TaxTMI Updates e-Newsletter
May 04,2026

Input tax credit - Examination of the vires of the provision of Section 16(2)(c) - Supplier tax payment condition - Reading down - Cumulative statutory conditions - arbitrary, ultra vires and violative of Articles 14, 19(1)(g), 265, and 300A of the Constitution of India - fraudulent, collusive or involving connivance between the purchasing dealer and the supplier.

Doctrine of reading down - HELD THAT:- This is a judicial tool used to salvage the constitutionality of a statute by giving a provision a narrowed or limited interpretation, thereby mitigating potential conflicts with constitutional or legal principles. We do not find that the provision of Section 16(2)(c) if read with the scheme of GST regime as discussed, conflicts with constitutional or legal principles. The provision of Section 16(2)(c) cannot be read in isolation, but has to read with attendant provisions as discussed hereinabove, which enables the government to secure its interest in revenue, by keeping a check on fraudulent transactions while maintaining the interest of genuine purchasers. It is settled legal principle of statutory interpretation that a provision in the statute is not to be read in isolation rather it has to read along with other related provisions itself, more particularly when the subject matter interconnects within different sections or parts of the same statute.

Distinguishing the DVAT line of decisions, the Court held that the GST regime is destination-based and has inter-State fiscal consequences, so reading down Section 16(2)(c) would disturb the statutory balance of revenue collection and credit flow. Since the provision is clear and unambiguous, and the statute itself provides a mechanism for reversal and later restoration of credit, hardship or practical difficulty could not justify reading it down or striking it down. [Paras 68, 75, 76, 82, 89]

Cumulative statutory conditions - Burden of proof - Eligibility for input tax credit - The conditions in Section 16(2) for availing ITC were held to be cumulative, and the purchasing dealer was held bound to establish fulfilment of the requirement that tax charged on the supply has been paid to the Government. - HELD THAT: - Rejecting the contention that clauses (a), (b), (ba) and related requirements exhaust the enquiry into entitlement, the Court held that clauses (a) to (d) in Section 16(2) must be read conjointly. Clause (c) could not be treated as severable or ignored after satisfaction of the earlier conditions. Read with Section 155, the burden of proving eligibility to ITC lies on the person claiming it, and such eligibility is inseparably connected with satisfaction of the statutory condition that the supplier has actually paid the tax to the Government. The Court further reiterated that ITC is a statutory concession and not a vested or constitutional right, and therefore the prescribed conditions must be strictly complied with. [Paras 78, 79, 80, 85, 86]

The constitutional challenge failed, and Section 16(2)(c) was upheld without any reading down.

Examination of the vires of the provision of Section 16(2)(c) - HELD THAT:- It is a settled principle that, before striking down a statutory provision as ultra vires or reading it down, the Statement of Objects and Reasons underlying the statute must be duly examined. In this behalf, the following Clause 5(b) of the Statement of Objections and Reasons ('the SOR') clearly provides as under.

The SOR emphatically mentions about “input tax credit making it availbale in respect of taxes paid”. Thus, availment of ITC is intrinsically connected with the factum of “taxes paid”. Accordingly, the provisions under Chapter-V regulating ITC have been introduced by the Parliament. Section 16(2)(c) of the CGST Act.

ITC cannot be claimed merely on invoice possession and receipt of goods or services; entitlement arises only on fulfilment of all statutory conditions, including actual payment of tax to the Government.

Suggestion to Government to Protect the Genuine Purchaser - HELD THAT:- It is not the case of the Government/department that it is destitute or is vulnerable to the inaction of the seller who has not paid the tax. The Act provides the authorities with enough power to proceed against the selling dealer for recovery of tax. Sections 73 and 74 of the GST Act also empower the department to proceed against the defaulting parties in case of non-payment, short payment, and wrongful utilization of credit. A balanced approach is needed, which finds place in the decision expressed by the European Court of Justice (‘ECJ’) in the case of Axel Kittel & Recolta Recycling SPRL. Under this principle, the availment of ITC can be denied only if it is shown that the recipient knew or ought to have known that their purchase was connected with a fraudulent evasion of tax.

The provisions of Section 16(2)(c) of the Act are to be viewed from a regulatory standpoint and are anchored in the legitimate objective of maintaining the integrity of the tax chain, preventing systemic revenue loss to the Government; however, it is high time that, in order to resolve the conundrum, the Government undertakes a comprehensive re-evaluation of the dicey situation which purchasers are facing. There is a pressing need for legislative amendments or clarifications to be issued within the GST framework to alleviate the disproportionate financial and administrative burdens currently placed upon purchasers who have an honest claim of ITC. Beyond mere policy changes, the Government should implement a robust, technology-driven tracking mechanism enabling verification of payments made by suppliers against specific invoices in real time, thereby insulating bona fide recipients from the defaults of their vendors. Simultaneously, the Government has to take prompt and immediate steps for recovery of tax from the erring suppliers, instead of compelling the purchasers to avail themselves of alternate cumbersome remedies. In the absence of stringent oversight, unscrupulous sellers could potentially enrich themselves at the expense of both the public exchequer and honest buyers.

Since the court is not inclined to read down Section 16(2)(c) of the CGST Act, the question of declaring it ultra vires Part III of the Constitution of India, including Article 14 of the Constitution of India, does not arise. However, we expect the Government to address the issue of genuine purchasers at the earliest.

Final Conclusion: The Court upheld the validity of Section 16(2)(c) of the CGST Act and declined to read it down. The grouped writ petitions were directed to be listed for decision on their individual merits, with all other contentions left open.

Scope of supply - compensation for breach of contract under the arbitral award and its judicial enforcement - Constitutional validity of Section 7 read with Entry 5(e) of Schedule II of the CGST Act, 2017 - Agreeing to refrain from an act or tolerate an act - availability of an alternative remedy - Whether the settlement between the parties in the proceedings filed by Docomo under Sections 47 and 48 of the Arbitration and Conciliation Act, 1996 (ACA), under which the arbitral award for damages stood settled between the parties, would amount to “supply” within the definition of Section 7(1) of the CGST Act?.

Scope of supply - HELD THAT: - It would be difficult to accept a proposition that the decision taken by Docomo before the Delhi High Court which was exercising powers under Sections 47 and 48 of the ACA in regard to enforcement of the arbitral award in question, does not bring about any independent agreement between the parties, and of the nature as contemplated by the provisions of Section 7 read with Section 9 and Schedule II Entry 5(e) of the CGST Act. The reason being that the orders passed by the Delhi High Court recorded the stand as taken by Docomo agreeing not to pursue the execution proceedings instituted before the UK and US Courts in view of Tata depositing and permitting Docomo to withdraw the entire award amount. The designated officer, therefore, could not have construed any different intention between Docomo and Tata arriving at an independent contract of the nature amounting to supply of service so as to attract levy of IGST. In fact, the designated officer assuming some intention between the parties on the basis of the consent terms, in our opinion, is quite an absurdity. Such impression as formed by the designated officer militates not only against the orders passed by the Delhi High Court but also the intention of the parties, inasmuch as, any proceedings to execute the arbitral award in the facts of the present case were incidental and inextricably connected to the principal proceedings, namely, the proceedings adopted by Docomo before the Delhi High Court to enforce the award for recovery of the amounts within the territory of India.

Once the award amount was received by Docomo, as a direct consequence thereof, the execution proceedings before the UK and US Courts being ancillary and in aid of the claim of Docomo to receive the award amount, which was discharged by Tata, the incidental proceedings before the US and UK Courts, necessarily could not have been pursued and/or were to become inconsequential on the award debt being discharged by Tata.

The Court held that Entry 5(e) of Schedule II can operate only where there exists an independent agreement by which a party, in the course or furtherance of business, agrees for consideration to refrain from an act, tolerate an act or situation, or do an act. The consent terms before the Delhi High Court were not a separate commercial arrangement but were integral to the enforcement and satisfaction of a foreign arbitral award for damages. Once the award amount was paid, suspension and withdrawal of the proceedings in the UK and US were merely consequential to full satisfaction of the award and did not create any distinct obligation dehors the award. The amount received by Docomo retained the character of damages for breach of contract and was only a flow of money pursuant to adjudication, not consideration for any service. In the absence of any separate contract and separate consideration, Section 7 itself was not attracted, and consequently neither Entry 5(e) nor the IGST provisions on import of services could be invoked. The Court also found that the departmental view ran contrary to the Board circulars clarifying that compensatory payments for breach are not taxable unless they arise from another independent contract. [Paras 81, 82, 83, 84, 85]

The impugned intimation and show cause notice, founded on the premise that the award amount represented consideration for tolerating breach or refraining from legal proceedings, were held to be without jurisdiction and liable to be quashed.

Alternate remedy - Lack of jurisdiction - Maintainability of writ petition - HELD THAT: - The Court reiterated that availability of an alternative remedy is a rule of discretion and not an absolute bar to writ jurisdiction. Since the Court had already concluded that the designated officer lacked jurisdiction to treat the settlement of enforcement proceedings as a taxable supply under Section 7 read with Entry 5(e), the case fell within the recognised exception permitting interference in writ proceedings. The dispute did not require factual adjudication of the kind that would justify relegating the petitioner to the statutory hierarchy. [Paras 86, 87]

The objection based on alternate remedy was rejected, and the petition was entertained and allowed.

Final Conclusion: The Court held that payment of damages under the arbitral award, and the consequential withdrawal or suspension of enforcement proceedings upon satisfaction of that award, did not amount to supply of services under the GST law. The impugned intimation and show cause notice were quashed, and the writ petition was entertained despite the alternate remedy since the assumption of jurisdiction itself was found to be untenable.

Validity of the common/consolidated show cause notices issued under Section 73 and 74 of the Central Goods and Services Tax Act, 2017 (‘the Act’) covering more than one tax period or financial years - fraud, willful misstatement or suppression of facts - Interpretation of "any period" under Sections 73 and 74 - Limitation under Sections 73(10) and 74(10) - monetary limit based on the tax demand proposed for issuance of show cause notice under Sub-Section (1) of Sections 73 and 74 of the Act - Pecuniary jurisdiction of proper officer.

