TaxTMI Updates e-Newsletter
May 10,2024

Opportunity of hearing under Section 75(4) of the GST Act - blocking of input tax credit - alternative efficacious remedy under Section 107 of the GST Act - supervisory jurisdiction under Article 227 - writs of certiorari and mandamus

Opportunity of hearing under Section 75(4) of the GST Act - writs of certiorari - supervisory jurisdiction under Article 227 - Validity of the impugned Form GST DRC-07 order insofar as it was alleged to have been passed without giving opportunity of hearing as contemplated under Section 75(4) of the GST Act. - HELD THAT: - The High Court examined the impugned order in Form GST DRC-07 and noted that the order records that the petitioner was afforded an opportunity of hearing, as reflected in paragraphs 5.1 to 5.9 of the impugned order. The Court found the petitioner's contention that no hearing was provided to be untenable on the face of the impugned order. Having held that the statutory opportunity of hearing was not denied, the Court concluded that interference under its supervisory jurisdiction under Article 227 was not warranted in the first instance and that the petitioner ought to pursue the statutory appellate remedy.

The challenge to the order on the ground of denial of opportunity of hearing was rejected and the petition was dismissed on this ground.

Blocking of input tax credit - writ of mandamus - alternative efficacious remedy under Section 107 of the GST Act - Prayer for interim relief directing respondent to unblock/release input tax credit and stay recovery proceedings. - HELD THAT: - The petitioner sought interim relief to unblock the Electronic Credit Ledger and to stay recovery of amount imposed by the impugned order. The Court observed the factual assertion that credit had been blocked but, in view of its finding that the impugned order recorded that hearing was given and given the availability of an alternative efficacious remedy, declined to grant the ad interim or interim reliefs sought. The Court directed the petitioner to avail the remedy under Section 107 of the GST Act to challenge the impugned order before the appellate authority rather than seeking extraordinary writ relief.

No interim relief to unblock input tax credit or to stay recovery was granted; petitioner to pursue remedy under Section 107.

Final Conclusion: The petition under Article 227 was dismissed: the Court found that opportunity of hearing had been given, refused interim relief to unblock input tax credit or stay recovery, and directed the petitioner to seek redress by filing an appeal under Section 107 of the GST Act.

Failure to consider reply - cryptic order - requirement of a speaking order - opportunity of personal hearing - remittance for re-adjudication - adjudication under Section 73 of the Central Goods and Services Tax Act, 2017

Failure to consider reply - cryptic order - requirement of a speaking order - Impugned order set aside for failure to consider the petitioner's detailed reply and for being cryptic without application of mind. - HELD THAT: - The Court found that the petitioner filed a detailed reply dated 11.10.2023 with supporting documents to the Show Cause Notice, but the Proper Officer's order merely recorded that the reply was 'not satisfactory' and asserted that no proper reply or appearance for hearing had been made. The impugned order did not evidence any consideration of the materials placed on record nor did it identify deficiencies in the reply or specify any documents or information required. Such treatment demonstrates the absence of application of mind and renders the order cryptic and unsustainable. Where a reply is on file, the adjudicating authority must consider it on merits and, if further particulars are required, specifically seek them rather than summarily rejecting the reply. The Court therefore set aside the impugned order for want of a speaking order and proper consideration of the petitioner's response. [Paras 6, 7, 8, 9]

Impugned order set aside for failure to consider the petitioner's reply and for being cryptic; Show Cause Notice remitted for fresh adjudication.

Opportunity of personal hearing - remittance for re-adjudication - adjudication under Section 73 of the Central Goods and Services Tax Act, 2017 - Procedure to be followed on remand: petitioner allowed to file further reply; Proper Officer to give personal hearing and pass a fresh speaking order within statutory time. - HELD THAT: - The Court directed that the Show Cause Notice be remitted to the Proper Officer for re-adjudication. The petitioner was granted 30 days to file any further reply. The Proper Officer is required to afford an opportunity of personal hearing, consider the replies and supporting material, and then pass a fresh speaking order in accordance with law within the period prescribed under Section 75(3) of the Act. The Court expressly refrained from commenting on merits and reserved parties' rights, limiting its intervention to procedural infirmities and remedial directions to ensure adjudication in accordance with statutory requirements. [Paras 9, 10, 11]

Show Cause Notice remitted for fresh adjudication; petitioner may file further reply within 30 days; Proper Officer to give personal hearing and pass a fresh speaking order within time prescribed by law.

Final Conclusion: Impugned order dated 05.12.2023 set aside for being cryptic and for failure to consider the petitioner's detailed reply; the Show Cause Notice is remitted for re-adjudication with liberty to file further reply, an opportunity of personal hearing to be afforded, and a fresh speaking order to be passed within the statutory period; merits left undecided.

Cancellation of GST registration - Retrospective cancellation - Failure to furnish returns - Section 29(2) of the Act - Objective satisfaction versus subjective satisfaction - Opportunity of hearing / natural justice - Effect on input tax credit

Show Cause Notice - Opportunity of hearing / natural justice - Failure to furnish returns - Validity of the Show Cause Notice and the impugned order insofar as they lacked particulars of personal hearing and did not inform petitioner of retrospective cancellation. - HELD THAT: - The Show Cause Notice dated 22.06.2022 did not specify the date, time, officer or place for personal hearing and merely recorded a digital signature; it also failed to put the petitioner on notice that registration could be cancelled retrospectively. The impugned order of 17.07.2022 similarly lacked reasons for retrospective cancellation and contained internal contradiction regarding receipt of a reply. For these deficiencies the notice and order cannot be sustained as providing adequate opportunity or intelligible reasons necessary for fair adjudication. [Paras 5, 6, 11]

Show Cause Notice and impugned order are defective for want of particulars of hearing and failure to notify retrospective cancellation; they cannot be sustained on that basis.

