bond and bank guarantee as excessive remedy for venial regulatory omissions - proportionality in sanction - reduction of penalty under Regulation 14 of the Courier Regulations - Whether revocation of courier license and enforcement of bond and bank guarantee, and the penalty under Regulation 14, were justified - HELD THAT: - The Tribunal found that the only sustained omission was failure to engage the executive as an authorized person (Regulation 12(ii)), which in the post-COVID context could be a venial omission. It concluded that revocation of the courier license and enforcement of bond and bank guarantee were disproportionate. The Tribunal held that a lesser sanction would suffice and took a lenient view in respect of the penalty under Regulation 14 given the circumstances and revocation since September 2023. [Paras 14, 15]

Revocation of license and enforcement of bond and bank guarantee set aside; penalty under Regulation 14 reduced.

Final Conclusion: The appeal is partly allowed: revocation of the courier license and enforcement of bond and bank guarantee are set aside; penalty under Section 117 is quashed; the established breach of Regulation 12(ii) attracts a regulatory penalty only, and the penalty under Regulation 14 is reduced to a lesser amount (as ordered).

Revocation of courier licence - enforcement of bond and bank guarantee - penalty under Regulation 14 of the Courier Imports and Exports (Electronic Declaration and Processing) Regulations, 2010 - penalty under Section 117 of the Customs Act, 1962 - liability of courier/authorized agent as facilitator and absence of mens rea - KYC obligations under Regulation 12 of the Courier Imports and Exports (Electronic Declaration and Processing) Regulations, 2010 - authorization to file bills of entry under Section 146 of the Customs Act, 1962 - release of goods under section 28(6)(i) of the Customs Act, 1962

Penalty under Section 117 of the Customs Act, 1962 - penalty under Regulation 14 of the Courier Imports and Exports (Electronic Declaration and Processing) Regulations, 2010 - Imposability of penalty under Section 117 where a specific penal provision under the Courier Regulations is invoked - HELD THAT: - The Tribunal held that Section 117 of the Customs Act, 1962 can be invoked only where no express penalty is provided elsewhere. Since penal consequences were invoked under Regulation 14 of the Courier Regulations in the present proceedings, invoking Section 117 concurrently is unsustainable. The adjudicating authority's reliance on Section 117 in addition to Regulation 14 is therefore set aside. [Paras 5]

Penalty under Section 117 is unsustainable and set aside.

Liability of courier/authorized agent as facilitator and absence of mens rea - Whether the appellant, as a facilitator/courier agent, can be penalised for omissions/commissions attributable to the importer - HELD THAT: - The Tribunal accepted that the appellant acted as facilitator of customs transactions on behalf of the principal (importer). In the absence of mens rea on the part of the appellant and having regard to the facilitative role, penalising the courier for the alleged omissions of the importer would be unsustainable and would disrupt routine customs operations. The adjudicating authority itself had recorded that no illegality was revealed in goods cleared through the appellant. [Paras 5]

Penalty cannot be imposed on the appellant for importer's omission; such penalty is set aside.

KYC obligations under Regulation 12 of the Courier Imports and Exports (Electronic Declaration and Processing) Regulations, 2010 - authorization to file bills of entry under Section 146 of the Customs Act, 1962 - Sustainability of alleged violation of Regulation 12(i) for not receiving direct authorization/KYC from importer - HELD THAT: - Proceedings against the appellant under Regulation 12(i) were founded on initial statements of the importer denying knowledge, but subsequent communications from the importer claimed ownership and sought release. The appellant produced IEC/GST information and email communications evidencing authorization and KYC carried out as per information provided. The Tribunal observed there is no provision mandating receipt of KYC directly by the courier agency under Section 146, and on the available evidence the finding of violation of Regulation 12(i) is unsustainable. [Paras 6]

Violation of Regulation 12(i) is unsustainable and set aside.

Authorization to file bills of entry under Section 146 of the Customs Act, 1962 - KYC obligations under Regulation 12(ii) of the Courier Regulations - Alleged contravention of Regulation 12(ii) by filing of bills of entry by an unauthorized person - HELD THAT: - The record shows that the bills of entry were filed by a 'G' card holder, Shri V.V. Suresh, who is authorised to file bills of entry under Section 146. The person carrying out coordination (an 'H' card holder) was not shown to have filed the bills. In the absence of evidence that an unauthorised person filed the bills, the finding of breach of Regulation 12(ii) cannot be sustained, as correctly held by the adjudicating authority. [Paras 7]

Violation of Regulation 12(ii) is unsustainable and set aside.

KYC obligations under Regulation 12(iv) and 12(vi) of the Courier Regulations - release of goods under section 28(6)(i) of the Customs Act, 1962 - Allegation of failure to verify importer identity and related breaches under Regulation 12(iv) & (vi) - HELD THAT: - The adjudicating authority had earlier accepted the importer's letters claiming ownership and released the goods on payment of duty and penalty. Given that the same authority accepted the importer's claim and released the shipments, it is inconsistent to hold thereafter that imports were made in the name of a bogus importer. There was no allegation of import of prohibited or restricted goods and no evidence that goods cleared by the appellant were improper. On these facts the findings of breach of Regulation 12(iv) and 12(vi) are unsustainable. [Paras 8]

Violations of Regulation 12(iv) and 12(vi) are unsustainable and set aside.

Revocation of courier licence - enforcement of bond and bank guarantee - penalty under Regulation 14 of the Courier Imports and Exports (Electronic Declaration and Processing) Regulations, 2010 - Validity of revocation of licence, enforcement of bond/bank guarantee and imposition of penalty under Regulation 14 - HELD THAT: - Having found that allegations of contraventions under various limbs of Regulation 12 and invocation of Section 117 were unsustainable, the Tribunal concluded that the consequential actions-revocation of the courier licence and enforcement of the bond and bank guarantee-cannot be sustained. On the cumulative facts and the deficiencies in the basis for penalties and revocation, the Tribunal set aside the impugned order which revoked the licence and enforced security, and also set aside the penalty imposed under Regulation 14. [Paras 9]

Revocation of licence and enforcement of bond/bank guarantee are set aside; penalty under Regulation 14 is set aside.

Final Conclusion: The appeal is allowed: revocation of the courier licence and enforcement of the bond and bank guarantee are set aside; penalties imposed under Section 117 and under Regulation 14 of the Courier Regulations are set aside; findings of violations of Regulations 12(i), 12(ii), 12(iv) and 12(vi) are held unsustainable on the record presented.

Penalty for delay in submission of documents - Provisional assessment finalization - No deliberate delay or mala fide intention - Reduction of penalty in absence of revenue implication - Reliance on precedential consistency

Penalty for delay in submission of documents - No deliberate delay or mala fide intention - Reduction of penalty in absence of revenue implication - Whether the enhanced penalty imposed by the Commissioner(Appeals) for non-finalisation of Bills of Entry could be sustained where the Department did not establish deliberate delay or any revenue implication. - HELD THAT: - The Tribunal found that the Department produced no evidence of deliberate delay or mala fide intention on the part of the appellant in furnishing documents for finalisation of the provisional assessments. The appellant had attributed the delay to inability to obtain documents from the overseas exporter and, according to the record, the disputed Bills of Entry were ultimately finalized and there remained no pendency. In the absence of any revenue implication and any proof of deliberate default, the Tribunal applied the approach adopted in Jai Balaji Industries Ltd. (cited in the order) and similar precedents which favour sympathetic consideration and reduction of penalty based on factual circumstances. The Commissioner(Appeals) failed to take these factual matrices into account and incorrectly enhanced the penalty to the maximum prescribed amount per Bill of Entry. For these reasons the enhancement was held to be unsustainable and the adjudicating authority's nominal aggregate penalty was treated as appropriate. [Paras 6, 7]

Impugned order of the Commissioner(Appeals) enhancing penalty set aside; appeal allowed and the lesser penalty imposed by the adjudicating authority upheld.