Consolidated show cause notice - HELD THAT: - On an analysis of the scheme of the Act, the Court held that the expressions used across the statute such as "tax period", "financial year", "such period", and, in Sections 73 and 74, "any period", are used deliberately and in different contexts. The provisions relating to returns, annual returns and assessment may be structured with reference to tax periods or financial years, but proceedings for determination of tax under Sections 73 and 74 are default-specific and constitute a complete mechanism for demand and recovery. The reference to financial year in sub-section (10) of those sections is only a legislative reference point for limitation and does not restrict the power to issue notice under sub-section (1). The Court further held that sub-sections (3) and (4), which permit service of statements for periods other than those covered in the earlier notice, negate the contention that the proceedings must be financial year-specific. The prescribed form DRC-01 also did not support the assessees' contention, since the tax-period particulars in the form were not mandatory. Accordingly, reading Sections 73 and 74 as confined to one financial year would amount to rewriting the statute and rendering parts of the provision otiose. [Paras 33, 34, 35, 43, 57]

A common or consolidated show cause notice covering more than one tax period or financial year is permissible under Sections 73 and 74.

Fraud and non-fraud proceedings - HELD THAT: - The Court rejected the contention that inclusion of multiple periods in a notice under Section 74 would automatically extend limitation for periods which may, on facts, fall under Section 73. It held that invocation of the extended period under Section 74 is not automatic and depends upon a determination that fraud, wilful misstatement or suppression of facts is established. Unless those statutory conditions are made out, the limitation applicable would remain that under Section 73(10). The statutory scheme therefore preserves the assessee's protection on limitation, even where the notice is consolidated. [Paras 36, 37]

A consolidated notice does not enlarge limitation merely because it is issued under Section 74; each component of the demand remains governed by the limitation applicable on the facts found.

Pecuniary jurisdiction - Proper officer - HELD THAT: - The Court held that the relevant circular itself provides a mechanism for determining jurisdiction on the basis of the total amount involved in the proceedings and for transfer to the competent officer if the pecuniary limits change by reason of subsequent statements. Since adjudication would still be by the proper officer having requisite jurisdiction, no prejudice is caused merely because clubbing of periods may place the matter before an officer of higher rank. An assessee has no right to choose the adjudicating authority. [Paras 38, 39, 40, 41]

The objection founded on pecuniary jurisdiction was rejected.

Period-wise limitation - Time-barred component of demand - HELD THAT: - The Court held that the protection under sub-section (10) of Sections 73 and 74 is not lost because a single notice covers more than one period. Each component period included in the notice has to independently satisfy the statutory test of limitation. If any part of the notice pertains to a period beyond limitation, that part alone would be liable to be excluded as time-barred; the consolidated form of notice does not by itself defeat the defence of limitation. [Paras 42]

A consolidated notice is valid, but every period covered by it remains separately open to challenge on limitation.

Appellate remedy against Order-in-Original - Exclusion of limitation prejudice - HELD THAT: - In the appeals where the writ petitions had challenged not only the show cause notices but also the Orders-in-Original, the Court restored the legal position by holding the consolidated notices permissible. At the same time, since the respondents had pursued writ proceedings and the appellate authority had limited power to condone delay, the Court protected them by granting six weeks' time to file appeals and directing that the plea of limitation should not be raised if the appeals were filed within that period. In one matter, the show cause notice as well as the Order-in-Original were restored, while preserving the respondent's right to pursue appeal within the time so granted. [Paras 62, 63, 64, 65]

The impugned writ orders were set aside; show cause notices were restored, and in the cases involving Orders-in-Original the respondents were given time to file statutory appeals without objection on limitation if filed within the period granted.

Final Conclusion: The Court held that Sections 73 and 74 of the CGST Act do not prohibit issuance of a common or consolidated show cause notice for multiple tax periods or financial years. The orders of the learned Single Judge quashing such notices were set aside, the writ petitions were dismissed, the notices were restored, and in matters where Orders-in-Original were involved, time was granted to pursue statutory appeals without objection on limitation if filed within the period specified by the Court.

Validity of the Ex parte adjudication order and consequential demand - No Opportunity to reply to show-cause notice - Principles of natural justice. -HELD THAT: - The Court noted that the authority had proceeded on the basis of the material available and recorded discrepancies relating to short declaration of outward tax and short payment of tax. Since the alleged discrepancy was a factual matter requiring the petitioner's response on merits, and the petitioner asserted that material was available to show that the discrepancy did not exist, the Court held that it was appropriate to restore the matter to the stage of reply to the show-cause notice for fresh consideration. [Paras 6, 7, 8, 9]

The impugned adjudication order was set aside and the matter was remitted to the competent authority to receive the petitioner's reply to the show-cause notice and reconsider the case afresh, with all contentions kept open.

Final Conclusion: The writ petition was disposed of by setting aside the ex parte adjudication order and remitting the matter to the stage of reply to the show-cause notice for fresh consideration by the authority.

Validity of the assessment order- Absence of aDocument Identification Number(DIN) -Conditional entertainment of delayed writ petitions - HELD THAT: - The Court followed its earlier view in M/s. Cluster Enterprises Vs The Deputy Assistant Commissioner [2024 (7) TMI 1512 - ANDHRA PRADESH HIGH COURT] and in Sai Manikanta Electrical Contractors Vs The Deputy Commissioner, Special Circle, Visakhapatnam [2024 (6) TMI 1158 - ANDHRA PRADESH HIGH COURT],that absence of a DIN is an inherent defect sufficient to invalidate the impugned assessment orders. Though delay was objected to on the footing that service had been effected through portal upload, the Court did not finally adjudicate that controversy and instead took note of the practical difficulties faced by registered persons under the online GST regime. In order to balance those difficulties with the State's interest in tax administration, the Court held that delayed writ petitions in such cases could be entertained subject to deposit of 20% of the disputed tax. On that basis, the impugned orders were set aside and the matter was remanded for fresh assessment after affording due opportunity of hearing. [Paras 10, 11, 12, 13]

The impugned assessment orders were set aside for want of DIN and the matter was remanded to the Assessing Officer, subject to deposit of 20% of the disputed tax within the stipulated time, with adjustment of amounts already paid or recovered and exclusion of the intervening period for limitation.

Final Conclusion: The writ petition was disposed of by setting aside the impugned assessment orders on the ground that they lacked a DIN and by remanding the matter for fresh orders after hearing the petitioner. The relief was made conditional upon deposit of 20% of the disputed tax, with consequential directions regarding adjustment and limitation.

Validity of the rejection of waiver application - filed beyond three months from the notified date - Benefit of Notification No. 21/2024-Central tax - Directory time limit for waiver application -HELD THAT: - The Court held that the notification permitted a person desirous of filing an application to do so within three months from the date notified under sub-section (1), and the governing expression used was may. That expression was construed as enabling and directory, and not as creating a mandatory bar. Since the authority treated the period as a strict time-bound obligation and rejected the application only for delay, the rejection proceeded on an erroneous interpretation of law. [Paras 5, 6]

The rejection in FORM GST SPL-07 was quashed, and the first respondent was directed to consider the waiver application in accordance with law; pending such consideration, the show cause notice, summary notice and order in original were kept in abeyance.

Final Conclusion: The writ petition was disposed of by quashing the order rejecting the waiver application. The authority was directed to consider the application on merits in accordance with law, and the earlier demand proceedings were kept in abeyance until such consideration.

Challenged the authorisation issued under Section 69 and the arrest memo - Interim bail in writ proceedings - Scope of interim protection against criminal proceedings - Proceedings under Sections 73 or 74 of the CGST Act. - HELD THAT: - The Court noted that the order under challenge was only an interim order granting bail and that it was not the Revenue's case that the respondent's custody was required for further investigation. On examining the interim orders passed in the connected writ petitions, the Court held that those orders stayed further criminal proceedings alone and did not impede the Revenue from proceeding with adjudicatory action under Sections 73 or 74 of the CGST Act. In that view, and since custody was found unnecessary at that stage, the Court declined to entertain the appeal. The contention regarding the maintainability of the writ petition in the background of rejection of bail by the Magistrate was treated as academic in the present appeal and expressly left open. [Paras 8, 9, 10, 11, 15]

The writ appeal was dismissed; the interim bail order was left undisturbed, and it was clarified that the interim protection in the writ petitions was confined to criminal proceedings and did not bar action by the Revenue under Sections 73 or 74 of the CGST Act.

Final Conclusion: The Court declined to interfere with the interim bail order and dismissed the Revenue's appeal. It clarified that the interim orders in the pending writ petitions operate only against the criminal proceedings and do not prevent the Revenue from initiating or pursuing proceedings under Sections 73 or 74 of the CGST Act, while leaving the question of maintainability of the writ petition open.

Ex parte adjudication- wrongly availed input tax credit - No Opportunity to reply to show-cause notice - HELD THAT: - The Court noted from the record that the impugned adjudication order had been passed ex parte. In view of the petitioner's statement that, due to a bona fide lapse, no reply had been filed to the show-cause notice, and that a reply would be submitted if an opportunity were granted, the Court held that it was appropriate to set aside the adjudication order and remit the matter for fresh consideration, leaving all contentions open. The Court further clarified that the amount already recovered would abide by the result of the fresh proceedings, and that the bank account attachment made for recovery could not survive once the adjudication order itself was set aside. [Paras 4, 5, 6, 7]

The ex parte adjudication order was set aside and the matter was remitted for fresh consideration after permitting the petitioner to file a reply to the show-cause notice; the prior recovery and bank account attachment were made subject to, and stood affected by, the remand.

Final Conclusion: The petition was disposed of by setting aside the ex parte adjudication order and remitting the matter for fresh consideration after affording the petitioner an opportunity to reply to the show-cause notice. Recovery already made was made subject to the outcome of the fresh proceedings, and the bank account attachment was also set aside.

Principles of Natural Justice - non-consideration of the reply and the acceptance of a conditional pre-deposit arrangement - Bank Account Attachment - HELD THAT:- The case of the Petitioners appears to be that the reply of the respective Petitioners has not been considered and discussed in the impugned order and therefore, there is a manifest violation of Principles of Natural Justice.