Section 29(2) of the Act - Retrospective cancellation - Objective satisfaction versus subjective satisfaction - Effect on input tax credit - Whether registration may be cancelled with retrospective effect under Section 29(2) and the standard for such retrospective cancellation. - HELD THAT: - Cancellation with retrospective effect under Section 29(2) is not to be applied mechanically; the proper officer may cancel from any retrospective date only if he 'deems fit' and such satisfaction must be grounded in objective criteria rather than mere subjective conclusion. Mere non-filing of returns for a period does not justify cancelling registration retrospectively to cover periods when returns were filed and the taxpayer was compliant. The court observed that retrospective cancellation carries consequences, including denying input tax credit to recipients, and therefore should be ordered only where such consequences are intended and warranted. [Paras 11, 12, 13]

Retrospective cancellation is permissible only upon objective satisfaction of the conditions in Section 29(2) and cannot be imposed mechanically merely for failure to file returns; consequential effects must be considered.

Cancellation of GST registration - Modification of order - Recovery and future proceedings - Appropriate remedial order in view of defects and the petitioner's non intention to continue registration. - HELD THAT: - Both parties sought cancellation of registration albeit for different reasons and the petitioner had earlier applied for cancellation and filed returns till 31.12.2021. Considering the defects in the notice and order and the petitioner's stated desire not to continue the registration, the court modified the impugned order to treat cancellation as effective from 22.06.2022 (date of the Show Cause Notice) instead of the retrospective date of 01.09.2018. The petitioner was directed to comply with Section 29 requirements. The respondents were clarified to remain free to pursue recovery of any tax, penalty or interest in accordance with law and to initiate retrospective cancellation in future after issuing proper Show Cause Notice and providing opportunity of hearing. [Paras 9, 10, 15, 16, 17]

Impugned cancellation order is modified: registration shall be treated as cancelled with effect from 22.06.2022; petitioner to comply with statutory requirements; respondents may pursue recovery and, if warranted, may seek retrospective cancellation after giving proper notice and hearing.

Final Conclusion: The petition is disposed of by quashing the defective retrospective cancellation to 01.09.2018 and modifying the order to record cancellation with effect from 22.06.2022; the petitioner must comply with Section 29, and the respondents remain free to recover dues and, if justified, to pursue retrospective cancellation after issuing proper Show Cause Notice and affording hearing.

Refund of erroneously paid tax - unjust enrichment - restitution - non-speaking order - eligibility under Section 54 of the Karnataka Goods and Service Tax, 2017 - requirement of supplier issuing credit note - quashing and refund direction

Refund of erroneously paid tax - non-speaking order - eligibility under Section 54 of the Karnataka Goods and Service Tax, 2017 - Validity of rejection of the petitioner's refund application and correctness of the appellate confirmation - HELD THAT: - The Tribunal's order rejecting the refund application was held to be unreasoned and non-speaking. The appellate authority confirmed rejection on the ground that the petitioner had not met eligibility criteria under Section 54 of the Karnataka GST Act and that the supplier ought to have issued a credit note before refund could be sought. The High Court examined the factual matrix: advance payment by the petitioner to the vendor, payment of GST by the vendor to the revenue, non-supply of goods, cancellation of the contract, recovery of the advance by encashment of the bank guarantee and retention of GST by the respondents despite absence of any tax liability. On these facts the Court found that the GST amount stood with the revenue though there was no tax liability, and that the rejection orders failed to address restitution/unjust enrichment principles applicable where tax has been paid without liability. The appellate authority's insistence that only the supplier could seek refund or issue credit note was rejected as a ground to deny the petitioner's claim in the peculiar facts of the case. [Paras 6, 7, 8]

Orders rejecting the refund application were set aside and the petitioner's refund claim allowed.

Unjust enrichment - restitution - quashing and refund direction - Appropriate relief and remedy to be afforded to the petitioner where tax was paid though no liability existed - HELD THAT: - Applying the principles of unjust enrichment and restitution to the admitted facts, the Court concluded that the GST amount retained by the revenue ought to be refunded to the petitioner. The Court exercised its discretionary relief tailored to the special facts: it set aside both the original and appellate orders, allowed the refund application and directed the revenue to refund the GST amount to the petitioner within a stipulated time. The Court clarified that the order was rendered on the peculiar facts and does not lay down any precedent or interpret provisions of the CGST Act and Rules for future application. [Paras 7, 8]

Directed refund of the GST amount to the petitioner and set aside the impugned orders, subject to the Court's statement that the order is confined to the case's peculiar facts.

Final Conclusion: Writ petition allowed; the orders rejecting the refund were quashed and the refund application allowed. The revenue is directed to refund the GST amount to the petitioner within eight weeks; the order is confined to the special facts of the case and is not to be treated as precedent.

Perquisites - fringe benefit - residuary delegation to prescribe other fringe benefits - essential legislative function - rule-making power under Section 17(2)(viii) - valuation of perquisites - benchmarking by reference to Prime Lending Rate of State Bank of India - arbitrariness and equality under Article 14

Perquisites - residuary delegation to prescribe other fringe benefits - essential legislative function - rule-making power under Section 17(2)(viii) - Validity of Section 17(2)(viii) of the Income Tax Act and Rule 3(7)(i) of the Income Tax Rules on the ground of excessive delegation of essential legislative function - HELD THAT: - Section 17(2)(viii) is a residuary, enabling provision that brings within the definition of 'perquisite' "any other fringe benefit or amenity as may be prescribed". The court applied the essential-legislative-function test from Municipal Corporation of Delhi v. Birla Cotton and related authorities and held that the legislature has laid down the guiding policy and standards in Section 17. The subordinate rule-making power to prescribe and value other fringe benefits is ancillary to that legislative framework and not an unbounded abdication of legislative function. Rule 3(7)(i), which treats interest-free or concessional loans as a fringe benefit and prescribes a method of valuation, falls within the demarcated rulemaking power conferred by Section 17(2)(viii) and does not amount to excessive delegation. [Paras 21, 22, 23, 31]

Section 17(2)(viii) and Rule 3(7)(i) are intra vires and do not constitute an excessive delegation of the essential legislative function.