Final Conclusion: The Tribunal allowed the appeal, set aside the Commissioner(Appeals)'s enhancement of penalty and upheld the adjudicating authority's nominal penalty in view of absence of deliberate delay and absence of revenue implication.

Professional misconduct - quality control policies and procedures (SQC 1) - failure to comply with Standards on Auditing and audit documentation (SA 200; SA 220; SA 230; SA 580) - material misstatement and adequacy of audit evidence - liability of the audit firm vis-a -vis engagement partner (principal-agent and joint responsibility) - penalty under section 132(4) of the Companies Act, 2013

Professional misconduct - material misstatement and adequacy of audit evidence - The audit firm committed professional misconduct by failing to detect and report material misstatement in the financial statements of Vikas WSP Limited for FY 2019-20 and by not obtaining sufficient appropriate audit evidence. - HELD THAT: - On the material before it, NFRA found that the financial statements were materially misstated due to partial recognition of interest cost on borrowings classified as NPAs and that the audit firm issued an unmodified opinion without obtaining sufficient appropriate audit evidence. The firm failed to meet relevant requirements of the Standards on Auditing, was grossly negligent, and did not exercise requisite professional skepticism and due diligence. The findings record that the firm failed to ensure that the reports issued were appropriate in the circumstances and that the financial statements were free of material misstatement, thereby constituting professional misconduct. [Paras 4, 5, 6, 11, 24]

Charge of professional misconduct for failure to detect/report material misstatement and for lack of sufficient appropriate audit evidence is proved against the audit firm.

Quality control policies and procedures (SQC 1) - failure to comply with Standards on Auditing and audit documentation (SA 230) - The audit firm failed to establish, implement and monitor quality control policies and maintain adequate engagement documentation as required by SQC 1 and the SAs. - HELD THAT: - The firm had an SQC 1 policy on record but did not reasonably assure its implementation. The audit file lacked documentation of procedures applied to evaluate interest cost, discussions within the engagement team about susceptibility to material misstatement, complete and compliant management representation letter, trial balance, verification of bank confirmations, and documentation of nature/timing/extent and results of audit procedures as required by SA 230 and related SAs. The firm, as custodian of the audit file, failed to retain and assemble engagement documentation within prescribed timelines and to ensure preservation of records as required by professional standards. [Paras 6, 11, 19, 21, 23]

Failure to implement and monitor SQC 1 policies and to maintain adequate audit documentation is proved as professional misconduct by the firm.

Liability of the audit firm vis-a -vis engagement partner (principal-agent and joint responsibility) - penalty under section 132(4) of the Companies Act, 2013 - The firm cannot absolve itself of responsibility by attributing failures solely to the engagement partner and is jointly and severally liable for professional misconduct; double jeopardy contention is rejected. - HELD THAT: - The firm contended that only the engagement partner (EP) was accountable and that action against the firm would amount to double punishment. NFRA held that the firm, appointed as auditor under section 139, remains responsible for compliance with auditing standards and for establishing and maintaining quality control systems. The relationship of firm to EP/EQCR is one of principal and agent and the firm retains continuous obligations irrespective of changes in personnel; hence the defence of double jeopardy and exclusive EP liability is rejected. [Paras 17, 18, 21, 23]

The firm's plea that only the EP is accountable and that proceedings against the firm would be double jeopardy is rejected; the firm is liable.

Material misstatement and adequacy of audit evidence - failure to report or invite attention to departures from generally accepted audit procedures - Specific charged lapses listed in the SCN-partial recognition of interest on NPA loans, deficiencies in audit procedures and documentation, absence of EQCR appointment, and failure to evidence independence compliance-constitute grounds of professional misconduct. - HELD THAT: - NFRA examined the audit working papers and related materials and found absence of procedures to evaluate the appropriateness of accounting for interest on NPA loans, inconsistencies and incompleteness in the management representation letter, lack of trial balance and bank confirmations, no record of communications with Those Charged With Governance, absence of documented ET discussions as required by SA 315, and no evidence of an EQCR appointment or independence assessments as required under SA 220. These lapses were characterised as falling within the definitions of misstatement and as breaches of auditing standards, supporting the finding of professional misconduct under multiple clauses of the Second Schedule to the CA Act. [Paras 19, 21, 23]

The detailed lapses alleged in the SCN are proved and amount to professional misconduct by the firm.

Penalty under section 132(4) of the Companies Act, 2013 - principles of proportionality and deterrence - A monetary penalty of Rs 5,00,000 is imposed on the audit firm for the proved professional misconduct. - HELD THAT: - Having found professional misconduct established, NFRA applied the statutory framework under section 132(4)(c) and, after noting the seriousness of breaches, the objective of audit quality and public interest, and principles of proportionality and deterrence, imposed the minimum statutory monetary penalty for firms. The order states that the penalty shall take effect after 30 days from its issue. [Paras 24, 26, 27, 28, 30]

Monetary penalty of Rs 5,00,000 is imposed on M/s S. Prakash Aggarwal & Co., to take effect after 30 days.

Final Conclusion: NFRA found the audit firm M/s S. Prakash Aggarwal & Co. guilty of multiple counts of professional misconduct arising from deficient audit quality and inadequate quality control and documentation in relation to Vikas WSP Limited's FY 2019-20 financial statements; the firm's attempt to shift sole responsibility to the engagement partner was rejected and a monetary penalty of Rs 5,00,000 was imposed under section 132(4) of the Companies Act, 2013.

Time limit for filing a revised return under Rule 7B - calculation of 90 day period from date of submission of ST 3 - treatment of ST 3 return filed on a later date - reversal of inadmissible Cenvat credit and payment of interest - time bar/limitation of show cause notice - setting aside adjudication where demand already discharged

Time limit for filing a revised return under Rule 7B - calculation of 90 day period from date of submission of ST 3 - treatment of ST 3 return filed on a later date - Revised ST 3 return filed on 14.08.2009 was within the period permitted under Rule 7B when calculated from the date of submission of the ST 3 filed on 22.05.2009. - HELD THAT: - The Court examined Rule 7 (returns) and Rule 7B (revised return) of the Service Tax Rules, 1994. Rule 7 requires submission of the half yearly return and prescribes the due date; Rule 7B permits an assessee to file a revised return within 90 days from the date of submission of the return under Rule 7. The ST 3 originally submitted on 22.05.2009 could not be ignored; therefore the 90 day period for filing a revised return runs from that submission date. Calculated from 22.05.2009, the revised return dated 14.08.2009 falls within the permissible 90 day period and is not time barred. [Paras 8]

Revised return filed on 14.08.2009 held to be within time and not barred under Rule 7B.

Reversal of inadmissible Cenvat credit and payment of interest - time bar/limitation of show cause notice - setting aside adjudication where demand already discharged - Order in Original confirming demand was not sustainable and could be set aside because the assessee had reversed the Cenvat credit and paid interest prior to the later show cause notice, rendering further proceedings unnecessary and susceptible to limitation objection. - HELD THAT: - The record, including the earlier show cause notice dated 8th April, 2010 and the assessee's replies, showed that the assessee had accepted the position, rectified the mistake, reversed the inadmissible credit and paid interest. Those facts were undisputed and were noted by the Tribunal from the Order in Original. Given that the department had the same material earlier, issuing a subsequent show cause notice on the same set of facts and proceeding to confirm a demand was vulnerable to the contention that the proceedings were barred or unnecessary. In those circumstances the Tribunal rightly concluded that, since the assessee had already reversed the credit with interest, the adjudication could not be sustained and set aside the demand. [Paras 9, 10, 12]

Adjudication set aside as unsustainable because the assessee had already reversed the credit and paid interest; proceedings were unnecessary and open to limitation objection.