It is noticed that the allegations against the respective Petitioners is that they had not produced any document to substantiate inward movement of the goods for them to validly avail Input Tax Credit to pass on the same and therefore the machinery under Section 122(1)(ii) and 122(1)(vii) of the respective GST Enactment has been pressed against the Petitioner.

Recording the petitioners' undertaking to deposit 10% of the disputed tax, the Court remitted the matters for fresh adjudication on merits, directed filing of replies with supporting documents, and provided for lifting of bank attachment on compliance.

Educational institution- Academic coaching services provided to students of Standards 5 to 12 under the GSEB/CBSE curriculum - Exemption under Entry 66 of Notification No. 12/2017-Central Tax (Rate) as services of an educational institution, Or are taxable as commercial training and coaching services under Notification No. 11/2017-Central Tax (Rate) -HELD THAT: - The supplementary education provided by the applicant is NEITHER pre-school education and education up to higher secondary school or equivalent NOR education as a part of a curriculum for obtaining a qualification recognised by any law for the time being in force NOR ‘education as a part of an approved vocational education course’ and is therefore not covered under the definition of “Educational Institution” as defined under Para- 2(y) of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017. Since, the exemption under Entry No.66 of the aforementioned Notification is available only to ‘Educational Institutions’ as discussed earlier, the said exemption is not available to the applicant as it is not covered under the definition of ‘Educational Institution’ ( FC We also find that the said service provided by the applicant is not covered under any of the chapter, section or headings under the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 which implies that no exemption is available to the services provided by the applicant under the said Exemption notification.

Since the applicant did not satisfy the definition of an educational institution, the exemption under Entry 66 was unavailable. The service was consequently classified under Heading 9992, Group 99929, Service Code 999293 as commercial training and coaching services, taxable at 18%. [Paras 8, 9, 10, 11, 12]

The coaching services were held taxable at 18% as commercial training and coaching services under SAC 999293, and not exempt as education services under Entry 66.

Final Conclusion: The Authority ruled that the applicant's coaching for students of Standards 5 to 12 is supplementary tuition and not a service provided by an educational institution within the meaning of the exemption notification. The service was therefore classified as commercial training and coaching service under SAC 999293 and held liable to GST at 18%.

Rental services of electric buses with operator - classifiable under Sl. No. 10(iii) -services of end-to-end operation & maintenance, plying them on prescribed route & schedule - Expression "fuel" for the purposes of Sl. No. 10(i) of Notification No. 11/2017-Central Tax (Rate) - Rate applicability for hiring of electric buses.

Rental services of road vehicles with operator - HELD THAT: - On the terms of the concession arrangement, the buses were given along with drivers, while the recipient had the exclusive right to determine routes, frequency and schedules under the deployment plan. The Authority therefore treated the arrangement as rental of buses with operator, consistent with the explanatory notes to SAC 996601 covering rental of buses with operators where the renter determines operational considerations. [Paras 12]

The service was held classifiable under SAC 996601.

Entry 10(i) and Entry 10(iii) - Electricity not treated as fuel - Residual rate entry - HELD THAT:- The Authority held that the decisive distinction between Entry 10(i) and Entry 10(iii) is whether the cost of fuel is included in the consideration. As the statute does not define fuel, its ordinary meaning had to be taken. On that basis, fuel was understood as a combustible material used to produce heat or power, whereas electricity was treated as a secondary form of energy and not a combustible substance. The Authority also drew support from the separate statutory recognition of electrically operated vehicles in the exemption notification, and held that where the legislature used a distinct expression for such vehicles, the word fuel in the rate notification could not be expanded by implication to include electricity. Once electricity was found to be outside the scope of fuel, Entry 10(i) ceased to apply and the service fell within the residual Entry 10(iii), attracting GST at 18%. [Paras 13, 14, 15, 16]

The service was held taxable under Entry 10(iii) at 18%, and not under Entry 10(i).

Final Conclusion: The Authority held that the applicant's activity is classifiable as rental services of road vehicles with operator under SAC 996601. Since electricity cannot be treated as fuel for Entry 10(i), the hiring of electric buses with operators was held taxable under Entry 10(iii) of Notification No. 11/2017-CT(R) at 18%.

Addition made on the basis of the statement recorded u/s. 132(4) - Corroborative evidence - Deemed dividend addition - Commercial transactions - Exemption on long term capital gains - Pure finding of fact

Statement recorded during search u/s 132(4) - Corroborative evidence - Undisclosed income - HELD THAT: - The Court accepted the Tribunal's view that the statement relied on by the Assessing Officer related to transactions of the company and not to the assessee in his individual capacity. It further held that, apart from the sworn statement, no corroborative evidence was brought on record to establish the alleged undisclosed income, and such confession by itself could not justify the addition. The Court also noticed that the assessee had not returned the disputed amount pursuant to the notice under section 153A and concurred with the Tribunal that reliance placed solely on the search statement was misplaced. [Paras 7, 8, 9]

The deletion of the addition based on the section 132(4) statement was upheld, and the first two questions were answered in favour of the assessee.

Deemed dividend u/s 2(22)(e) - Commercial transactions - Running account - Outstanding balances arising from continuing business dealings for purchase and sale of gold - HELD THAT: - The Court approved the Tribunal's finding that the Assessing Officer's theory of circuitous diversion of funds rested on conjectures and not on proper appreciation of the actual transactions. The accounts showed continuing commercial dealings and running accounts between independent concerns, and even the transactions between the assessee's proprietary concern and the company were found to be pure business transactions. The Court also accepted the Tribunal's reasoning that section 2(22)(e), being a deeming provision, must be strictly construed, and in the absence of any personal benefit to the shareholder, the impugned amounts could not be treated as deemed dividend. [Paras 13, 14]

The deletion of the addition under section 2(22)(e) was affirmed, and the third question was answered in favour of the assessee.

Bogus long term capital gains - Penny stock allegations - Pure finding of fact - HELD THAT: - The Court endorsed the Tribunal's reasoning that the Assessing Officer had proceeded on suspicion, alleged modus operandi and human probabilities without placing on record specific material connecting the assessee or the company in question with the alleged bogus long term capital gains racket. The Tribunal had found that the documentary record supported the genuineness of the transactions, that the transactions were through banking channels, demat accounts and subject to securities transaction tax, and that the company had not been shown to be a shell company. On that basis, the Court held that the Tribunal's conclusion was a pure finding of fact and did not raise any substantial question of law. [Paras 19, 20]

The challenge to deletion of the addition relating to exemption under section 10(38) failed, and the fourth question was answered against the Revenue.

Final Conclusion: The High Court dismissed the Revenue's appeal and affirmed the Tribunal's order deleting the additions relating to the alleged undisclosed income, deemed dividend and denial of exemption on long term capital gains. It held that the first three questions stood answered in favour of the assessee, while the fourth did not give rise to any substantial question of law.

Offence punishable u/s 276CC - petitioner had willfully failed to file the return of Income Tax - Jurisdiction to institute prosecution - Regular assessment and tax liability determination

Jurisdiction to institute prosecution - Transfer of case - petitioner's case was under the jurisdiction of the Income Tax Officer and no transfer of jurisdiction was shown. - HELD THAT: - The Court held that, under the statutory scheme, only the officer vested with jurisdiction by directions or orders is the AO. The petitioner was assessed under the jurisdiction of the Income Tax Officer, who had issued the show-cause notice and received the reply. In the absence of any order transferring the case to the respondent under the Act, the respondent lacked jurisdiction to continue the proceedings and launch prosecution. The sanction obtained from the Principal Commissioner was therefore treated as having been accorded without application of mind on the question of jurisdiction. [Paras 11, 12, 13]

The prosecution was held to be without jurisdiction and liable to be quashed on that ground.

Prosecution u/s 276CC - Prosecution for failure to furnish return - Regular assessment and tax liability determination - HELD THAT: - The Court held that, having regard to the proviso to Section 276CC, prosecution presupposed determination of the tax liability on regular assessment after giving credit to tax deducted at source and other payments. Since no proceedings had been undertaken for regular assessment and the respondent had not issued the requisite notice for enquiry or reassessment, initiation of prosecution was found void.

The Court further held, relying on K.C.Builders [2004 (1) TMI 7 - SUPREME COURT] that in the absence of initiation of penalty proceedings for failure to furnish the return, permitting the criminal case to proceed would be an idle and empty formality and an abuse of process. [Paras 13, 14, 15, 16]

The complaint was quashed as the prosecution under Section 276CC could not be sustained in the absence of regular assessment and penalty proceedings.

Final Conclusion: The Court quashed the criminal proceedings, holding that the respondent lacked jurisdiction to institute the complaint and that prosecution for non-filing of return could not be sustained without regular assessment and in the absence of penalty proceedings.

Reassessment u/s 148v/s assessment u/s 153C - Search assessment vis-a-vis Section 153C - Limitation for reopening - Principles of natural justice

HELD THAT: - The Court held that after the amendments brought into force from 01.04.2021, Sections 153A to 153C operate only within the limits expressly preserved by the amended provisions, and Section 153C does not apply to a search initiated on or after 01.04.2021.

In the absence of material in the affidavit showing that the search relied upon was prior to that date, the Court drew the statutory presumption that official acts had been regularly performed and treated the initiation under Section 148 as being in accordance with law.

Court further held that, on the facts recorded in the notice and order u/s 148A, the escaped income alleged exceeded the threshold contemplated for the extended period, and the notice dated 31.03.2022 had been issued before expiry of limitation. The objection to jurisdiction as well as the challenge based on limitation therefore failed. [Paras 33, 35, 36, 37, 38]

Principles of natural justice - Opportunity of hearing in faceless assessment - HELD THAT: - Although the Court upheld the validity of the reopening, it found that the petitioner's explanation regarding non-participation in the subsequent proceedings, in the context of notices being sent through email and posted on the portal, constituted a reasonable cause. On that basis, the Court inferred a violation of principles of natural justice. The defect went to the assessment stage alone and not to the jurisdiction to reopen, and therefore the proper course was to quash only the assessment order and remit the matter for fresh adjudication after affording an opportunity to respond and be heard. [Paras 39, 40, 41, 42, 43]

Final Conclusion: The writ petition was partly allowed only to the extent of setting aside the assessment order for breach of natural justice. The reopening under Section 148 for Assessment Year 2018-2019 was upheld, and the matter was remitted for a fresh assessment after hearing the petitioner.