Valuation of perquisites - benchmarking by reference to Prime Lending Rate of State Bank of India - arbitrariness and equality under Article 14 - Validity of Rule 3(7)(i) insofar as it benchmarks valuation of interest-free/concessional loans to the PLR of the State Bank of India and whether that benchmark is arbitrary or violative of Article 14 - HELD THAT: - Rule 3(7)(i) adopts SBI's PLR as a single, clear benchmark for computing the monetary value of the perquisite arising from interest-free or concessional loans. The court found that selecting SBI's PLR is not irrational or arbitrary: SBI, being the largest national bank, sets rates that influence other banks; a uniform benchmark promotes consistency, reduces litigation, and provides certainty for taxpayers and revenue authorities. Fiscal legislation is entitled to greater latitude; the uniform benchmark is a pragmatic, fair and constitutionally acceptable method of valuation and aligns with principles of good tax administration. [Paras 32, 33, 34]

Rule 3(7)(i) is not arbitrary and does not violate Article 14 in using SBI's PLR as the benchmark for valuation of the perquisite.

Final Conclusion: Appeals dismissed; Section 17(2)(viii) and Rule 3(7)(i) sustained as intra vires the legislative power and constitutionally valid, and the impugned High Court judgments are upheld; no order as to costs.

Temporary restraint on disposal of property pending search under Section 132(3) - sixty-day limit on orders under Section 132(3) (sub section 8 A) - requirement of a subsequent extension order to continue restraint beyond sixty days - unenforceability of an order after expiry of its statutory period

Sixty-day limit on orders under Section 132(3) (sub section 8 A) - requirement of a subsequent extension order to continue restraint beyond sixty days - unenforceability of an order after expiry of its statutory period - Whether freezing of the petitioners' bank accounts beyond sixty days pursuant to the order dated 30.04.2023 was sustainable under the Income Tax Act. - HELD THAT: - The Court examined sub section (8 A) to Section 132 and held that an order under sub section (3) cannot remain in force for a period exceeding sixty days from its date. The freezing order dated 30.04.2023 therefore ceased to have effect after sixty days, and no subsequent order extending the restraint was produced by the Revenue. Although the respondents relied on urgency arising from search operations and alleged suspicious transactions, they failed to furnish any cogent justification or any extension order to lawfully continue the freeze. Having given the Revenue opportunities to explain and to file a reply, the Court found no legal basis for perpetuating the restraint beyond the statutory period and declared the impugned order unenforceable beyond sixty days from its issuance. [Paras 8, 9, 10, 11, 12]

The freezing of the bank accounts pursuant to the order dated 30.04.2023 is unsustainable beyond sixty days and the accounts are to be defrozen immediately.

Final Conclusion: The writ petitions are allowed; the letter dated 30.04.2023 is declared unenforceable beyond sixty days from its issuance and the concerned bank accounts of the petitioners are directed to be immediately defrozen.

Reopening of assessment - Jurisdiction to reassess under Section 153C - Notice under Section 148A - Protective assessment - Non-obstante clause in Section 153C

Jurisdiction to reassess under Section 153C - Notice under Section 148A - Reopening of assessment - Protective assessment - Jurisdictional contention that reassessment proceedings should have been initiated under Section 153C and not under Sections 147/148/148A was remanded to the Assessing Officer for decision and recording of findings. - HELD THAT: - The Court noted that the reassessment proceedings against the petitioner arose from information said to have been found during search operations at premises of the Omaxe Group and that Section 153C contains a specific, non-obstante provision for proceeding against persons other than the searched person. The petitioner complained that proceedings were initiated under Sections 147/148/148A instead of Section 153C and that she was thereby put to the burden of disproving a presumed unaccounted receipt. The Court observed that the question whether the Assessing Officer rightly invoked Sections 147/148/148A (and followed the procedure under Section 148A) instead of proceeding under Section 153C involves a jurisdictional determination which ought to be examined and recorded by the Assessing Officer when passing the final assessment/reassessment orders. The Court therefore did not decide the merits but directed that the Assessing Officer consider the applicability of Section 153C (and the consequences of its non-obstante clause), examine whether the procedure under Section 148A was properly invoked, provide the petitioner with the material relied upon, and record a reasoned finding on these jurisdictional aspects before concluding the proceedings. [Paras 18]

Proceedings remitted to the Assessing Officer to consider and record findings on whether reassessment should proceed under Section 153C or under Sections 147/148/148A and to pass final orders after affording necessary opportunity to the petitioner.

Final Conclusion: Writ petition disposed of; the matter is remitted to the Assessing Officer to examine and record a reasoned finding on the jurisdictional issue of invoking Section 153C versus Sections 147/148/148A and to pass final assessment/reassessment orders accordingly.