Final Conclusion: The High Court found no substantial question of law, upheld the Tribunal's allowance of the assessee's appeal and dismissed the revenue's appeal; the stay application was also dismissed.

Eligibility clause of exemption notification - substantial compliance doctrine - strict construction of exemption - ab-initio exemption procedures and Form A-1/A-2/A-3 - burden of proof on claimant of exemption

Eligibility clause of exemption notification - substantial compliance doctrine - strict construction of exemption - ab-initio exemption procedures and Form A-1/A-2/A-3 - Entitlement to exemption from service tax for services supplied to SEZ units where there was substantial compliance with the substantive conditions of the exemption notifications - HELD THAT: - The Tribunal examined whether the appellant, a service provider to SEZ units, was entitled to exemption under the relevant notifications despite procedural requirements. The Tribunal accepted that the services were supplied to duly authorised SEZ units and were used in authorised operations, and that the appellant procured A-1 forms from SEZ units (some of which were seized during search but copies were later produced). Applying the settled principles on interpretation of exemption notifications, the Tribunal noted that the eligibility clause must be strictly construed but that conditions which are directory may be treated liberally where there is substantial compliance with the substantive requirements. Reliance was placed on authoritative guidance that a claimant bears the burden of establishing entitlement to exemption but that substantial compliance with procedural conditions may suffice to secure the exemption. On the facts, the Tribunal held that the appellant had substantially complied with the substantive clauses of the notifications and was therefore entitled to the exemption; accordingly the impugned orders confirming service tax and penalties were set aside in respect of supplies to SEZ units. [Paras 6, 9, 10, 11, 12]

Substantial compliance with the substantive conditions of the exemption notifications entitled the appellant to exemption for services provided to SEZ units; the impugned order confirming tax and penalty is set aside.

Final Conclusion: The appeal is allowed: the Tribunal set aside the impugned order and held that, on substantial compliance with the substantive clauses of the exemption notifications (including procurement of Form A-1), the appellant is entitled to exemption from service tax for services supplied to SEZ units for the period 2010-11 to 2014-15 (upto Dec-14).

Refund under Section 142(3) of the CGST Act - refund of unutilised CENVAT credit - transition of CENVAT credit - carrying forward credit under Section 140 - reverse charge mechanism - existing law/Cenvat Credit Rules, 2004 - Section 142(3) does not create new substantive rights

Refund under Section 142(3) of the CGST Act - refund of unutilised CENVAT credit - existing law/Cenvat Credit Rules, 2004 - carrying forward credit under Section 140 - reverse charge mechanism - Section 142(3) does not create new substantive rights - Whether the appellant is entitled to cash refund under Section 142(3) of the CGST Act in respect of service tax paid under reverse charge mechanism after the appointed day where no refund was permissible under the existing law. - HELD THAT: - The Tribunal held that Section 142(3) is an enabling provision that mandates disposal of transitional refund claims in accordance with the existing law and does not itself create a new substantive right to cash refund where no such right existed under the erstwhile law. The refund claim must therefore be examinable and allowable only to the extent it was permissible under the Cenvat Credit Rules, 2004 or the Finance Act, 1994. The Cenvat Credit Rules do not provide for cash refund of properly paid service tax credits of the type claimed; available transitional mechanisms consisted of carrying forward eligible credits under Section 140 or seeking relief under other specified transitional provisions, subject to conditions and procedures. Since the appellant had not carried forward the credit under Section 140 nor satisfied conditions in the existing law to entitle to cash refund, Section 142(3) could not be invoked to grant refund in cash. The Tribunal distinguished authorities relied upon by the appellant (including decisions concerning cesses and substantive credit rights) as not being applicable to entitlement to cash refund under Section 142(3), and followed the approach in precedents holding that Section 142(3) does not revive or create rights that did not subsist under the old regime. [Paras 11, 12, 14, 15]

The refund claim under Section 142(3) was not allowable and the appeal is dismissed.

Final Conclusion: The Tribunal dismissed the appeal, holding that Section 142(3) does not confer a cash refund right where the existing law (Cenvat Credit Rules/Finance Act) did not permit such refund and the appellant had not availed the available transitional carry forward route under Section 140.

Service tax liability on renting of immovable property to educational institutions - Extended period of limitation under proviso to Section 73 - Penalty under Section 78 - Requirement of show cause notice to specify grounds for invoking extended period - Bonafide belief and absence of deliberate suppression as defence to extended limitation

Service tax liability on renting of immovable property to educational institutions - Extended period of limitation under proviso to Section 73 - Requirement of show cause notice to specify grounds for invoking extended period - Bonafide belief and absence of deliberate suppression as defence to extended limitation - Penalty under Section 78 - Whether the demand for service tax in respect of rental income from educational institutions for the period 11.07.2014 to 31.03.2015 can be sustained by invoking the extended limitation under proviso to Section 73 and whether penalty under Section 78 is leviable. - HELD THAT: - The Tribunal examined the show cause notice and the Order-in-Original and found that neither specified categorical grounds demonstrating fraud, willful misstatement, suppression of facts or intent to evade tax as required by the proviso to Section 73. The appellants had a plausible bona fide belief of non-liability because exemption was available before and after the limited period and the notice proceeded chiefly from discrepancies between P&L figures and ST-3 returns without particulars or documentary proof establishing deliberate concealment. The Commissioner (Appeals) had allowed the appeal except in respect of rental income and his unchallenged detailed findings reinforced that appellants lacked deliberate intention to evade tax. The Department also failed to prove that service tax had actually been collected from the educational institutions or to issue any notice under the provision applicable to moneys collected and not paid. In these circumstances the statutory preconditions for invoking the extended five-year period under the proviso to Section 73 were not satisfied and the demand therefore stood time-barred. Consequentially, as the extended period could not be invoked and deliberate suppression was not established, penalty under Section 78 was not leviable. [Paras 10, 11, 12, 13, 14]

Demand for service tax in respect of rental income for 11.07.2014 to 31.03.2015 is time-barred because the proviso to Section 73 is not attracted; penalty under Section 78 is not leviable.

Final Conclusion: The appeal is allowed; the demand relating to rental income for the period 11.07.2014 to 31.03.2015 is barred by limitation as the proviso to Section 73 does not apply, and penalty under Section 78 is not imposable; consequential benefits, if any, to be given as per law.

CENVAT credit on inputs and input services used for exempted services - Option under Rule 6(3) of the CENVAT Credit Rules, 2004 - Procedure for apportionment and payment under Rule 6(3A) of the CENVAT Credit Rules, 2004 - Reversal / proportionate reversal of common credit - Interest liability on delayed payment under Rule 6(3A) - Power of adjudicating authority to permit belated compliance under Rule 3AA / (3AA) of Rule 6 - Recovery of wrongly taken CENVAT credit under Rule 14

Option under Rule 6(3) of the CENVAT Credit Rules, 2004 - Reversal / proportionate reversal of common credit - Procedure for apportionment and payment under Rule 6(3A) of the CENVAT Credit Rules, 2004 - Validity of allowing reversal of proportionate CENVAT credit where the assessee had not formally exercised an option under Rule 6(3) - HELD THAT: - The Rules provide that a provider of output services who does not maintain separate accounts may follow one of the options in Rule 6(3). Rule 6(3A) prescribes a procedure for determining and paying the amount where option (ii) is followed and contemplates monthly/annual apportionment and reporting; Explanation 1 prescribes that an option, once exercised, applies for the financial year. However, Rule (3AA) / (3AA) permits the adjudicating officer to allow a manufacturer or provider who failed to exercise the option to follow the procedure and pay the amount referred to in clause (ii) of sub-rule (3), calculated month-wise, mutatis mutandis, with interest. The Tribunal noted precedents and High Court decisions which treat the procedure in sub-rule (3A) as facilitative to enable apportionment and to allow proportionate credit to be reversed. Applying these provisions, the Commissioner's acceptance of reversal of proportionate credit (as paid by the respondent) was sustained in respect of the confirmed principal demand, since the statutory scheme permits reversal/payment by following the procedural mechanism even where formal option was not earlier exercised.