Reassessment limitation under substituted regime - Exclusion of time under deemed section 148A proceedings - Specified authority for sanction u/s 151

Reassessment limitation under substituted regime - Exclusion of time under deemed section 148A proceedings - TOLA applicability - The notice issued on 30.07.2022 under Section 148, the order under Section 148A(d), and the consequential reassessment for Assessment Year 2013-2014 - HELD THAT: - The Court held that the earlier notice issued on 30.06.2021 under the old regime had, by virtue of the law declared in Union of India Vs. Ashish Agarwal [2022 (5) TMI 240 - SUPREME COURT] to be treated as a notice under Section 148A(b), and that all defences under the amended provisions, including limitation, nevertheless remained available. Reading the amended Sections 148A and 149 together with the clarification in Union of India Vs. Rajeev Bansal [2024 (10) TMI 264 - SUPREME COURT (LB)] the Court held that, in computing limitation, the period from issuance of the deemed notice till supply of information and the response period allowed to the assessee had to be excluded. It further held that, once the assessee replied on 13.07.2022, the Assessing Officer had time till 31.08.2022 to pass the order under Section 148A(d); the order dated 30.07.2022 and the notice issued on the same date were therefore in time. The Court also noted that the extension principles flowing from TOLA and the exclusion of limitation recognised in In Re: Cognizance for Extension of Limitation [2022 (1) TMI 385 - SC ORDER] supported the conclusion that the proceedings were not time-barred. [Paras 38, 39, 40, 41, 42]

The challenge founded on limitation was rejected and the reassessment proceedings were held to have been validly initiated and completed within time.

Specified authority for sanction - Approval under section 151 - HELD THAT: - Construing Section 151 as amended with effect from 01.04.2021, the Court held that where more than three years had elapsed from the end of the relevant assessment year, sanction could be granted by any one of the authorities listed in clause (ii), including the Director General. Since the notice dated 30.07.2022 had been issued with the approval of the Director General of Income Tax (Investigation), the objection that approval ought to have been obtained only from the Principal Chief Commissioner was held to be untenable. [Paras 43, 44, 46, 47, 48]

The plea of lack of jurisdiction for want of proper sanction under Section 151 was rejected.

Final Conclusion: The Court dismissed the writ petition, holding that the impugned proceedings for Assessment Year 2013-2014 were neither time-barred nor unsupported by sanction of the specified authority. Liberty was, however, reserved to the petitioner to pursue the statutory appeal against the assessment order, and recovery was kept in abeyance for a limited period.

Third-party seized documents - Presumption under sections 132(4A) and 292C - Corroborative evidence - Retracted third-party statements - Estimated profit on unproved receipts - On-money allegation

Additions based on diary, pen drive and statements recovered from a third party -Presumption u/s 132(4A) and 292C - Corroborative evidence - Retracted third-party statements - Estimated profit on unproved receipts - Additions towards alleged cash receipts and the consequential estimation of profit sustained on basis of diary and pen-drive entries seized from a third party and on retracted statements of that party's employees - HELD THAT: - The Tribunal held that where the material is seized from the premises of a third party, the rebuttable presumption u/ss 132(4A) and 292C does not operate against the assessee. In such a case, the Revenue must bring independent corroborative evidence to establish that the entries represented actual cash receipts of the assessee. The loose sheets were neither in the handwriting of the assessee nor bore its signature, nothing incriminating was found from the assessee's premises, and no signed receipts or other supporting material were brought on record. The statements of the third party's employees, on the basis of which the Assessing Officer added two zeros to the figures recorded in the seized material, had also been retracted and were not treated as conclusive evidence against the assessee. Since the alleged receipts themselves were not proved by cogent evidence, the Commissioner (Appeals) was also not justified in treating them as business receipts and estimating profit thereon. [Paras 19, 20, 21, 23, 27]

The additions towards alleged cash receipts were directed to be deleted, and the Revenue's challenge to the 10% profit estimation failed because the very basis of the alleged receipts was not proved.

On-money allegation - Unregistered sale agreement - Contra entry - Lack of nexus with seized material - HELD THAT: - The Tribunal noted the finding of the Commissioner (Appeals) that the purchase of the two commercial spaces was recorded in the assessee's books and that the agreement itself did not refer to any cash payment. It further found that the Assessing Officer had not established any nexus between the seized material and the alleged on-money payment. In the absence of supporting evidence, the inference that the amount reflected in the contra entry represented on-money adjusted against cash payments due to the assessee was held to be mere guesswork and could not be upheld. [Paras 26]

The on-money inference for assessment year 2023-24 was rejected, and that component of the alleged cash-receipt addition was also directed to be deleted.

Final Conclusion: The Tribunal allowed all the assessee's appeals and dismissed all the Revenue's appeals. It held that the alleged cash-receipt additions, including the profit estimated thereon, were unsupported by conclusive and corroborative evidence, and that the separate on-money inference for assessment year 2023-24 was also based only on unsupported assumption.

Validity of reopening of assessment - Escapement below monetary threshold - Limitation for reassessment - scope of provisions of sec.149(1)(b) - notice issued beyond 03 years from the end of the assessment year - escaped income below Rs. 50 lakh

HELD THAT:- The Tribunal found that the notice had been issued beyond six years from the end of the relevant assessment year and therefore fell foul of the first proviso to section 149(1). It further held that, even on the amended scheme, the material relied upon by the Assessing Officer wrongly counted the same cash deposit of Rs. 17 lakhs twice under two reporting categories. On the correct facts, the total amount forming the basis of alleged escaped income was only Rs. 49,17,939 and not Rs. 50 lakhs or more. Consequently, the case fell within the category where the period available for issuance of notice was only three years from the end of the relevant assessment year.

Tribunal held that limitation must be tested on the basis of the actual transaction and not on duplicated or non-existing facts, and an otherwise time-barred notice cannot be validated by artificially enlarging the alleged escaped income. [Paras 6]

The notice under section 148 was held invalid as time-barred, and the reassessment order founded on it was vitiated; the remaining grounds were treated as infructuous.

Final Conclusion: The Tribunal allowed the appeal by holding that the notice issued under section 148 was barred by limitation, both because it was issued beyond six years and because, on the correct factual basis, the alleged escaped income was below the threshold attracting the extended period. As the notice was invalid, the reassessment order was also vitiated and the remaining grounds were not examined.

Scope of appellate jurisdiction - Directions beyond assessment year in appeal - Assessment year specific adjudication - Directions beyond scope of appeal - appellate authority directed reopening of assessments for earlier assessment years - HELD THAT: - The Tribunal held that when an appeal relates to a particular assessment year, the findings and directions in that appeal must be confined to that year alone. The appellate authority has no jurisdiction to travel beyond the scope of the appeal and issue directions concerning proceedings for earlier years.

Since the impugned direction to reopen A.Y.2015-16 and A.Y.2016-17 did not pertain to the assessment year under consideration, it was beyond the competence of the Commissioner (Appeals). The Tribunal therefore found it unnecessary to examine the separate question of validity of reopening under section 150. [Paras 7, 8]

The direction contained in paragraph 6.4 of the appellate order to reopen A.Y.2015-16 and A.Y.2016-17 was expunged.

Final Conclusion: The Tribunal allowed the assessee's appeal and expunged the direction issued by the Commissioner (Appeals) for reopening the assessments of earlier years. It confined the decision to the lack of appellate jurisdiction to issue such directions and left the merits of reopening under section 150 unexamined.

Rejection of books of account - Profit estimation on best judgment basis - Reasonableness of estimated profit rate

Rejection of books of account - Section 145(3) - Unverifiable expenditure - HELD THAT: - The Tribunal held that the books could validly be rejected because the assessee failed to produce verifiable labour records, third-party confirmations, project-wise details and reconciliations, while major expenses were supported only by self-made vouchers lacking credibility. The assessee's failure to respond to the show cause notice further supported the conclusion that the accounts were not reliable. [Paras 6, 7]

The rejection of books of account under section 145(3) was upheld.

Profit estimation on best judgment basis - Comparability analysis - Reasonable estimation of profit - HELD THAT: - The Tribunal accepted that estimation of profit was necessary once the books were rejected, but held that the adopted rate must still be fair and reasonable. It found that the Assessing Officer's 8% estimation was mainly based on large listed companies and on a section 44AD benchmark, though the assessee was a sub-contractor operating in remote and difficult terrain and the cited entities were not strictly comparable in scale and operations. It was further held that section 44AD could not be mechanically applied where turnover exceeded the prescribed limits. Since the declared profit of 2.28% was also unreliable in view of the rejected books, the Tribunal, considering the nature of business, defects in accounts and industry variability, estimated the profit at 5% of turnover. [Paras 6, 7]

The estimation at 8% was found excessive and was reduced to 5% of turnover.

Final Conclusion: The appeal was partly allowed. While the rejection of books of account was sustained, the estimated profit rate was reduced from 8% to 5% of turnover.

Validity of assessments framed u/s 153C for want of incriminating material found during search - Incriminating material in completed assessments - Addition of Deemed dividend addition in search assessment

Incriminating material in completed assessments - Search assessment of concluded years - Deemed dividend addition - HELD THAT: - The Tribunal held that the years in appeal were concluded assessments as on the date of search. It found that the alleged deemed dividend addition was founded on details already disclosed in the audited financial statements and balance sheets of the group companies, and not on any incriminating material unearthed during search. Following the coordinate bench decision in the assessee's own case for the earlier year and applying the principle stated in Principal Commissioner of Income-tax, Central-3 vs. Abhisar Buildwell (P.) Ltd. [2023 (4) TMI 1056 - SUPREME COURT] it held that completed assessments cannot be disturbed in search proceedings in the absence of incriminating material. On that basis, the addition was liable to be deleted. [Paras 14, 15, 16, 17, 19]

The deemed dividend addition was held unsustainable and stood deleted for all the years under appeal.