Reopening of assessment - Validity of notice under Section 148A(b) and Section 148 - Requirement of approval under Section 151 for issuance of notice after three years - Change of opinion - Liberty to revenue to initiate fresh reassessment subject to law

Validity of notice under Section 148A(b) and Section 148 - Requirement of approval under Section 151 for issuance of notice after three years - Whether the notices dated 26 May 2022 and 30 July 2022 and the order dated 30 July 2022 reopening assessment for AY 2017-18 were valid in law. - HELD THAT: - The Court concluded that the challenge is governed by the prior decision in Twylight Infrastructure Pvt. Ltd. v. ITO & Ors., which held that where reopening occurs after more than three years the approval of the specified authority indicated in Section 151(ii) of the Act is required. Counsel for the Revenue did not dispute the applicability of that decision. Applying Twylight Infrastructure, the Court found that the Principal Commissioner who issued the impugned notice did not fall within the specified authorities under Section 151, rendering the notices and consequential order legally infirm. The Court therefore quashed the impugned notices dated 26 May 2022 and 30 July 2022 and the order dated 30 July 2022, while expressly preserving the revenue's statutory right to initiate reassessment proceedings afresh in accordance with law, as set out in paragraphs 28-30 of Twylight Infrastructure. [Paras 11, 12]

Impugned notices dated 26 May 2022 and 30 July 2022 and order dated 30 July 2022 quashed for lack of requisite approval under Section 151; liberty granted to revenue to commence reassessment as per law.

Final Conclusion: Writ petition allowed; notices dated 26 May 2022 and 30 July 2022 and order dated 30 July 2022 quashed in respect of AY 2017-18, subject to the revenue's liberty to proceed afresh in accordance with law as indicated in Twylight Infrastructure.

Tax deducted at source (TDS) credit - Assessee protection against direct demand where tax is deductible at source under Section 205 of the Income Tax Act - Non-enforcement of demand on account of TDS mismatch - Duty of the deductor to deposit TDS and jurisdiction of Assessing Officer (TDS) for defaulting deductor - Effect of CBDT circulars and office memorandum on TDS mismatch cases - entitlement to refund with statutory interest for recovery/adjustment made in the interregnum

Tax deducted at source (TDS) credit - Assessee protection against direct demand where tax is deductible at source under Section 205 of the Income Tax Act - Non-enforcement of demand on account of TDS mismatch - Effect of CBDT circulars and office memorandum on TDS mismatch cases - Whether the assessee is entitled to credit of TDS deducted by the employer notwithstanding that the deductor failed to transmit the entire amount to the Government and a demand was raised on account of TDS mismatch. - HELD THAT: - The Court found that tax was in fact deducted at source by the employer but only part of that deducted amount was reflected in Form 26AS because the deductor did not transmit the full amount to the Government. Section 205 bars direct demand against the assessee to the extent tax has been deducted from his income. The CBDT circular of 01.06.2015 and the office memorandum of 11.03.2016 reiterate that assessing officers should not enforce demands created on account of credit mismatches resulting from non-deposit by the deductor. Reliance on precedents where High Courts directed grant of TDS credit or refund where the mismatch was attributable to the deductor supports the conclusion that the department cannot deny the benefit of TDS to the assessee on that ground. Applying these principles to the facts, the Court held that the department shall not enforce the demand arising from the mismatch and the petitioner is entitled to have the credit of TDS given to him. [Paras 10, 12, 13, 14, 15]

Credit of the TDS deducted by the employer for AY 2013-14 shall be given to the petitioner and the demand raised on account of the TDS mismatch cannot be enforced coercively.

Duty of the deductor to deposit TDS and jurisdiction of Assessing Officer (TDS) for defaulting deductor - entitlement to refund with statutory interest for recovery/adjustment made in the interregnum - Consequences and relief where the department had effected any recovery or adjustment in the interregnum and the timeframe for refund. - HELD THAT: - The Court noted that the statutory duty to deposit TDS lies on the deductor and that the jurisdiction to take action against the defaulting deductor lies with the Assessing Officer (TDS) of the deductor. The Court ordered that if any recovery or adjustment is made by the department in the interregnum on the basis of the mismatch, the petitioner shall be entitled to refund with statutory interest. The department is directed to grant the refund, with interest, within eight weeks from receipt of a copy of the judgment. [Paras 4, 6, 15, 16]

If any recovery or adjustment has been made, the petitioner shall be entitled to refund with statutory interest and the refund shall be paid within eight weeks from receipt of certified copy of this judgment.

Final Conclusion: Writ petition allowed; the petitioner shall be given credit for the TDS deducted by his employer for AY 2013-14, the demand arising from the TDS mismatch cannot be coercively enforced, and if any recovery/adjustment was made meanwhile the department shall refund the amount with statutory interest within eight weeks; no order as to costs.

Discharge of onus under Section 68 (cash credits) - Rejection of books of accounts and estimation of income by application of percentages - Concurrent findings of fact and limited scope for appellate interference - Requirement of recording of satisfaction/reasons before rejecting books

Discharge of onus under Section 68 (cash credits) - Identity, creditworthiness and genuineness of transactions - Addition under Section 68 in respect of cash credits was deleted on facts. - HELD THAT: - The Tribunal and the Commissioner (Appeals) found on the material placed before the Assessing Officer - confirmation cum contra account, PAN, address, return of income, audited accounts, bank statements and related documents - that the assessee had established identity, creditworthiness and genuineness of the cash credits. In respect of the parties in question (including the party shown as creditor in its books), transactions were recorded in the books of the counterparties and no adverse material or inquiry was shown to controvert the authenticity of those documents. On that factual basis the appellate authorities concluded that the primary onus under Section 68 was discharged and deleted the additions. The High Court recorded that these are findings of fact concurrently reached by the CIT(A) and ITAT and there was no substantial question of law warranting interference. [Paras 3, 4]

Deletion of the additions made under Section 68 upheld; Revenue's challenge dismissed.