Proportionate reversal of CENVAT credit was accepted and the principal demand of reversed credit is affirmed.

Interest liability on delayed payment under Rule 6(3A) - Procedure for apportionment and payment under Rule 6(3A) of the CENVAT Credit Rules, 2004 - Power of adjudicating authority to permit belated compliance under Rule 3AA / (3AA) of Rule 6 - Whether interest is payable when reversal of proportionate credit is permitted though reversal was carried out after audit observation and before show-cause notice, and despite availability of credit balance - HELD THAT: - Rule 6(3A) explicitly provides that where the amount under clause (d) is not paid by the stipulated date (30th June of succeeding year) interest at the rate specified shall be payable from that date till payment. Rule (3AA) permits allowing a belated procedure subject to payment of the amount referred to in clause (ii) of sub-rule (3) together with interest calculated at the prescribed rate from the due date. The Commissioner relied on a decision dealing with unutilised excess credit to hold that reversal did not attract interest because sufficient CENVAT balance existed and reversal happened prior to show-cause notice; the Tribunal distinguished that decision as factually different. The Tribunal held that the facility under sub-rule (3A) is conditional upon payment along with interest when applicable, and consistent authority and statutory language require interest to be paid when the procedure in (3A)/(3AA) is availed belatedly.

Interest on the confirmed demand is payable in terms of Rule 6(3A)/(3AA); the Revenue's challenge on interest is upheld.

Final Conclusion: The appeal is allowed only to the extent of directing payment of interest in terms of Rule 6(3A)/(3AA) on the confirmed proportionate reversal; the Commissioner's order confirming the principal demand of proportionate credit reversal is otherwise upheld.

Ineligible CENVAT credit - liability of service receiver for tax assessed on service provider - assessment at the hands of service provider not to be questioned at the hands of service receiver - precedential effect of earlier Tribunal order in appellant's own case - reliance on statements of dealers' employees insufficient to fasten tax on service receiver

Ineligible CENVAT credit - liability of service receiver for tax assessed on service provider - assessment at the hands of service provider not to be questioned at the hands of service receiver - precedential effect of earlier Tribunal order in appellant's own case - Sustainability of demand raised on the appellant (service receiver) for alleged ineligible credits availed by service providers and reflected in a statement of demand for October, 2016 to June, 2017. - HELD THAT: - The Tribunal examined the demand founded on the statement of demand dated 24.04.2018 for October, 2016 to June, 2017 which flowed from the original show-cause notice. It applied the consistent view taken by the Tribunal in the appellant's own earlier order dated 19.10.2022 and other precedents that where the service provider's assessment is concerned, the correctness of that assessment cannot be re-opened or questioned at the instance of the service receiver. The Tribunal noted that reliance placed by the department on statements of dealers' employees and classification at the dealers' end does not justify sustaining a demand against the appellant when earlier Tribunal rulings, including Modular Auto Ltd., have held that such taxability/assessment is to be determined at the service-provider's end. In light of the binding effect of the Tribunal's prior decision in the appellant's own case and consistent precedents, the impugned order confirming the demand was held to be unsustainable and was set aside. [Paras 5, 6]

The demand for the period October, 2016 to June, 2017 confirmed by the Commissioner is set aside following the Tribunal's earlier findings that assessment of the service provider cannot be questioned at the receiver's end and on application of relevant precedents.

Final Conclusion: The appeal is allowed and the Order-in-Original dated 24.12.2021 confirming the service-tax demand for October, 2016 to June, 2017 is set aside with consequential relief, the Tribunal following its earlier decision in the appellant's own case and consistent precedent that the provider's assessment cannot be questioned at the receiver's end.

Service Tax - cargo handling service - extended period of limitation - finality of earlier adjudication - bar of limitation - penalty not imposable

Bar of limitation - extended period of limitation - finality of earlier adjudication - Demand of Service Tax in respect of cargo handling service for the period July 2004 to March 2007 is barred by limitation. - HELD THAT: - The Tribunal noted that a Show Cause Notice dated 30th March 2009 was issued invoking the extended period for the period July 2004 to March 2007. The appellant had an earlier final adjudication in its own case on the same issue which was affirmed by the High Court and for which Special Leave Petition was withdrawn, rendering the earlier order final. In view of the preceding finality and the long delay in issuing the present notice, the Tribunal held that the entire demand for the stated period is time-barred and unsustainable. [Paras 5]

Impugned demand for the period July 2004 to March 2007 is barred by limitation and set aside.

Penalty not imposable - Service Tax - Whether any penalty can be imposed in the facts and circumstances of the case. - HELD THAT: - Having held that the demand itself is not sustainable because it is barred by limitation, the Tribunal proceeded that imposition of penalty would not be justified. On that basis the Tribunal concluded that no penalty is imposable against the appellant. [Paras 5]

No penalty is imposable; consequential relief granted and appeal allowed.

Final Conclusion: The appeal is allowed: the Service Tax demand for July 2004 to March 2007 (charged as cargo handling service) issued by notice dated 30 March 2009 is time barred and set aside, and no penalty is imposable; consequential relief, if any, to follow.

Labelling or re-labelling of containers - repacking from bulk packs to retail packs - deeming provision - manufacture - cenvat credit - rebate on export duty - suppression or misrepresentation - extended period of limitation

Labelling or re-labelling of containers - deeming provision - manufacture - Activity of affixing labels at the Taloja unit falls within Note 3 to Chapter 18 and amounts to manufacture. - HELD THAT: - Note 3 to Chapter 18, as amended with effect from 01.03.2008, substitutes 'or' for the earlier 'and', thereby converting what was earlier a composite process into three independent processes. Consequently, labelling or re-labelling of containers is an independent process which the legislature has expressly declared to be a process amounting to 'manufacture' (a deeming provision). Section 2(f)(ii) of the Central Excise Act incorporates processes specified in Chapter notes as amounting to manufacture; therefore labelling/re-labelling under Note 3 falls within the statutory definition of 'manufacture'. There is no factual dispute that the respondent affixed labels at its Taloja unit on goods received from Jammu and on imported goods; accordingly that activity is covered by Note 3 and amounts to manufacture. [Paras 11, 13, 14, 15]

Labelling undertaken by the respondent at Taloja amounts to manufacture under Note 3 to Chapter 18.

Cenvat credit - rebate on export duty - manufacture - Entitlement of the Taloja unit to cenvat credit of duty paid at the Jammu unit and entitlement to rebate on export duty were upheld. - HELD THAT: - Having held that the labelling activity at Taloja amounts to manufacture under Note 3, the Taloja unit qualified as a manufacturer for the purposes of claiming cenvat credit of duty paid at the Jammu unit and to utilise such credit in relation to exports. The Third Member and the majority of CESTAT accepted that the Taloja unit was distinct from the Jammu unit and that credit and rebate claimed were thereby correctly availed and sanctioned. Consequently, demands for recovery of the credit and rebate were not sustainable. [Paras 5, 16]

The respondent was entitled to the cenvat credit and to the rebate; the credit and rebate claims were rightly availed and sanctioned.

Suppression or misrepresentation - extended period of limitation - penalty - There was no suppression or misrepresentation by the respondent; extended period of limitation and penalty could not be invoked. - HELD THAT: - The question whether labelling amounted to manufacture was a matter of statutory interpretation of Note 3. The CESTAT majority found no suppression or misrepresentation of material fact by the respondent since the entitlement turned on the interpretative scope of Note 3. On facts, evidence did not establish deliberate concealment; therefore revenue could not invoke the extended period of limitation nor sustain the penalty imposed for suppression. The appellate tribunal's finding to this effect was affirmed. [Paras 5, 16]

No suppression or misrepresentation proven; extended limitation and penalty not available to the revenue.