Validity of proceedings under section 153C vis-a-vis section 153A - Searched person and person other than searched person - HELD THAT: - The Tribunal examined the revenue's objection to the CIT(A)'s view that the assessee, being a searched person, ought to have been proceeded against under section 153A. It noted that the coordinate bench had earlier accepted that view on the strength of DCIT v. Sunil Kumar Sharma, but held that the said basis no longer survived in view of the later Karnataka High Court decision in C R Ram Mohan Raja [2025 (10) TMI 1344 - KARNATAKA HIGH COURT] which declared that Sunil Kumar Sharma [2024 (2) TMI 116 - KARNATAKA HIGH COURT] did not lay down the correct binding precedent on the scheme of sections 132, 153A and 153C. On that footing, the Tribunal held that there was no infirmity in initiating and completing the assessments under section 153C. [Paras 18, 19]

The revenue's challenge on the validity of proceedings under section 153C was accepted, and the assessment orders were held to be valid in law on that aspect.

Final Conclusion: The Tribunal held that the assessments framed under section 153C were legally valid, but the additions made for the concluded assessment years could not survive since no incriminating material relating to the impugned deemed dividend was found during search. The revenue's appeals were accordingly partly allowed.

Penalty issued u/s. 274 r.w.s. 270A - nature of misreporting of income - Specific charge under section 270A(9) - Validity of penalty notice

HELD THAT: - The Tribunal held that where penalty is sought to be imposed on the footing of misreporting, the AO must make the assessee aware of the specific clause of section 270A(9) alleged to be attracted, either in the assessment order or in the notice. Section 270A distinguishes underreporting from misreporting, and the higher penalty for misreporting can be invoked only upon a clear and specific allegation falling within one of the statutory limbs. In the present case, both the assessment order and the notice merely referred to misreporting without indicating which of the six limbs u/s 270A(9) was invoked. Such absence of a specific charge rendered the penalty unsustainable. [Paras 10, 11]

The penalty under section 270A was held to be unsustainable and was directed to be deleted.

Final Conclusion: The Tribunal allowed the appeal and held that, in the absence of any specification of the applicable limb of section 270A(9) in the assessment order or penalty notice, the penalty for misreporting could not stand. The penalty was accordingly directed to be deleted.

Penalty u/s 271(1)(c) - Furnishing of inaccurate particulars - disallowance of document and stamp charges in relation to increase in authorized share capital treating as capital expense

HELD THAT: - The Tribunal held that the governing principle stood concluded by CIT Vs. Reliance Petro Products Ltd. [2010 (3) TMI 80 - SUPREME COURT] namely, that penalty u/s 271(1)(c) is attracted only where there is concealment of income or furnishing of inaccurate particulars. Where all particulars are disclosed in the return and the claim is merely found to be legally untenable, that by itself does not amount to furnishing inaccurate particulars. Applying that principle, the Tribunal found that mere disallowance of the assessee's claim, in the absence of concealment or inaccurate particulars, could not justify the penalty. [Paras 5, 6]

The penalty levied under section 271(1)(c) was deleted.

Final Conclusion: The Tribunal allowed the assessee's appeal and deleted the penalty. It held that a mere disallowance of the claim for expenditure, without concealment of income or furnishing of inaccurate particulars, does not attract section 271(1)(c).

Transfer pricingAdjustment - Arm's length price of interest on rupee-denominated non-convertible debentures - Quantification of transfer pricing adjustment

TP Adjustment - Interest on rupee-denominated non-convertible debentures - Comparable uncontrolled price - interest paid at 10% on rupee-denominated non-convertible debentures issued to the associated enterprise - HELD THAT: - The Tribunal noted that the same rupee-denominated NCDs had been examined by the TPO in the first year of issue, namely assessment year 2014-2015, and the TPO had accepted interest at 10% as being at arm's length after taking SBI PLR as the relevant benchmark for rupee-denominated instruments. In the year under consideration, the CIT(A) accepted the same rate on the footing that the debentures were rupee denominated and the payment as well as redemption were in Indian currency. In these circumstances, and particularly in view of the earlier examination of the very same transaction, the Tribunal found no error or illegality in the CIT(A)'s acceptance of 10% as the arm's length price. [Paras 5]

Revenue's challenge to the deletion of the transfer pricing adjustment on interest paid on the NCDs was rejected.

Quantification of adjustment - Correction of interest amount - HELD THAT: - The Tribunal found from the record, including the transfer pricing order and the final assessment order, that the adjustment proposed on account of interest paid on the NCDs for the relevant year was Rs. 8,27,24,756/-. Since even the Department did not dispute that the CIT(A) had taken an incorrect amount, the Tribunal directed that the correct figure of interest on the NCDs be adopted for the year under consideration. [Paras 10]

The cross-objection was allowed and the AO was directed to consider the correct amount of interest on the NCDs at Rs. 8,27,24,756/-.

Final Conclusion: The Tribunal upheld the CIT(A)'s view that the interest paid at 10% on the rupee-denominated NCDs was at arm's length and dismissed the Revenue's appeal. It allowed the assessee's cross-objection to the limited extent of correcting the quantum of interest on NCDs to be considered for the year.

Reassessment u/s 147/148 - Tangible material - Accommodation entry allegations - Recorded reasons to believe

HELD THAT: - The Tribunal held that the recorded reasons proceeded only on an estimate of commission at 1 per cent on alleged accommodation entries. It found that no material collected in search or in post-search enquiries disclosed any actual commission income earned by the assessees. The reopening thus rested on conjectures and surmises rather than on tangible material.

Tribunal further held that the validity of reopening had to be tested strictly on the recorded reasons themselves, and the Revenue could not sustain the action by later elaboration. On that basis, the initiation of proceedings under sections 148/147 in all the three cases was held to be non est in law and was quashed. [Paras 5]

The assessees' challenge to the reopening succeeded, and the reassessment proceedings were quashed in all the appeals.

Final Conclusion: The Tribunal allowed all six appeals by holding that the reassessment notices and proceedings for assessment years 2011-12 and 2012-13 were founded only on estimated allegations without tangible material showing actual escaped income. The reopening was therefore quashed, rendering the remaining grounds academic.

Proceedings initiated u/s 153A - completion of assessment without referring to any incriminating material - Unexplained cash credit - Identity, creditworthiness and genuineness - Retracted third-party statements - Cross-examination and natural justice

Assessment u/s 153A - Search assessment jurisdiction - completion of assessment without referring to any incriminating material - HELD THAT: - The Tribunal found that the search had been conducted at premises which also constituted the registered office of the assessee, and the warrant in the name of another group concern and others was sufficient to sustain the Assessing Officer's assumption of jurisdiction u/s 153A. It further held that for AY 2017-18 the time for issuance of notice under section 143(2) had not expired on the date of search, and the year was therefore an abated assessment; consequently, the assessment was not confined only to material found during search. [Paras 15, 16]

The challenge to the proceedings under section 153A failed and grounds 1 to 3 of the assessee were dismissed.

Unexplained cash credit - Identity, creditworthiness and genuineness - Retracted third-party statements - Cross-examination and natural justice - HELD THAT: - The Tribunal held that section 68 requires an objective opinion based on proper appreciation of material. On the facts, the assessee had furnished confirmation, bank statements, financial statements, return acknowledgements and the share allotment return, and had also shown the source of funds in the hands of the investor. If the Assessing Officer still doubted the source in the subscriber's hands, further enquiry was required, but none was undertaken. The Tribunal found the reliance on retracted statements of alleged entry operators, unsupported by any contrary documentary material or evidence of cash movement, insufficient to dislodge the documentary evidence produced by the assessee. It also held that denial of cross-examination of the persons whose statements were used against the assessee vitiated the addition and that, on the same factual material, the appellate authority could not accept the unsecured loan from the company as genuine while simultaneously treating the share capital from that very company as unexplained. Since the funds were received through banking channels, sufficient balance existed in the investor's account, and no immediate cash deposits were shown, the assessee had discharged the burden under section 68. [Paras 32, 37, 39, 40, 41]

The deletion of the unsecured loan addition was affirmed and the addition on account of share capital was deleted; the Revenue's appeal was dismissed and the assessee's grounds on section 68 and section 115BBE succeeded.

Final Conclusion: The Tribunal upheld the validity of the assessment under section 153A for AY 2017-18, treating the year as abated. On merits, it sustained the appellate deletion of the unsecured loan addition and deleted the addition in respect of share capital, holding that section 68 could not be invoked merely on retracted statements without enquiry, corroborative material, or opportunity of cross-examination.

Service PE under India-US DTAA - computation of period of furnishing services in India - Solar days versus man days -Treaty overriding over domestic taxation - as submitted threshold period of 90 days under Article 5(2)(1) of the India-USA DTAA is not satisfied by computing only the unique solar days of presence of employees in India, instead of considering the cumulative man-days of each employee

HELD THAT: - The Tribunal accepted the CIT(A)'s reasoning that Article 5(2)(l) focuses on the period for which the service activity continues within the State, and not on multiplying overlapping presence of different employees on the same day. Where several employees were simultaneously present in India, the common days could not be counted repeatedly as cumulative man-days for crossing the 90-day threshold. On the material relied upon by the CIT(A), the employees were present in India only for 72 solar days, and therefore the threshold for constitution of a service PE was not met. In the absence of any other PE and there being no contrary precedent or distinguishing facts shown by the Revenue, the treaty provisions prevailed, with the result that the receipts could not be taxed as business income under section 44BB. [Paras 7, 8, 9]

The deletion of the addition was upheld, as no service PE existed in India and the assessee's business income was not taxable in India under the treaty.

Final Conclusion: Tribunal dismissed the Revenue's appeal and affirmed that, for Article 5(2)(l) of the India-USA DTAA, overlapping employee presence must be counted by unique solar days and not by cumulative man-days. Since the 90-day threshold was not crossed, no service PE existed and the receipts were not taxable in India as business income under section 44BB.

Maintainability of writ petition against show-cause notice - Challenged the impugned show-cause notices -HELD THAT:- The Court held that the petitions were directed against show-cause notices and, in view of the legal position noticed from the Supreme Court decision holding that ordinarily no writ lies against mere issuance of a show-cause notice, such petitions could not be entertained. The Court therefore declined to examine the merits and left it open to the petitioners to raise all legal issues before the concerned authority.