Rejection of books of accounts and estimation of income by application of percentages - Requirement of recording of satisfaction/reasons before rejecting books - Concurrent findings of fact and limited scope for appellate interference - Net profit/turnover addition based on rejection of books was deleted. - HELD THAT: - The Tribunal accepted the CIT(A)'s finding that the assessee had furnished audited accounts, ITR, audit report and details of gross and net profit ratios for preceding years, and that the Assessing Officer had not recorded any proper satisfaction or reasons while rejecting the books. The appellate authorities concluded that the AO's rejection was not justified and that the reduction in profit ratios in the year under consideration, even with increased turnover, did not justify the 5% turnover addition. These concurrent factual conclusions led to dismissal of Revenue's ground challenging deletion of the net profit addition. [Paras 3, 4]

Deletion of the net profit/turnover-based addition upheld; Revenue's challenge dismissed.

Final Conclusion: Both the deletion of additions under Section 68 and the deletion of the net profit/turnover addition were upheld by the CIT(A) and the Tribunal on the basis that the assessee had furnished requisite documents and the Assessing Officer had not recorded requisite satisfaction; concurrent findings of fact being determinative, the High Court dismissed the revenue appeal.

Power to amend order to rectify any mistake apparent from the record under section 254(2) - mistake apparent on the face of the record - finality of Tribunal's factual findings - quashing of appellate order for making a finding based on surmise

Mistake apparent on the face of the record - quashing of appellate order for making a finding based on surmise - Whether the ITAT's reversal of the Commissioner(A)'s deletion of the addition for shortage of coal, by observing that the assessee must have claimed the loss from transporters, amounted to an error apparent on the record and warranted quashing of the impugned order. - HELD THAT: - The court accepted that the assessee had filed before the AO and again before the Commissioner details of shortage on account of transportation loss of coal and that revenue did not dispute filing of those details before the lower authorities. The Tribunal, however, reversed the Commissioner by expressing an opinion that the Commissioner had not observed whether the shortage was claimed from the transporters and by holding that the assessee must have claimed it. The High Court found no material to show that the AO had made any contrary verification or positive finding demonstrating existence of the coal; rather the Tribunal's conclusion was founded on surmise that the shortage should have been passed on to transporters. The court held that the Commissioner, sitting in appeal, had no occasion to adjudicate the factual issue of whether the loss was passed to transporters, and that the Tribunal, as the last fact-finding forum, could not substitute a surmise for evidence. That constituted a mistake apparent on the record which justified setting aside the impugned order. [Paras 10, 11]

Impugned ITAT order reversing the Commissioner(A) on the shortage of coal was vitiated by an apparent error and is quashed.

Final Conclusion: The writ petition is allowed to the extent that the impugned ITAT order is set aside and quashed on the ground of an apparent error; the High Court has not entered into the merits of the underlying claim.

Deduction under section 80P(2)(a)(i) - income attributable to a co-operative society's credit business - Deduction under section 80P(2)(d) - interest from investments with another co-operative society - Characterisation of interest as income from other sources versus business/operational income - Co-operative bank governed by the Banking Regulation Act excluded from section 80P - Cost of funds deduction under section 57(iii)

Deduction under section 80P(2)(a)(i) - income attributable to a co-operative society's credit business - Characterisation of interest as income from other sources versus business/operational income - Claim of deduction under section 80P(2)(a)(i) on interest earned from investments with KDCC Bank - HELD THAT: - The Tribunal upheld the view that deduction under section 80P(2)(a)(i) is available only for income attributable to the society's business operations. Applying Totgars Co-operative Sales Society (Supreme Court) and related authorities, the interest earned by the assessee on fixed deposits with KDCC Bank was held not to be operational/business income but income from other sources; the character of the income is not altered by statutory or regulatory requirements to invest reserve or maintain statutory liquidity. The assessee's inability to demonstrate that the interest was attributable to its credit business led to denial of the deduction under section 80P(2)(a)(i). [Paras 12]

Deduction under section 80P(2)(a)(i) on the interest income from KDCC Bank denied.

Deduction under section 80P(2)(d) - interest from investments with another co-operative society - Co-operative bank governed by the Banking Regulation Act excluded from section 80P - Claim of deduction under section 80P(2)(d) for interest received from KDCC Bank - HELD THAT: - Section 80P(2)(d) permits deduction for interest/dividend derived from investments with another co-operative society. The Tribunal followed the Supreme Court's analysis in KSCARDB that where the payer is a co-operative bank which operates under a licence from the Reserve Bank of India and is governed by the Banking Regulation Act, such an entity falls outside the mischief of section 80P. The record showed KDCC Bank to be a scheduled/co-operative bank governed by the Banking Regulation Act, a finding not disputed by the assessee; accordingly interest from KDCC Bank cannot be treated as income from investment in 'another co-operative society' for the purposes of section 80P(2)(d). [Paras 13]

Deduction under section 80P(2)(d) for interest from KDCC Bank denied.

Cost of funds deduction under section 57(iii) - Characterisation of interest as income from other sources versus business/operational income - Claim for allowance of cost of funds under section 57(iii) in respect of interest income treated as income from other sources - HELD THAT: - Although the Tribunal held the interest to be income from other sources and not eligible for section 80P deductions, it recognised that net taxable income should reflect expenses incurred in earning that income. Relying on the jurisdictional High Court and coordinate-bench decisions, the Tribunal directed that the assessee be permitted to claim cost of funds under section 57(iii). The matter of quantification of the allowable cost of funds was not adjudicated on merits and is remitted to the assessing officer for determination after the assessee furnishes requisite details. [Paras 14]

Issue of cost of funds remitted to the assessing officer for determination; assessee to furnish details.

Final Conclusion: Both appeals partly allowed: deductions under sections 80P(2)(a)(i) and 80P(2)(d) on interest from KDCC Bank denied; claim for allowance of cost of funds under section 57(iii) remitted to the assessing officer for quantification.