Final Conclusion: Majority decision of CESTAT affirmed: labelling at the Taloja unit amounts to manufacture under Note 3 to Chapter 18; the respondent was entitled to the cenvat credit and export rebate; there was no suppression warranting extended limitation or penalty. Revenue's appeal dismissed; no order as to costs.

Manual processing of SVLDRS declarations - issuance of SVLDRS Form-4 discharge certificate - failure of electronic processing not to defeat valid claims - preference for substantive justice over procedural/technical objections - ancillary powers of tribunals to pass consequential orders - beneficial construction of amnesty and dispute-resolution schemes

Manual processing of SVLDRS declarations - issuance of SVLDRS Form-4 discharge certificate - failure of electronic processing not to defeat valid claims - preference for substantive justice over procedural/technical objections - Appellant entitled to issuance of SVLDRS Form-4 discharge certificate by manual processing and the Department directed to process and issue the discharge certificate within four weeks. - HELD THAT: - The Tribunal found that the appellant filed a declaration under the SVLDRS, was issued SVLDRS-3 quantifying the payable amount, and paid the amount before the Scheme's closure. The Designated Committee neither rejected the claim nor identified any defect requiring further action by the appellant. Revenue's only objection was inability to process electronically and assertion that Board's conditions for manual processing had not been fulfilled. The Tribunal observed that CBIC Instruction No.01/2021-CX permits manual processing of declarations where electronic processing is unavailable and does not require awaiting external directions in cases where the Designated Committee can legitimately adopt a manual route. Relying on authorities recognizing that tribunals and administrative bodies possess ancillary powers to effectuate justice and on the established principle that beneficial amnesty schemes must be given a substantive construction, the Tribunal held that technical or procedural impediments in electronic systems cannot be permitted to defeat valid claims. In these circumstances, and in the absence of any stated outstanding requirement from the appellant, the Department was directed to manually process the appellant's declaration and issue the SVLDRS-4 discharge certificate within four weeks from receipt of the order. [Paras 6, 7, 11]

Respondent directed to manually process the SVLDRS declaration and issue the Form-4 discharge certificate within four weeks from receipt of this order; appeal disposed of accordingly.

Final Conclusion: The Tribunal directed issuance of the SVLDRS Form-4 discharge certificate by manual processing within four weeks, holding that inability of electronic processing and mere closure of the Scheme cannot defeat a valid, duly paid declaration and that substantive justice and the CBIC instruction mandate manual processing in such circumstances.

Refund of CENVAT credit under transitional provisions - interpretation and scope of Section 142(3) of the CGST Act - requirement that refund eligibility be determined in accordance with existing law - no creation of a new substantive right by Section 142(3) - carry forward under TRAN-1 and revised ER-1 procedure - absence of refund mechanism in Cenvat Credit Rules, 2004 (Rule 5/5B) for unutilized credit - prohibition on refund where existing law provided no entitlement - unjust enrichment under Section 11B(2) of the Central Excise Act

Refund of CENVAT credit under transitional provisions - interpretation and scope of Section 142(3) of the CGST Act - requirement that refund eligibility be determined in accordance with existing law - carry forward under TRAN-1 and revised ER-1 procedure - Entitlement to cash refund of the Central Excise component of Cenvat credit amounting to Rs.14,40,627 under Section 142(3) of the CGST Act - HELD THAT: - The Tribunal held that Section 142(3) mandates that any claim for refund of Cenvat credit must be disposed of in accordance with the provisions of the existing law and, only if found allowable under that law, may be paid in cash notwithstanding contrary provisions of the existing law (subject to the proviso regarding unjust enrichment). Section 142(3) does not create a new substantive right to refund where no such right existed under the erstwhile law. In the present case the appellants neither carried the credit forward via TRAN-1 nor filed revised ER-1/ER-2; moreover, the Cenvat Credit Rules, 2004 permitted cash refund of unutilized credit only in limited situations under Rules 5/5A/5B (and related notifications/procedures). Because there was no provision under the existing law entitling refund of the impugned Central Excise component in the facts before the Tribunal, Section 142(3) could not be operated to grant an independent cash refund. Reliance on precedents holding transitional credit to be a vested right or treating non-reflection in ER-1 as merely procedural was not sufficient to override the statutory requirement that refund eligibility be tested against the existing law. The Tribunal found the ratio of Rungta Mines (Hon'ble Jharkhand High Court) and other decisions applying the same interpretation to be squarely applicable and, accordingly, upheld the Commissioner (Appeals) and original adjudicating authority's rejection of the refund claim. [Paras 16, 26, 27]

Refund of the Central Excise component amounting to Rs.14,40,627 is not admissible under Section 142(3) because no entitlement to such refund existed under the existing law; the rejection of the refund claim is upheld.

Final Conclusion: Appeal dismissed; the rejection of the cash refund claim of Rs.14,40,627 (Central Excise component) is upheld as Section 142(3) does not confer a refund right where none existed under the existing law and the appellant did not follow the TRAN-1 / revised ER-1 routes or other specific statutory procedures.

Penalty under Rule 26 of the Central Excise Rules, 2002 - Liability of a director for acts of the company - dummy director / no active role - Liability of transporters and drivers for transporting excisable goods - knowledge, possession of invoice/bill - Confiscation-linked penal liability for dealing with excisable goods

Penalty under Rule 26 of the Central Excise Rules, 2002 - Liability of a director for acts of the company - dummy director / no active role - Whether penalty under Rule 26 could be imposed on Sunil Sarogi, a director held to be a "dummy director" and said to have resigned prior to the seizures. - HELD THAT: - The adjudicating authority had found that Sunil Sarogi was a director only on paper and had no involvement in the functioning of M/s Shree Raj Exports Pvt Ltd. Rule 26 penalises any person who acquires possession of, or is in any way concerned in transporting, removing, depositing, keeping, concealing, selling or purchasing, or otherwise dealing with excisable goods which he knows or has reason to believe are liable for confiscation. The record of detailed investigations and recorded statements did not attribute any role to Sarogi in manufacture, possession or clearance of the clandestinely manufactured gutka. Given the finding that he was a dummy director and the absence of any material connecting him to dealing with the excisable goods, imposition of penalty under Rule 26 on him could not be sustained. [Paras 7, 8]

Penalty imposed under Rule 26 on Sunil Sarogi set aside.

Penalty under Rule 26 of the Central Excise Rules, 2002 - Liability of transporters and drivers for transporting excisable goods - knowledge, possession of invoice/bill - Confiscation-linked penal liability for dealing with excisable goods - Whether penalties under Rule 26 imposed on the transporters, truck-owners and drivers for transporting the clandestinely removed gutka are sustainable. - HELD THAT: - The transporters and drivers carried commercial consignments and, as a matter of normal commercial practice, carry invoices/bills and obtain acknowledgements on delivery. Regardless of literacy level, drivers and transporters are expected to transport goods accompanied by bills, and thus cannot claim ignorance. The tribunal found no force in submissions that the penalties should be set aside on account of lack of education or limited involvement; on the facts of the case the transporters were concerned in transporting excisable goods which were liable for confiscation and the penalties under Rule 26 were therefore properly imposed and require no interference. [Paras 10, 13, 14]

Appeals of the transporters, truck-owners and drivers dismissed; penalties under Rule 26 upheld.

Final Conclusion: Excise Appeal No. 52508 of 2016 (Sunil Sarogi) allowed and the impugned order set aside insofar as it relates to him; all other appeals dismissed and the penalties imposed under Rule 26 upheld.