The writ petitions were dismissed as not maintainable, with liberty to the petitioners to raise all legal issues before the concerned authority.

Final Conclusion: The High Court dismissed the writ petitions on the ground that they were directed against show-cause notices and were therefore not maintainable. Liberty was reserved to the petitioners to urge all legal contentions before the competent authority.

Imposition of Penalty under Section 112(b) - Aiding and Abetting - Diversion of duty-free imported goods - Advance Authorisation conditions - Knowledge or Reason to Believe - Duty Evasion - Violation of Import Conditions - Customs broker's liability - facilitating transport of imported goods to premises other than those specified in the Advance Authorisation conditions - HELD THAT:- No dispute that as per Customs Notification 18/2015-Cus. dated 01.04.2015 read with the provisions of the Foreign Trade Policy and the Handbook of Procedures 2015-2020 during the relevant period; in order to enjoy the duty-free concession of customs duty.

The importer has admitted the fact that the goods were diverted and also remitted partial amount of the duty evaded; thus, clearly establishing the fact that the provisions of the said Notification and the Foreign Trade Policy were violated. It is also pertinent to mention that sales tax delivery notes which were handed over to the appellant and in turn, one of the copies was handed over to the truck driver knowing very well that the goods were being diverted for sale clearly establishes the fact that the appellant was aware that the goods are being diverted against the provisions of the Advance Authorization Licences. Therefore, the Revenue having clearly established the involvement of the appellant in aiding transportation of the imported goods to the places other than the premises mentioned in the Advance Authorised Licences, hence, the provisions of Section 112(b) of the Customs Act, 1962 are attracted since the goods are liable for confiscation. Accordingly, we sustain the penalty imposed by the Commissioner in the impugned order.

The penalty imposed on the appellant was sustained.

Final Conclusion: The Tribunal dismissed the appeal and affirmed the penalty on the appellant, holding that its knowing facilitation of diversion of duty-free imported goods from the authorised premises attracted penal liability.

Classification of goods - imported monodisperse aerosol generator - classifiable under Customs Tariff Item 90278090 and not under Customs Tariff Item 90328990 - analytical apparatus - Functional classification of composite systems - Extended period of limitation - suppression of facts.

Customs classification of analytical apparatus - HELD THAT: - The Tribunal found that the disputed product was an aerosol generator used for producing mono-disperse droplets and aerosol particles for physical and chemical analysis and that it formed an essential component of the entire analytical system. It did not operate in isolation and had no in-built mechanism to measure, control or maintain parameters on its own, nor any means to constantly or periodically measure the actual value or parameters of the generated aerosol, which was treated as necessary for classification under Heading 9032. On that functional assessment, the system apparatus, including the imported product, was held classifiable under Heading 9027 as an instrument or apparatus for physical or chemical analysis. [Paras 16, 17]

The departmental reclassification under Heading 9032 was rejected and the classification declared by the appellant under Customs Tariff Item 90278090 was accepted.

Extended period of limitation - Suppression of facts - HELD THAT: - The Tribunal held that, having regard to the nature of the dispute as one of classification and to the fact that the Department itself had adopted different classifications for the very same goods, the extended period could not be validly invoked. Following the ratio of the decisions relied upon by the appellant, it concluded that confirmation of differential duty and imposition of penalty by invoking the extended period of limitation was not sustainable on the facts of the case. [Paras 16]

The invocation of the extended period and the consequential demand with penalty were set aside.

Final Conclusion: The Tribunal held that the imported aerosol generator, being part of a system used for physical and chemical analysis and lacking the features necessary for classification under Heading 9032, was correctly classifiable under Customs Tariff Item 90278090. The differential duty demand, interest and penalty founded on extended limitation were held unsustainable, and the impugned order was set aside.

Refund of court-directed deposit - Applicability of interest on refund - Deposit pending appeal not treated as duty- Statutory refund provision - Notional interest - Binding effect of interim order -HELD THAT:- The Tribunal held that the interim order of the Supreme Court expressly permitted the deposit subject to the condition that, if the appeal succeeded, the amount would be refunded forthwith with applicable interest. Once the appeal was allowed, the department was bound to comply with that condition, and the appellant was not required to seek refund under section 27. Following Tata Refractories Ltd and Another vs Sales Tax Officer and Others [2002 (11) TMI 89 - SUPREME COURT], the Tribunal held that a deposit made pursuant to a court order is governed by the terms of that order and not by the statutory refund provisions. It further held, with reference to Commr of Cus (Preventive) vs Ghaziabad Ship Breakers Ltd [2010 (10) TMI 151 - GUJARAT HIGH COURT] and Daily Thanthi vs Commissioner of Customs (Appeals) and Ors. [2021 (2) TMI 94 - MADRAS HIGH COURT], that an amount deposited during pendency of appeal before the Supreme Court cannot be treated as duty. Consequently, the Commissioner's view that interest would arise only on delay beyond three months under section 27A was unsustainable. The expression "applicable interest" in the Supreme Court's order was construed to mean interest payable at the applicable rate, and since the department did not dispute 6% per annum as the applicable rate, that rate was directed to be paid from the date of deposit till payment. [Paras 36, 37, 40, 41, 42]

Interest at 6% per annum was held payable from the date of deposit till the date of payment on the amount deposited pursuant to the Supreme Court's interim order.

Final Conclusion: The appeal was allowed to the extent of denial of interest on the amount deposited pursuant to the Supreme Court's interim order. The Tribunal held that the refund and interest were governed by that order itself, and directed payment of interest at 6% per annum from the date of deposit till the date of payment.

Territorial Jurisdiction - Maintainability of writ proceedings - Statutory appellate remedy - Exclusion of time under Section 14 of the Limitation Act, 1963 on account of proceedings pursued before the High Court - Bona fide prosecution - Due diligence and good faith - Principles of Natural Justice - Limitation in appeal - Supervisory jurisdiction of High Court.

Statutory appellate remedy - Supervisory jurisdiction of High Court - HELD THAT: - The Appellate Tribunal held that the Companies Act creates a specific appellate forum against orders of the NCLT, and where such statutory remedy exists, recourse to writ jurisdiction cannot ordinarily be used to bypass that forum. It further held that the NCLAT is not subject to such supervisory control of the High Court as would permit directions affecting the Tribunal's adjudicatory function on limitation or merits. Once the High Court itself found the writ remedy not maintainable because of the statutory appeal, it ceased to have authority to pass directions on condonation of delay, since that question formed part of the Tribunal's own consideration in deciding maintainability of the appeal. [Paras 47, 49, 52, 59, 60]

The direction of the High Court that the appeal should not be dismissed on delay was held not binding on the Appellate Tribunal.

Exclusion of time under Section 14 - Bona fide prosecution - Due diligence and good faith - HELD THAT: - The Tribunal held that Section 14 is not available as a matter of course and can operate only where the prior proceeding was prosecuted bona fide, with due diligence and in good faith. On the facts, the appellants had been repeatedly informed by judicial orders that the proper remedy was an appeal before the NCLAT, yet they continued with the writ petition, writ appeal and review proceedings. That conduct was found inconsistent with bona fide prosecution, due diligence and good faith. The Tribunal also held that the benefit of Section 14, even if otherwise available, could be considered by the competent forum before which the appeal lay and not by the forum which had already held the proceedings before it to be not maintainable. It further observed that the special limitation scheme under the Companies Act prevails over the general law, and Section 14 could not be invoked in the absence of fulfilment of its conditions. [Paras 49, 51, 58, 59, 60]

Section 14 was held inapplicable, as the appellants had not established bona fide, due diligence or good faith in prosecuting the earlier proceedings.

Limitation in appeal - Statutory period under special law - Review period not excludable - HELD THAT: - The Tribunal held that limitation for the appeal had to be tested within the framework of Section 421(3) of the Companies Act, which is a self-contained provision under a special statute. Even on the appellants' own showing, the appeal had not been filed within the maximum permissible period, and the time consumed in pursuing the review before the High Court could not extend limitation. Since the appellants failed to bring their case within Section 14, and the High Court's directions on delay were not determinative, the delay application had to fail and the appeal itself was not maintainable as time-barred. [Paras 41, 43, 44, 59, 60]

The delay condonation application was rejected and the company appeal was dismissed as barred by limitation.

Final Conclusion: The Appellate Tribunal held that the appellants could not invoke the High Court's directions to overcome limitation, and that Section 14 of the Limitation Act was unavailable in the absence of bona fide, good faith and due diligence. The delay condonation application was rejected and the company appeal was dismissed as barred by limitation.

Res judicata- Abuse of process - seeking substantially the same reliefs on the same cause of action after dismissal of the earlier company petition -HELD THAT:- The Appellate Tribunal held that the later proceeding repeated the same controversy already adjudicated in the earlier company petition, since the reliefs sought in both matters were substantially identical, including challenge to the board resolutions, restoration of the appellant's position in the company and authority over bank operations. It rejected the contention that withdrawal of the civil appeal before the Hon'ble Apex Court prevented the earlier adjudication from attaining finality, holding that once the appellant chose to withdraw that appeal, he could not reopen the concluded dispute. The earlier orders, having been carried through the appellate process and left undisturbed, continued to hold the field, and any fresh attempt to agitate the same cause was an abuse of process. [Paras 7, 8, 9, 10]

The dismissal of the later proceeding as barred by res judicata was upheld and no interference in appeal was warranted.

Final Conclusion: The Appellate Tribunal held that the appellant's later proceeding was a repetition of the earlier concluded dispute and was therefore barred by res judicata and liable to be treated as an abuse of process. The company appeal was accordingly dismissed.

Seeking recovery of dues arising prior to initiation of the corporate insolvency resolution process - Extinguishment of pre-resolution claims - Clean slate theory - Statutory dues under approved resolution plan.