Fees for Technical Services (FTS) - Article 12(3)(b) of India Sweden DTAA - Most Favoured Nation (MFN) clause - Rule of consistency in tax assessments - Taxability of non-resident receipts - Interpretation of tax treaties

Article 12(3)(b) of India Sweden DTAA - Fees for Technical Services (FTS) - interpretation of tax treaties - rule of consistency in tax assessments - Payments received by the non-resident assessee for providing various IT, managerial, technical and consultancy services to Indian group entities are FTS under Article 12(3)(b) of the India Sweden DTAA and taxable in India. - HELD THAT: - The tribunal examined the contracts and services rendered (business application services, end-user and shared infrastructure, voice support, IT service desk, secured network access and business consultancy) and found that these comprise managerial, technical and consultancy services. Article 12(3)(b) of the India Sweden DTAA defines FTS expansively to include payments for rendering managerial, technical or consultancy services including provision of services by personnel. Treaty interpretation follows the language of the convention; on that basis the receipts fall within the wide scope of FTS. The rule of consistency invoked by the assessee (re-characterisation prevented because earlier years were treated as royalty) was rejected: each assessment year is an independent unit, res judicata does not apply to tax assessments, and an earlier erroneous characterisation cannot bind the tax authorities indefinitely. The Assessing Officer examined the nature of services in the relevant year and rightly characterised the receipts as FTS; therefore the classification is sustainable and taxable under the treaty. [Paras 15, 16, 17, 18, 19]

Payments constitute FTS under Article 12(3)(b) of the India Sweden DTAA and are taxable.

Most Favoured Nation (MFN) clause - interpretation of tax treaties - The contention that the MFN clause in the Protocol to the India Sweden DTAA imports the more restrictive FTS definitions of India Portugal or India Finland DTAAs was rejected. - HELD THAT: - The assessee conceded that the Supreme Court s decision in AO v. Nestle SA is binding and adverse to the assessee's MFN contention. Accordingly the tribunal held that the MFN argument cannot be advanced to narrow the scope of Article 12(3)(b) of the India Sweden DTAA and that the more restrictive definitions under other treaties are not to be imported for the purpose of the present DTAA. [Paras 9, 20]

MFN clause cannot be invoked to import the restrictive FTS definitions; ground accordingly rejected.

Interest verification and rectification - assessment officer's factual verification - Assessee's claim regarding levy of interest (rectification pending) was not finally decided and was directed to be verified by the Assessing Officer. - HELD THAT: - The tribunal noted that a rectification application filed by the assessee is pending before the Assessing Officer. On the facts and submissions, the tribunal remitted the matter and directed the Assessing Officer to verify the assessee's claim in light of the record, afford a reasonable opportunity of hearing and decide the issue in accordance with law. [Paras 21, 22]

Directed the Assessing Officer to verify and decide the interest claim after considering the rectification application and giving the assessee an opportunity of hearing.

TDS credit verification - assessment officer's factual verification - The issue of non-grant of TDS credit on interest under section 244A was remitted to the Assessing Officer for factual verification and decision in accordance with law. - HELD THAT: - Having heard parties, the tribunal directed the Assessing Officer to verify the assessee's claim regarding non-grant of TDS credit on interest and to decide the matter in conformity with the evidentiary record and applicable law after providing opportunity of hearing. [Paras 23, 24]

Directed the Assessing Officer to verify the claim and decide in accordance with law.

Premature ground dismissed - Ground no. 11 was held to be premature and dismissed. - HELD THAT: - The tribunal recorded that the ground raised at this stage was premature and therefore dismissed without adjudication on merits. [Paras 25]

Ground no. 11 dismissed as premature.

Final Conclusion: The appeal is partly allowed for statistical purposes: the tribunal upholds the Assessing Officer/DRP in treating the assessed receipts as FTS taxable under Article 12(3)(b) of the India Sweden DTAA; the MFN argument is rejected in view of binding Supreme Court authority; issues relating to interest and TDS credit are remitted to the Assessing Officer for factual verification and decision; one ground was dismissed as premature.

Presumptive taxation under section 44ADA - presumptive taxation under section 44AD - scope of adjustments under section 143(1) of the Income tax Act - processing of return by CPC under section 143(1) - addition of income appearing in Form 26AS

Presumptive taxation under section 44ADA - presumptive taxation under section 44AD - scope of adjustments under section 143(1) of the Income tax Act - Form 26AS entries - Whether the CPC was justified in invoking the presumptive provisions of section 44ADA while processing the return under section 143(1) when the assessee had declared income under section 44AD and gross receipts in Form 26AS were shown as professional receipts. - HELD THAT: - The assessee filed the return for AY 2017 18 declaring income on presumptive basis under section 44AD. The CPC, on the basis of entries in Form 26AS, treated the receipts as professional and applied section 44ADA while processing the return under section 143(1). Section 143(1) prescribes a limited scope of adjustments which includes specified arithmetical corrections, incorrect claims apparent from the return, certain disallowances and addition of income appearing in Form 26AS, subject to procedural safeguards. The Tribunal found that the CPC's action amounted to travelling beyond the statutory scope of adjustments permissible under section 143(1) by recharacterising the nature of the income and invoking section 44ADA without making a decision within the narrow confines of processing under section 143(1). Although the assessee did not adduce evidence at the appeal stage to substantiate the business character of receipts, the legal point adjudicated is that the prima facie adjustment effected by CPC in that manner was outside the power conferred by section 143(1). Consequently the intimation and its adjustment were set aside. [Paras 6, 7, 8]

The CPC's prima facie adjustment invoking section 44ADA while processing the return under section 143(1) was beyond the statutory scope and is set aside; the appeal is allowed.

Final Conclusion: The Tribunal set aside the intimation issued by CPC under section 143(1) insofar as it recharacterised the assessee's declared income by invoking section 44ADA, and allowed the appeal for AY 2017 18.