Refund under Section 11B of Central Excise Act - Return of refund application not recognised mode of disposal - Applicability of Section 11BB and automatic attraction after three months - Duty to adjudicate and pass speaking order on refund claim - Principles of natural justice in refund adjudication - Administrative delay and fixation of responsibility - Remand for fresh adjudication with time bound disposal

Refund under Section 11B of Central Excise Act - Return of refund application not recognised mode of disposal - Duty to adjudicate and pass speaking order on refund claim - Return of the refund application was not a proper mode of disposal and the authority was obliged to adjudicate the refund claim and pass a speaking order under Section 11B. - HELD THAT: - The Tribunal held that Section 11B requires the adjudicating authority on receipt of a refund application to examine and either grant the refund, credit the refundable amount to the appropriate fund, or reject the claim by a speaking order; there is no provision permitting the simple return of the refund application. The Board's Circulars (including Circular No. 670/61/2002 CX reiterating earlier instructions) were invoked to emphasise that the authority must decide refund/rebate claims and that returning the claim is not a recognised mode of disposal. The Tribunal noted precedent stressing the obligation to adjudicate refund claims and not to withhold decision on mere suspicion of taxability. The authorities' act of returning the refund application without adjudication was therefore held to be incorrect and contrary to the statutory and administrative framework. [Paras 5]

The return of the refund application was improper and the claim could not be treated as validly disposed of without a speaking order.

Applicability of Section 11BB and automatic attraction after three months - Administrative delay and fixation of responsibility - Remand for fresh adjudication with time bound disposal - Principles of natural justice in refund adjudication - The refund claim was restored to the original authority for fresh and time bound adjudication with directions to follow principles of natural justice and departmental instructions, and to fix responsibility for delay. - HELD THAT: - The Tribunal observed an inordinate delay of over ten years and found a lack of seriousness by divisional authorities. It invoked the Board's instructions that Section 11BB consequences arise automatically where refunds are sanctioned beyond three months and stressed the need to fix responsibility for undue delays. The appeal was allowed by setting aside the earlier return of the claim and restoring the refund application to the original authority for disposal. The original authority was directed to afford the appellant a reasonable and time bound opportunity to be heard (oral and written if desired), to issue a speaking order if rejecting the claim in whole or in part, and to complete adjudication expeditiously within ninety days of receipt of the Tribunal's order. The Tribunal also directed monitoring by the jurisdictional Commissioner in terms of departmental instructions. [Paras 6]

The refund claim is remitted to the original authority for fresh adjudication in accordance with law and the directions given, to be completed within ninety days, with supervisory monitoring by the jurisdictional Commissioner.

Final Conclusion: The appeal is allowed: the earlier act of returning the refund application was set aside; the refund claim is restored to the original authority for adjudication in accordance with Section 11B and the Board's instructions (including consequences under Section 11BB for delays), observing principles of natural justice and completing disposal within ninety days under the jurisdictional Commissioner's monitoring.

Clandestine manufacture and clearance - retraction of confessional statements and evidentiary value - reliance on private diaries and rough records as primary evidence - requirement of tangible and corroborative evidence for clandestine removals - inadmissibility of untested third party statements where cross examination is denied - onus on Revenue to prove clandestine manufacture and removal beyond doubt - evidentiary link between documents recovered during search and factory activities - treatment of weighbridge/weighment slips without corroboration - treatment of duplicate/returned invoices in clandestine removal allegations - section 9D of the Act and the requirement of cross examination for admission of statements

Reliance on private diaries and rough records as primary evidence - retraction of confessional statements and evidentiary value - inadmissibility of untested third party statements where cross examination is denied - Validity of duty demand based on five pocket sized dairies allegedly recovered during search - HELD THAT: - The Tribunal found that although the dairies appear in Annexure A to the panchnama, the panchnama itself does not record their recovery and Annexure A lacks continuity features such as the inspector's signature and running page numbers, thereby weakening the evidentiary foundation for seizure. Both partners retracted earlier inculpatory statements and explained that the dairies pertained to unrelated personal brokerage business and were taken from a residence; the Commissioner's finding that only one statement was retracted was contrary to record. Several buyers whose names appear in the dairies gave statements alleging purchases without invoice, but cross examination of those third parties was denied by the Commissioner; in view of section 9D of the Act and the settled precedents relied upon in the order (including Jindal Drugs Pvt Ltd and Basudev Garg ), such untested statements are not admissible for proving clandestine clearances. Absent cross examined, corroborative evidence (raw material consumption, excess electricity usage, transporter records, cash flow), the dairies alone are not tangible proof of clandestine manufacture and removal. Applying the established criteria for clandestine clearances, the Tribunal set aside the duty demand founded on the dairies. [Paras 4]

Demand of duty based on the five pocket sized dairies (Annexure X-VII) is not tenable and is set aside.

Treatment of weighbridge/weighment slips without corroboration - evidentiary link between documents recovered during search and factory activities - requirement of tangible and corroborative evidence for clandestine removals - Sustainability of duty demand founded on 58 weighment slips and related weighment particulars - HELD THAT: - The Tribunal observed that the weighment slips, even if showing weighing at the factory, do not by themselves establish clandestine manufacture or removal. The truck number relied upon by the department appears only on a few slips, and the third party statements and rough buyer records used to support the weighment based demand were not subjected to cross examination and some of the alleged buyers were not made parties to the show cause notice. The partner of the appellant denied the sales in his later statement. In absence of corroborative material such as transporter statements, buyer identification and receipts, uncorroborated weighment slips and third party records cannot sustain a demand for duty. [Paras 4]

Duty demand based on the 58 weighment slips and the Annexures X(II, III, IV & V) cannot be sustained and is set aside.

Treatment of duplicate/returned invoices in clandestine removal allegations - onus on Revenue to prove clandestine manufacture and removal beyond doubt - requirement of tangible and corroborative evidence for clandestine removals - Validity of duty demand based on duplicate/earlier invoices and related rough accounts/shortages - HELD THAT: - The partner explained that the duplicate invoices related to returned goods or cancelled orders and denied clandestine clearances in his later statement. The Tribunal held that no tangible corroboration - buyer statements, transportation evidence or other material - was collected to substantiate removal under earlier invoice numbers. Alleged shortages of raw material and discrepancies in daily stock accounts, without concrete supporting evidence, do not establish clandestine manufacture and removal. Following authorities cited in the order (including Brims Products and the Tribunal's earlier rulings), the Tribunal reiterated that Revenue must prove clandestine manufacture and surreptitious removal beyond doubt and not merely on preponderance of probabilities; in the facts of this case the evidence was weak and insufficient. [Paras 4]

Duty demand based on duplicate/earlier invoices and the related rough accounts/shortages is not sustained; consequential penalties are liable to be set aside.

Final Conclusion: The appeals are allowed. The adjudicating authority's confirmation of duty and imposition of penalties are set aside for lack of tangible and corroborative evidence of clandestine manufacture and removal; consequential relief, if any, to follow in accordance with law.