Clean slate theory - Approved resolution plan - Extinguishment of statutory dues - HELD THAT: - The Court held that, on approval of a resolution plan under the IBC, all claims not forming part of that plan stand extinguished, including statutory dues, and the successful resolution applicant takes over the corporate debtor on a clean slate. Applying that principle, the Court found that the impugned demand and recovery notices related to claims which had arisen before 25.07.2017 and, therefore, could not be pursued once the resolution plan had been approved. The notices were consequently unsustainable insofar as they sought to enforce pre-resolution liabilities. [Paras 9, 10, 11, 12]

The impugned demand notices relating to claims arising prior to approval of the resolution plan were set aside.

Final Conclusion: The petition was allowed. The Court held that the impugned notices sought to recover liabilities arising prior to the approved resolution plan and, being outside the plan, stood extinguished and were liable to be set aside.

Recall of orders - Inherent powers - Invocation of Rule 11 of the NCLT Rules 2016 -Review in disguise - Merger on appellate affirmation - Discovery of additional documents after dismissal of a section 9 application on merits can sustain a recall application under Rule 11 of the NCLT Rules, 2016. -HELD THAT: - The Appellate Tribunal held that recall is confined to cases of apparent procedural or similar infirmity in the order itself and cannot be used to reopen a decision on merits. Where the sole basis of recall is subsequent discovery of documents said to support the original claim, the application is in substance an attempt at review. Since the Code does not confer a power of review and Rule 11 does not enlarge inherent powers into a power to re-examine the merits, additional material discovered later cannot be made the foundation for recalling an order that was passed on merits. [Paras 16, 17, 21, 22, 23]

The recall application was rightly rejected, as it was a disguised attempt to review the earlier merits order on the strength of subsequently discovered documents.

Merger on appellate affirmation - Maintainability of recall - HELD THAT: - The Appellate Tribunal held that once the order rejecting the section 9 application stood affirmed in appeal, it could not be reopened by way of recall. Though the CPC provision referred to was treated only as guiding, the Tribunal accepted the principle that an order affirmed in appeal is not open to be recalled thereafter. The prior dismissal of the appeal against the main order therefore furnished an additional reason why the subsequent challenge to rejection of recall could not succeed. [Paras 11, 22, 23]

The Tribunal held that recall was not maintainable after the original order had already stood affirmed in appeal.

Final Conclusion: The Appellate Tribunal dismissed the appeal and upheld rejection of the recall application. It held that subsequent discovery of documents cannot justify recall of an order passed on merits, particularly when the original order has already stood affirmed in appeal.

Insolvency application - Acknowledgment of debt - barred by limitation - Applicability of Section 4 and Section 18 of the Limitation Act, 1963 - Computation of limitation when court is closed - default under section 7(3) - Written submissions vis-a-vis pleadings -

Interplay of Section 4 & 18 of the Limitation Act - barred by limitation - HELD THAT:- The Appellate Tribunal held that the communication dated 09.06.2016 was an admitted acknowledgment of liability and, there being no dispute to its execution before the Adjudicating Authority, it furnished a fresh starting point of limitation under Section 18. The Adjudicating Authority erred in treating the application as barred by one day without giving effect to Section 4, since the last days fell on Saturday and Sunday and the petition was filed on the reopening day, i.e. 10.06.2019. The respondent's attempt to describe the acknowledgment as having been written "inadvertently" could not be accepted, because execution of the document itself was admitted and no factual foundation was laid or proved to displace its contents. [Paras 18, 19, 24, 37, 38]

The finding that the application was barred by limitation was set aside and the petition was held to have been filed within time.

Prima facie proof of default under section 7(3) - Records of default - Balance-sheet admission - HELD THAT: - The Appellate Tribunal held that sub-section (3) of section 7 is not a substantive bar enabling rejection of an application merely because a particular form of record of default is not produced. The provision requires prima facie disclosure of liability and default, and the expression referring to information utility or other record means that information utility data is not the sole permissible mode of proof. On the material before the Tribunal, including the respondent's own balance-sheet extract and written statement acknowledging the unsecured loan due to the appellant, the existence of debt and default stood sufficiently shown. The Adjudicating Authority therefore misconstrued section 7(3) in rejecting the application. [Paras 27, 28, 29, 30, 35]

The rejection of the application on the ground of non-satisfaction of section 7(3) was held unsustainable.

Written submissions vis-a-vis pleadings - Plea of limitation - HELD THAT: - Referring to the definition of pleadings in rule 2(19) of the NCLT Rules, the Appellate Tribunal held that written submissions do not form part of pleadings. Consequently, a new plea having a material bearing on the merits, particularly limitation, cannot be raised for the first time in written submissions after conclusion of arguments, as such a course would leave the opposite party without an opportunity of rebuttal. Since no plea of limitation had been taken in the principal objection, the Adjudicating Authority ought not to have founded its decision on such later written submissions. [Paras 31, 32, 33]

The limitation objection introduced through written submissions could not validly sustain dismissal of the section 7 petition.

Final Conclusion: The impugned order rejecting the section 7 application was quashed. The Appellate Tribunal held that the application was within limitation, that the record disclosed debt and default sufficiently for admission, and directed the Adjudicating Authority to proceed further under sections 7 and 14 of the Code.

Scope of claim verification proceedings - Related party status - Avoidance proceedings - Claim verification by resolution professional - HELD THAT: - The Tribunal held that the Resolution Professional must first consider the claim on its own merits on the basis of the documents already supplied by the appellant. The earlier observations that the appellant appeared connected with the corporate debtor, including the observations touching Section 5(24) status, were held to be premature in the context of remand for claim determination and were therefore quashed. The question of related party status, if it arises, is to be considered independently after determination of the claim, first by the Resolution Professional and thereafter on the judicial side by the Adjudicating Authority if required. [Paras 5, 6]

The observations on related party status were quashed, and the Resolution Professional was directed to determine the claim uninfluenced by them.

Scope of claim verification proceedings - Avoidance proceedings - HELD THAT: - The controversy before the Adjudicating Authority was confined to the rejection of the appellant's claim by the Resolution Professional. Once the matter was being remitted for fresh determination of that claim, the Adjudicating Authority ought not to have made observations on the need for avoidance proceedings, as that travelled beyond the subject matter of the application. On that reasoning, the direction leaving it open to the Resolution Professional to initiate such proceedings was set aside. [Paras 6]

The observation in paragraph 7(c) of the impugned order was quashed as being outside the scope of the claim-rejection proceedings.

Consideration of claim documents - Remand for fresh claim determination - HELD THAT: - Taking note of the appellant's statement that the bank statements and supporting documents had already been supplied and were part of the appellate record, the Tribunal directed that those existing materials be taken into account while reconsidering the claim. The remand for fresh claim determination was therefore to proceed on the basis of the documents already furnished, and the time for such determination was extended from the date of upload of the appellate order. [Paras 5, 6, 7]

The Resolution Professional was directed to consider the claim on the basis of the documents already supplied, with the period for determination extended by two weeks from upload of the order.

Final Conclusion: The appeal was partly disposed of by quashing the observations on the appellant's related party status and by setting aside the direction concerning possible avoidance proceedings as being beyond the scope of the claim dispute. The Resolution Professional was directed to reconsider the appellant's claim on the basis of the documents already furnished, within the extended time granted.

Applicability of FEMA to unrealised export proceeds - siphoning of monies - Reasonable steps for realisation of export proceeds - Vicarious liability under Section 42 of FEMA.

Applicability of FEMA to unrealised export proceeds - HELD THAT: - The Tribunal accepted the adjudicating authority's findings that the GRs forming the subject matter of the present proceedings were distinct from those covered in the earlier proceedings and that the earlier order could not bar action in respect of different export bills. It further accepted that where the time for repatriation, as extended by RBI, expired when FEMA was in force, the default arose under FEMA and action was therefore competent under that enactment even in relation to earlier exports. The Tribunal also endorsed the finding that mere deposit of amounts in local currency in Sudan did not amount to taking all reasonable steps for repatriation, particularly when the exporters continued dealings with the same buyers and no sufficient material was shown to establish effective preventive or recovery action. [Paras 14, 15]

The pleas founded on the earlier FERA order, local-currency deposit, and non-applicability of FEMA were not accepted, and the contraventions of the FEMA provisions stood established.

Vicarious liability under Section 42 of FEMA - HELD THAT: - As regards Haresh Sanghvi, the Tribunal found it undisputed that he was a partner and that his own statement and the documents on record showed his involvement in efforts concerning export realisation, execution of export-related papers, and requests for extension of time. As regards Tushar P. Sanghvi, the Tribunal held that liability under Section 42 did not depend on holding the status of a director; his signatures on letters to the bank seeking extension of time and his conduct on behalf of the firm showed participation in running its affairs. In the absence of evidence that either appellant had taken steps to prevent the defaults, both were held answerable for the firm's established contraventions. [Paras 16, 17]

Both appellants were rightly held liable for penalty under Section 42 of FEMA.

Final Conclusion: The Tribunal upheld the finding of contravention under FEMA and held that both appellants were liable in their individual capacity for the firm's defaults. The appeals were accordingly dismissed.

Attachment of the corporate debtor's property - Section 32A immunity - Approved resolution plan and change in control - Clean slate doctrine - Change in management or control - Resolution plan approval - HELD THAT: - The Tribunal held that Section 32A, as interpreted in Manish Kumar Vs. Union of India (UOI) and Ors [2021 (1) TMI 802 - SUPREME COURT], gives statutory immunity to the corporate debtor and protects property covered by an approved resolution plan from attachment, seizure or confiscation in relation to offences committed prior to commencement of CIRP, provided the approved plan results in change of management to a person who is neither connected with the erstwhile management nor shown by the investigating authority to have abetted or conspired in the offence. Relying on that interpretation, the Tribunal rejected the respondent's contention that PMLA attachment could nevertheless continue merely because the property was alleged to represent proceeds of crime. It further noted that the claim of MHPL, on which the asserted liability of the appellant was premised, had already been rejected finally in insolvency proceedings, thereby removing the basis on which continuation of attachment in the hands of the corporate debtor was sought to be justified. [Paras 12, 13, 15]

The protection under Section 32A was held applicable, and the impugned confirmation order and provisional attachment order were set aside.