Transfer pricing adjustment - Associated enterprises as tested party - Principle of consistency in transfer pricing - Comparability under Rule 10B(2) - market conditions and geographical differences - Deduction under section 35(2AB) - weighted deduction for R&D - Treatment of contract R&D revenue for computing 35(2AB) - Allocation of interest to units eligible for deduction under sections 80IC/80IE - Sales promotion expenses and Explanation to section 37(1) - expenses prohibited by law - Investment allowance under section 32AC - treatment of Capital Work in Progress - Guarantee commission - arm's length pricing - Section 14A disallowance - nexus with exempt income (cannot exceed exempt income)

Transfer pricing adjustment - Associated enterprises as tested party - Comparability under Rule 10B(2) - market conditions and geographical differences - Principle of consistency in transfer pricing - Deletion of transfer pricing adjustments made for exports to Glenmark South Africa and Glenmark Mexico. - HELD THAT: - TPO rejected the assessee's benchmarking which treated the foreign AEs as tested parties and adopted the assessee as tested party instead, applying an ALP margin of 10.86% (OP/OC). The Tribunal examined the comparability factors under Rule 10B(2) and held clause (d) (market conditions, geography, size and stage of operations) to be material: the South Africa and Mexico AEs were in initial years of operations and incurred lower profitability due to market penetration costs, so their low margins did not demonstrate non-arm's-length pricing by the assessee. The Tribunal also noted acceptance of the same methodology in prior years and observed that the assessee's internal data showed increasing profitability on exports to those AEs. On these facts the Tribunal set aside the CIT(A)'s confirmation of the TP adjustments and directed deletion of the additions relating to exports to Glenmark South Africa and Glenmark Mexico. [Paras 8]

Transfer pricing adjustments in respect of exports to Glenmark South Africa and Glenmark Mexico deleted and AO directed to delete the additions.

Deduction under section 35(2AB) - weighted deduction for R&D - Treatment of contract R&D revenue for computing 35(2AB) - Assessee entitled to weighted deduction under section 35(2AB) for the R&D expenses claimed; contract receipts need not be reduced from R&D expenditure; direction to AO to verify R&D expenses withdrawn. - HELD THAT: - The AO disallowed part of the claim on two counts: (i) absence of DSIR approval for certain expenses and (ii) reduction of R&D expenditure by contract receipts instead of cost. The Tribunal followed prior Tribunal and High Court precedent and held that Rule 6(7A) (DSIR approval requirement) was introduced w.e.f. 1.7.2016 and does not apply to AY 2014-15; accordingly the expenses not approved by DSIR are not to be excluded. On contract R&D revenue the Tribunal upheld the view that contract receipts need not be reduced while computing deduction under section 35(2AB), following earlier Tribunal and Karnataka High Court decisions. However the CIT(A)'s restoration of the issue to AO for verification of the nature of R&D expenses was held to relate to a non-existent controversy because the AO had accepted the nature of the expenses in assessment; that direction was cancelled. [Paras 9]

Assessee's claim under section 35(2AB) upheld; contract receipts need not be reduced; direction to AO for re-verification cancelled.

Allocation of interest to units eligible for deduction under sections 80IC/80IE - Deletion of allocation of head-office interest expenses to three eligible units (Baddi-I, Baddi-II, Sikkim); AO directed to delete allocations to these units. - HELD THAT: - AO allocated HO interest to all eligible units on a sales-ratio basis treating HO funds as a general pool. The Tribunal reviewed the unit balance-sheets filed on record and found that Baddi-I, Baddi-II and Sikkim units had sufficient reserves and surpluses and in fact had advanced funds to the HO; they had not borrowed from HO or third parties. Prior Tribunal findings in the assessee's own case were noted. Since allocation of HO interest arises only if those units used HO borrowed funds, allocation here was unjustified. As facts were already on record, the Tribunal modified the CIT(A)'s order and directed deletion of the allocations to these three units. [Paras 10]

Allocation of HO interest to Baddi-I, Baddi-II and Sikkim units deleted; AO directed to delete the interest allocation.

Sales promotion expenses and Explanation to section 37(1) - expenses prohibited by law - Issue of disallowance of sales promotion expenses remitted to the Assessing Officer for fresh examination. - HELD THAT: - AO disallowed a lump-sum amount by applying a percentage of turnover based on a prior year admission; CIT(A) instead examined vouchers and applied a fixed percentage to sales promotion expenses. The Tribunal found both approaches flawed: AO had not identified specific items violative of MCI regulations and proceeded by turnover percentage, while CIT(A) raised a non existing issue not earlier taken by AO. The assessee had submitted detailed breakup showing large components that were ordinary business expenses and not freebies. The Tribunal held that actual items alleged to be in violation must be identified and verified by the AO and accordingly set aside the orders and restored the matter to the AO for fresh factual examination and quantification; any disallowance so determined may be apportioned between eligible units for computing section 80IC/80IE deduction. [Paras 11]

Matter remitted to AO for fresh examination and quantification of disallowable sales promotion expenses; apportionment to eligible units to follow.

Investment allowance under section 32AC - treatment of Capital Work in Progress - Deduction under section 32AC allowable including cost of plant and machinery transferred from Capital Work in Progress as on 01-04-2013; AO directed to allow the deduction. - HELD THAT: - AO disallowed claim on the ground that components standing as CWIP on 1.4.2013 were not 'acquired' after 31.3.2013. The Tribunal, following coordinate benches and purposive interpretation of 'acquired and installed', held that where components in CWIP are aggregated and commissioned during the relevant period the plant is to be treated as acquired/installed for section 32AC; reading 'and' as conjunctive would produce absurd results and frustrate the provision's object. The Tribunal followed prior decisions (including Ultratech and others) and directed allowance of investment allowance by including CWIP transferred to plant during the year for meeting the threshold. [Paras 12]

Assessee entitled to section 32AC deduction including assets transferred from CWIP; AO directed to allow the claim.