Priority of security interests based on CERSAI registration under Chapter IVA of the SARFAESI Act - Registration with CERSAI as public notice and determinative of priority - Enforcement of subsequently registered security interest subject to claim of prior registered secured creditor - Effect of Section 26-C(2) read with Section 26-E of the SARFAESI Act-vesting of title in purchaser and entitlement of secured creditor to priority payment - Limitation on State tax authorities' enforcement against assets covered by prior registered security interest

Priority of security interests based on CERSAI registration under Chapter IVA of the SARFAESI Act - Registration with CERSAI as public notice and determinative of priority - Priority of SBI's security interest registered earlier in CERSAI prevails over the State's sales tax claims in respect of the Secured Assets. - HELD THAT: - The Court applied the Chapter IVA scheme of the SARFAESI Act, holding that registration of a security interest in CERSAI operates as public notice and that priority between competing security interests follows the order of such registrations. Because the mortgage in favour of the bank was created in 2010 and registered in CERSAI in 2012, and Section 26-C came into force on 24 January 2020, the bank's earlier-registered security interest has priority over subsequent claims by the State. The Court relied on precedents of this Court (including Jalgaon Janta and Division Bench decisions) which similarly held that a secured creditor, whose interest is prior in CERSAI, is entitled to priority in enforcement against the secured asset. [Paras 6, 8, 9, 10, 11]

SBI's security interest, by virtue of prior registration in CERSAI, has priority over the State's tax authorities in respect of the Secured Assets.

Enforcement of subsequently registered security interest subject to claim of prior registered secured creditor - Effect of Section 26-C(2) read with Section 26-E of the SARFAESI Act-vesting of title in purchaser - A subsequently registered or inferior security interest cannot be enforced against the same asset in a manner that defeats the prior secured creditor's enforcement; enforcement by the prior creditor and consequent sale vests a clean title in the purchaser subject only to claims on residual proceeds. - HELD THAT: - The Court rejected the State's submission that later-registered interests could continue to be enforced against the asset or the purchaser after the earlier secured creditor has exercised enforcement. Interpreting Section 26-C(2) and Section 26-E, the Court held that enforcement of a prior registered security interest is paramount; any subsequent enforcement is subservient and, at best, entitles the subservient creditor to residual proceeds. Allowing repeated enforcement against the same asset would negate the statutory scheme of priority and render the protections conferred by Chapter IVA illusory. [Paras 13, 14]

The State cannot continue enforcement against the Secured Assets or the purchaser once the prior secured creditor has enforced its charge; subsequent claims are limited to any residual proceeds.

Effect of Section 26-E-vesting of title in purchaser and attendant declarations - Entitlement of State to residual proceeds and obligations on secured creditor to account - Reliefs and directions necessary to give effect to the legal conclusions: declaration of SBI's priority and vesting of clean title in the purchaser; obligation on SBI to furnish account for residual proceeds; removal of State's mutation entries and registration in favour of the purchaser. - HELD THAT: - Having determined the priority and the effect of enforcement under the SARFAESI Act, the Court made consequential declarations and directions. It held that SBI's enforcement entitled the purchaser to a title free from the asserted encumbrance by the State (by conjoint application of Section 26-C(2) and Section 26-E). The Court directed SBI to provide the State a statement of accounts showing dues and appropriation so that the State may claim any residual proceeds. It further directed removal of mutation entries asserting State interest and directed the registrar to effect transfer to the purchaser within the time specified. The Court qualified that nothing in the order affects the State's rights to enforce against other assets not subject to prior registered security interests. [Paras 15]

SBI's priority and enforcement are declared; purchaser is entitled to clean title; SBI must account for sale proceeds to enable the State to claim residual amounts; mutation entries are to be removed and transfer to the purchaser registered.

Final Conclusion: Writ petition allowed: the bank's prior CERSAI-registered security interest has priority over the State's tax claims in respect of the two auctioned properties; enforcement by the bank vests title in the auction purchaser free of the State's asserted encumbrance, the State may claim only residual proceeds after appropriation by the bank, and consequential directions for accounting, removal of mutation and registration of transfer are issued.

Search and seizure in a public place - Compliance with Section 42 and Section 43 of the NDPS Act - Right to be searched before Magistrate or Gazetted Officer under Section 50 of the NDPS Act - Independent panch witness and reliability of panchnama - Chain of custody and admissibility of chemical analysis - Admissibility of statements recorded under Section 67 of the NDPS Act as confessions - First time court identification and reliability of identification evidence

Independent panch witness and reliability of panchnama - Whether an independent panch witness was associated in the search and seizure and whether his evidence is reliable - HELD THAT: - The Court examined the testimony of the panch Manubhai (PW 1) and the panchnama (Exhibit P 30). Manubhai, though employed in the Income Tax Department, was not a stock or partisan witness of the NCB and supported the prosecution's account of the search and seizure. Nothing significant was elicited in cross examination to displace his testimony. On this basis the Court held that an independent panch witness was in fact associated and that his evidence and the panchnama are trustworthy. [Paras 16]

The panch witness was properly associated and his evidence is reliable.

Compliance with Section 42 and Section 43 of the NDPS Act - Search and seizure in a public place - Whether non compliance with the procedure in Section 42(2) vitiated the search and seizure - HELD THAT: - The Court found the seizure occurred at a public place (ST Bus Stand, Kheda). Section 42 relates to search/seizure in buildings, conveyances or enclosed places, whereas searches in public places fall under the scheme applicable to such places (Section 43). Since the seizure was effected in a public place, non compliance with Section 42(2) is not material and does not vitiate the search and seizure. [Paras 17, 18]

Non compliance with Section 42(2) does not vitiate the seizure because Section 43 governs searches in public places.

Right to be searched before Magistrate or Gazetted Officer under Section 50 of the NDPS Act - Whether omission to afford the option under Section 50 rendered the search/seizure invalid - HELD THAT: - The Court noted that the contraband was not discovered on a personal search of the accused but was found in a bag being carried in his hand. Accordingly, the requirement to offer the option under Section 50 (which applies to personal searches) did not arise. The Court therefore rejected the submission that non compliance of Section 50 vitiated the proceedings. [Paras 19]

Section 50 did not apply and its non observance does not invalidate the seizure.

Chain of custody and admissibility of chemical analysis - Whether the prosecution proved seizure, safe custody and chemical analysis of the samples - HELD THAT: - The Court reviewed testimony of NCB officials and contemporaneous documents and found the seizure, sampling, sealing, transmission to FSL/CRCL and chemical analysis were duly established. The CRCL report (Exhibit 62) tested positive for Diacetyl Morphine. The evidence showed an unbroken chain of custody and credible sampling and transmission procedures, supporting the prosecution's case regarding recovery from the bag held by the accused Anwarkhan. [Paras 20]

Seizure, chain of custody and chemical analysis were satisfactorily proved.

Admissibility of statements recorded under Section 67 of the NDPS Act as confessions - Whether statements recorded under Section 67 of the NDPS Act (confessional statements) are admissible against co accused and in particular against Firdoskhan - HELD THAT: - Relying on this Court's pronouncement in Tofan Singh, the Court reiterated that confessional statements recorded under Section 67 of the NDPS Act are not admissible as confessions. The statement of Anwarkhan (Exhibit 42) which purportedly identified Firdoskhan was recorded in circumstances that cast doubt on its sanctity (delay in formal arrest, timing of recording) and, in any event, is inadmissible under the cited precedent. Consequently the statement could not be relied upon against Firdoskhan. [Paras 26, 27, 28]

Statements under Section 67 are inadmissible as confessions and Anwarkhan's statement cannot be read against Firdoskhan.

First time court identification and reliability of identification evidence - Whether the Court identification of Firdoskhan by PW 3 is reliable and sufficient to sustain conviction in absence of recovery - HELD THAT: - The Court observed that Firdoskhan was neither named in the panchnama nor apprehended at the spot, and that no attempt was made to have Anwarkhan identify his companion at the scene. The identification of Firdoskhan by PW 3 occurred for the first time in court more than two years after the incident. There is no corroboration by other prosecution witnesses and the composition of raiding groups was not established. Given these gaps and the absence of any recovery from Firdoskhan, the Court held the first time court identification to be dubitable and unreliable. [Paras 24, 25, 29, 30, 31]

The identification evidence is not reliable; without recovery or corroboration, conviction of Firdoskhan cannot be sustained.