Final Conclusion: The Tribunal held that, upon approval and implementation of the resolution plan with a qualifying change in management, Section 32A barred continuation of action against the corporate debtor's property in relation to prior offences. The appeal was accordingly allowed and the impugned attachment orders were set aside.

Validity of the order-in-original - Demand of service tax - Failure to consider material contention - non-application of mind.

Failure to consider material contention - HELD THAT: - The Court found that the impugned order itself noticed the petitioner's stand, including reference to Notification No.30/2012 and the documents produced to show that the services related to transportation of goods. However, the order contained no finding on that contention and disclosed no reason for rejecting the petitioner's assertion despite the documents having been referred to. The defect, therefore, was one of non-application of mind and failure to consider a material defence, warranting fresh adjudication. The Court also observed that the petitioner's limitation contention for the period stated remained to be considered by the authority, and kept all merits open. [Paras 4, 6, 7]

The order at Annexure-A was set aside and the matter was remitted for fresh consideration after taking note of the observations in the order and the earlier directions referred to by the Court; all contentions on merits, including limitation, were left open.

Final Conclusion: The writ petition was disposed of by setting aside the impugned order-in-original on the ground that the authority had failed to deal with the petitioner's material contention and supporting documents. The matter was remitted for fresh consideration, with all merits, including limitation, kept open.

Validity of the Order-in-Original - Ex parte adjudication- Opportunity to reply to show-cause notice - service tax based on income tax returns.

Ex parte adjudication - HELD THAT:- The Court noted that the impugned adjudication order had been passed ex parte and considered it appropriate to follow the course adopted in the earlier order of this Court in connected matters dealing with similar adjudication. Since the petitioner sought liberty to place its reply and all questions on taxability, exemption, limitation and liability were expressly left open, the Court did not adjudicate the merits of the service tax demand. The determinative basis of interference was that the proceedings should be restored to the stage of reply to the show-cause notice so that the authority could reconsider the matter after affording opportunity and bearing in mind the observations extracted from the earlier order. [Paras 5, 8, 9, 10]

Authorities to take note of the observations made in order passed in [2024 (9) TMI 64 - KARNATAKA HIGH COURT] and connected petitions, to the observations at para-10 of the order as may be applicable. All contentions are kept open.

Final Conclusion: The writ petition was disposed of by setting aside the ex parte Order-in-Original and relegating the matter to the stage of reply to the show-cause notice. Consequential recovery action was also set aside, with liberty to the petitioner to file a fresh reply and with all contentions on merits left open.

Validity of the Order-in-Original - Fresh adjudication from show-cause notice stage - No Opportunity to file reply to show-cause notice.

Opportunity to file reply to show-cause notice - HELD THAT: - The Court noticed that the impugned demand had been raised under the Finance Act, 1994 on the basis of inputs received from the Central Board of Direct Taxes and information in the income-tax returns for the financial year 2016-2017. It also noted that in similar matters the Court had already set aside such orders and remitted them for reconsideration from the stage of reply to the show-cause notice, with specific observations to be kept in view by the authorities. As the petitioner asserted that the services in question had already been disputed at the personal hearing stage and sought an opportunity to place supporting records, the Court applied the same course, set aside the Order-in-Original, restored the matter to the show-cause notice stage, permitted a fresh reply, and kept all contentions on merits open. Consequentially, the recovery notice issued to a third party was directed to be rescinded. [Paras 10, 11, 12, 14]

The Order-in-Original was set aside and the matter was remitted to the stage of reply to the show-cause notice for fresh consideration, with all merits left open and the recovery notice to the third party rescinded.

Final Conclusion: The Court did not adjudicate the service tax demand on merits. It set aside the impugned Order-in-Original, restored the matter to the show-cause notice stage for fresh consideration in terms of the earlier order of the Court, and directed rescission of the consequential recovery notice issued to the third party.

Validity of the ex parte order-in-original, passed without a reply to the show cause notice and on the basis of material drawn from income-tax records -Failure to consider reply to show cause notice. - HELD THAT: - The Court noted from the order-in-original itself that the authority had proceeded on the basis of inputs received and declarations made under the Income Tax Act, and that the order had been passed ex parte since no reply to the show cause notice had been filed. Having regard to the petitioner's contention as to the nature of the income and taking note of the earlier directions issued by this Court in [2024 (9) TMI 64 - KARNATAKA HIGH COURT] and connected matters, the Court held that the matter required to be relegated to the stage of reply to the show cause notice, with all contentions on merits kept open and the authority directed to bear in mind the observations extracted from the earlier order, insofar as applicable. [Paras 4, 6, 8]

The order-in-original was set aside and the matter was remitted to the stage of reply to the show cause notice for fresh consideration, leaving all contentions open.

Final Conclusion: The writ petition was disposed of by setting aside the impugned order-in-original and remitting the matter to the adjudicating authority from the stage of reply to the show cause notice. The petitioner was permitted to file a fresh reply, and all contentions on merits were expressly kept open.

Doctrine of merger- appeal filed beyond the time limit prescribed for filing the appeal - inputs received from the Central Board of Direct Taxes - Service tax demand based on income-tax inputs - scope of taxable service under Section 65B(44) of the Finance Act, 1994 -

Doctrine of merger - Appeal dismissed as time-barred - HELD THAT: - The Court held that, since the appellate authority had rejected the appeal solely on the ground of delay and had not entered upon the merits, the order-in-original did not merge in the appellate order. On that basis, the validity of the order-in-original remained open to scrutiny in writ jurisdiction. [Paras 6]

The challenge to the order-in-original was held maintainable notwithstanding dismissal of the appeal as barred by limitation.

Service tax demand based on income-tax inputs - HELD THAT:- The Court noted that in [2024 (9) TMI 64 - KARNATAKA HIGH COURT] and connected matters, it had already dealt with demands raised under the Finance Act, 1994 on the basis of such income-tax inputs and had laid down guidelines for reconsideration, including examination of taxability, negative list, exemption, reverse charge liability, and limitation. Following the same course, and without adjudicating the petitioner's contentions on merits, the Court set aside the order-in-original and relegated the matter to the stage of reply to the show-cause notice, with all contentions kept open for fresh determination by the authority. [Paras 5, 7, 8, 9]

The order-in-original was set aside and the matter was remitted to the show-cause notice stage for fresh consideration in accordance with the earlier guidelines.

Final Conclusion: The petition was disposed of by holding that the time-bar dismissal of the appeal did not cause merger of the original adjudication order, thereby permitting examination of that order in writ proceedings. Following the earlier decision governing service tax demands founded on income-tax based inputs, the order-in-original was set aside and the matter was remitted for fresh adjudication from the show-cause notice stage, with all merits kept open.

Service classification - activity undertaken under the contract - manpower supply service or a job-work service in relation to agricultural produce - Exemption for services in relation to agriculture or agricultural produce. - Processing unmanufactured tobacco.

Contract for service - HELD THAT: - The Tribunal held that classification had to be determined from the terms of the agreement and the real nature of the arrangement. Applying the control, integration and multi-factor tests noticed by the Supreme Court in General Manager, U.P. Cooperative Bank Ltd. Vs Achchey Lal & Anr. [2025 (9) TMI 1712 - SUPREME COURT] and the distinction between a contract for service and a contract of service, it found that supervision, disciplinary control, wage liability and statutory compliance all remained with the contractor, while ITC was concerned with completion of identified job-work outputs. Clauses relating to production schedule, shift pattern and work area were treated as operational coordination within the factory and not as indicators of manpower supply. The agreement itself expressly described the arrangement as one for carrying out specified processing jobs and not for supply of manpower. The Commissioner (Appeals) was also found to have proceeded on an incorrect factual premise in stating that the agreement had not been produced and to have dealt with the controversy cursorily. [Paras 8, 9, 10, 11]

The contract was held to be a contract for service, and the impugned service was correctly classifiable under BAS and not MSS.

Agricultural produce - Exemption in relation to agriculture - Intermediate production process as job work - HELD THAT: - Having held the activity to fall under BAS, the Tribunal examined whether the work covered by the agreement and annexed job specifications was production or processing of goods for or on behalf of the client in relation to agriculture. It noted that under the pre-Negative List regime the exemption extended to BAS involving production or processing, including incidental or auxiliary services, when provided in relation to agriculture, and that the post-Negative List provisions used substantially similar expressions concerning intermediate production process as job work in relation to agriculture and services relating to agriculture or agricultural produce. Relying on the principles in Commissioner of Sales Tax, Lucknow Vs D. S. Bist and Sons, Nainital [1979 (9) TMI 168 - SUPREME COURT], and on the statutory definition of agricultural produce, the Tribunal held that minimal processing which does not alter the essential character of the produce does not take it outside the category of agricultural produce. Unmanufactured tobacco processed by the appellant retained that character, and the activities undertaken for the client, including incidental and auxiliary operations, remained in relation to agriculture or agricultural produce. [Paras 14, 15, 16, 17]

The appellant was held entitled to exemption for both periods, and the refund could not be denied on the grounds taken in the impugned order.

Final Conclusion: The Tribunal held that the appellant had undertaken job work in relation to processing unmanufactured tobacco and had not supplied manpower to ITC. The impugned order was set aside and the appellant was held entitled to consequential relief on the refund claim for the disputed periods.

Entitlement to succeed on the questions relating to utilisation of CENVAT credit for payment of service tax on services received from outside India - Reverse charge on imported services - Binding precedent.

CENVAT credit utilisation - HELD THAT:- The Court held that the substantial questions raised by the Revenue were already covered by the earlier coordinate Bench decision in Commissioner of Central Tax, GST West Commissionerate, Bangalore vs. Toyota Kirloskar Motors [2022 (1) TMI 396 - KARNATAKA HIGH COURT], which had followed the binding view taken in the earlier decisions of this Court on the same controversy. Since the coordinate Bench decision had answered the questions in favour of the assessee and had attained finality, the same was followed, and no substantial question of law was held to arise in the present appeal. [Paras 4, 5]

The appeal was dismissed by following the earlier coordinate Bench ruling, and the questions raised by the Revenue were held not to give rise to any substantial question of law.

Final Conclusion: Following the earlier coordinate Bench decision on the same questions, the Court held that no substantial question of law arose for consideration and dismissed the Revenue's appeal.