Application of benefit of doubt - Whether Firdoskhan is entitled to acquittal and whether conviction of Anwarkhan should be upheld - HELD THAT: - On the totality of evidence the Court concluded that the prosecution proved the case against Anwarkhan beyond reasonable doubt (reliable panch, proved seizure, chain of custody and positive chemical reports) and his conviction was maintained. Conversely, the prosecution failed to prove the case against Firdoskhan: no recovery from him, inadmissible confession attributed to another accused, and unreliable first time identification. Applying the benefit of doubt, the Court acquitted Firdoskhan. [Paras 20, 22, 32, 33]

Anwarkhan's conviction upheld; Firdoskhan's conviction quashed and he is acquitted.

Final Conclusion: The Court dismissed the appeal of Anwarkhan and upheld his conviction and sentence; the Court allowed the appeal of Firdoskhan, quashed his conviction and acquitted him, on the grounds of inadmissible Section 67 statement, unreliable first time identification and absence of any recovery from him.

Non-joinder of necessary parties - Minutes of Order - order in invitum - writ jurisdiction under Article 226 - duty of the Court to apply its mind before recording an order in terms of Minutes of Order - duty of advocates as officers of the Court before tendering Minutes of Order - remand for impleadment and restoration of status quo

Non-joinder of necessary parties - Minutes of Order - writ jurisdiction under Article 226 - remand for impleadment and restoration of status quo - Validity of the Division Bench order dated 16th March 2022 permitting survey and construction of a compound wall under police protection based on Minutes of Order without impleading third parties - HELD THAT: - The Court found that senior district-level officers had on oath stated that construction of the compound wall would likely affect rights of several third parties and that the Minutes of Order itself acknowledged the risk of land locking third party parcels. The Division Bench failed to satisfy itself whether all parties likely to be affected were impleaded and did not record reasons applying its mind before disposing of the Writ Petition in terms of the Minutes of Order. An order in invitum cannot be passed against absent necessary parties whose rights would be affected. Given the construction is already complete, the proper remedy is to set aside the impugned orders, restore the Writ Petition to the High Court, require impleadment and fresh adjudication; on failure to implead within reasonable time the High Court may dismiss the petition and order restoration of status quo ante including demolition. The construction permitted remains subject to final outcome of the restored petition. [Paras 21, 22, 23]

Order dated 16th March 2022 and the review order dated 20th July 2023 set aside; Writ Petition restored to High Court for fresh consideration with directions to allow impleadment and to order restoration of status quo including demolition if necessary.

Minutes of Order - order in invitum - duty of the Court to apply its mind before recording an order in terms of Minutes of Order - duty of advocates as officers of the Court before tendering Minutes of Order - Legal principles governing practice of passing orders in terms of Minutes of Order and obligations of the Court and advocates - HELD THAT: - The Court explained that the practice of tendering Minutes of Order (not being consent terms) yields an order in invitum and the Court must first examine lawfulness before passing such an order. The Court must consider whether necessary parties who may be affected are impleaded and record brief reasons showing application of mind. Advocates who sign and tender Minutes of Order have an important duty, as officers of the Court, to ensure the proposed order would be lawful and not prejudicial to unrepresented third parties. If the Court is not satisfied that passing an order in terms of the Minutes would be lawful, it must decline to pass it or defer until necessary parties are joined. [Paras 16, 17, 18, 20]

Guidance recorded: Courts must apply mind and record reasons before accepting Minutes of Order; advocates must ensure lawfulness prior to tendering; if necessary parties are not impleaded, the Court should defer or decline to pass an order in terms of Minutes.

Final Conclusion: The Supreme Court set aside the High Court order of 16th March 2022 (and the review order) and restored the Writ Petition for fresh disposal: the High Court must allow impleadment of parties likely to be affected and decide the petition afresh in accordance with law; failure to implead may lead to dismissal and restoration of status quo, and any existing construction is subject to the final outcome.

Interim injunction - prima facie case, balance of convenience and irreparable harm - Bonnard standard - freedom of speech versus right to reputation - ex parte injunction - exceptional circumstances - SLAPP suits - appellate interference where discretion is arbitrary, capricious or perverse

Interim injunction - prima facie case, balance of convenience and irreparable harm - Validity of the ex-parte ad interim injunction granted by the trial Judge and upheld by the High Court in the absence of reasoned application of the three-fold test - HELD THAT: - The Court reiterated that the established three-fold test for interim relief - prima facie case, balance of convenience and irreparable harm - applies to defamation suits but must not be applied mechanically. A court granting interim relief must provide reasons explaining how each limb is satisfied and how cited precedents apply to the case facts. Mere recital that the three-fold test is satisfied, without factual analysis or assessment of the plaint's merits, amounts to unreasoned censorship. The trial Judge's order did not analyse the prima facie strength of the plaintiff's case or the balance of convenience and irreparable injury; instead it relied on precedents and a cursory statement that the record was perused. The High Court also failed to perform a prima facie factual evaluation before upholding the injunction. In such circumstances the orders could not stand. [Paras 5, 11, 13]

The ex-parte ad interim injunction and the High Court order upholding it were set aside for want of reasoned application of the three-fold test.

Bonnard standard - freedom of speech versus right to reputation - ex parte injunction - exceptional circumstances - Appropriate standard and additional considerations when granting pre-trial injunctions in defamation suits against media platforms and journalists - HELD THAT: - The Court emphasised that injunctions against journalistic publications engage the constitutional protection of free speech and the public's right to know, requiring exceptional caution. The Bonnard approach, which counsels restraint in granting pre-trial injunctions absent clear demonstration that an alleged libel is untrue or malicious, was endorsed. Additional factors from Morgan Stanley (e.g., seriousness of harm, comparative injustice, promptness of application, acquiescence, good faith, and limited duration of ex parte orders) must also be considered. An ex parte injunction should be granted only in exceptional cases where defences would undoubtedly fail at trial; otherwise relief should await a full hearing. [Paras 6, 7, 8, 9]

Courts must apply the Bonnard standard and relevant additional safeguards before granting pre-trial or ex parte injunctions in defamation matters involving the media.

SLAPP suits - appellate interference where discretion is arbitrary, capricious or perverse - Appellate courts' role in intervening where interlocutory discretion has been exercised without application of settled principles and where injunctions may be used to stifle public participation - HELD THAT: - The Court noted the phenomenon of SLAPP litigation and observed that ex parte interim injunctions frequently have a chilling effect on speech and public debate, sometimes operating as a 'death sentence' for the publication. Precedents require appellate interference where discretionary interlocutory orders are arbitrary, capricious or made in ignorance of settled legal principles. An unreasoned ex parte injunction in defamation proceedings against media warranted interference by the High Court, and therefore by this Court on appeal, because the discretion was not exercised with the requisite legal application and safeguards. [Paras 10, 12, 13]

Appellate interference was justified and required; the impugned interlocutory orders were quashed to prevent unjustified suppression of speech.

Interim injunction - Procedure on remand for reconsideration of the injunction application - HELD THAT: - The proceedings were remitted to the trial Judge for fresh consideration of the respondent's application for injunction. The trial Judge is directed to hear the parties, permit the appellants to file and argue their reply if they choose, and to apply the principles and safeguards stated in the judgment when deciding whether to grant interlocutory relief. All rights and contentions of the parties are kept open for adjudication on the merits at the hearing. [Paras 14, 15]

The matter was remanded to the trial Court for fresh adjudication of the injunction application in accordance with the Court's observations; parties may renew contentions and the appellants may file a reply.

Final Conclusion: The Supreme Court set aside the trial Court's ex parte ad interim injunction and the High Court order upholding it for lack of reasoned application of the governing principles, outlined the applicable Bonnard standard and related safeguards for injunctions in defamation cases involving the media, and remitted the injunction application to the trial Judge for fresh hearing and decision in accordance with these directions; all rights and contentions are kept open.