Guarantee commission - arm's length pricing - Transfer pricing adjustment - Deletion of transfer pricing adjustment made in respect of guarantee commission charged by the assessee. - HELD THAT: - TPO adopted guaranteed commission benchmarks higher than the 1% charged by the assessee and made adjustments. CIT(A) deleted the adjustments following earlier Tribunal and Bombay High Court decisions in the assessee's own case that the rate charged (1% or lower in some years) was arm's length. The Tribunal found no reason to interfere with CIT(A)'s order which followed binding precedent and deleted the TP adjustments. [Paras 13]

Transfer pricing adjustment on guarantee commission deleted; CIT(A) order upheld.

Allocation of R&D expenses to units eligible for deduction under sections 80IC/80IE - Remand of allocation of R&D expenses to Mahape and Sinnar units to AO for factual verification. - HELD THAT: - AO allocated R&D expenses to units where the assessee contended no R&D activity occurred. CIT(A) remitted the issue to AO to verify whether any R&D activity had been carried out at Mahape and Sinnar, following the Tribunal's earlier remittance in the assessee's own case. The Tribunal upheld CIT(A)'s remand as factual verification was necessary and caused no prejudice to revenue. [Paras 14]

Issue remitted to AO for verification whether R&D activities were carried out at Mahape and Sinnar; remand upheld.

Section 14A disallowance - nexus with exempt income (cannot exceed exempt income) - Disallowance under section 14A cannot exceed the exempt income; disallowance not to be applied for computing book profits under section 115JB. - HELD THAT: - AO computed disallowance under Rule 8D and for book profit u/s 115JB, arriving at a large figure. CIT(A) followed jurisdictional and other judicial decisions holding that Rule 8D/section 14A disallowance cannot exceed the exempt income earned in that year and that such disallowance need not be added back for computing book profit under section 115JB. The Tribunal found the CIT(A)'s approach consistent with judicial precedents (including decisions of Delhi and Madras High Courts) and upheld the CIT(A)'s order. [Paras 15]

CIT(A)'s view upheld: section 14A disallowance capped by exempt income and not to be considered for book profit under section 115JB as held by CIT(A).

Final Conclusion: For AY 2014-15 the Tribunal: deleted TP adjustments for exports to Glenmark South Africa and Mexico; upheld the assessee's entitlement to weighted deduction under section 35(2AB) (contract receipts not to be reduced) and cancelled the CIT(A)'s direction for re verification; deleted allocation of HO interest to specified eligible units; remitted the question of sales promotion disallowance to AO for itemised examination; allowed section 32AC investment allowance including CWIP transferred to plant; upheld deletion of guarantee fee TP adjustments; remitted allocation of R&D expenses to specified units for factual verification; and upheld the principle that section 14A disallowance cannot exceed exempt income and its exclusion from computation of book profits under section 115JB. Appeals and cross objections disposed accordingly.

Permanent establishment - Fixed place permanent establishment - Dependent agent permanent establishment - Business connection - Attribution of profits to permanent establishment - Preparatory and auxiliary activities - Multilateral Instrument (MLI) applicability - TDS credit - Penalty under section 270A

Permanent establishment - Fixed place permanent establishment - Dependent agent permanent establishment - Business connection - Preparatory and auxiliary activities - Attribution of profits to permanent establishment - Non-existence of business connection, fixed place PE and dependent agent PE in India; no attribution of reinsurance profits to India - HELD THAT: - The Tribunal accepted the assessee's case that it neither had a business connection in India nor a fixed place permanent establishment. The functions performed in India by the local affiliate (RGA Services) were held to be preparatory or auxiliary, undertaken under an arm's-length remuneration arrangement, and the core reinsurance activity-assumption of risk-was carried out and capitalised outside India. Contracts were concluded by the assessee outside India, RGA Services had no control or regulatory licence to conclude reinsurance in India, and there was no material showing that RGA Services assumed assets or risks that would justify profit attribution. Earlier coordinate-bench decisions in the assessee's own cases for prior years were followed. On the dependent agent PE contention the Tribunal found the question at best academic and rejected revenue's submissions that arm's-length compensation to the local enterprise would not prevent attribution; there was no evidence that the local entity concluded contracts or assumed risks on behalf of the foreign enterprise. Consequently, the addition of profits on account of a PE/business connection was disallowed. [Paras 30, 31, 32, 33, 35]

Grounds challenging business connection, fixed place PE and dependent agent PE are allowed; no reinsurance profits are attributable to India on the facts.

Multilateral Instrument (MLI) applicability - MLI provisions do not apply for the year under appeal - HELD THAT: - The Tribunal accepted the assessment-authority's position that the MLI's effects in India apply only from 1 April 2020, and therefore the MLI is not applicable to the assessment year under consideration. [Paras 15]

MLI not applicable to the year under appeal.

TDS credit - Allowance of TDS credit claimed by the assessee - HELD THAT: - The Tribunal directed the Assessing Officer to allow the TDS credit as claimed in the return of income in the norms stated in the order. [Paras 16]

Claimed TDS credit to be allowed.

Penalty under section 270A - Penalty proceedings and interest consequential to the reassessment are dismissed - HELD THAT: - As the substantive additions were set aside or otherwise dealt with, the Tribunal held that initiation of penalty proceedings under section 270A and levy of interest were consequential and dismissed them. [Paras 17]

Penalty proceedings under section 270A and interest are dismissed.

Final Conclusion: Appeal partly allowed: additions attributing reinsurance profits to India on account of business connection/PE were disallowed; MLI inapplicable to the year; TDS credit directed to be allowed; penalty under section 270A and interest dismissed.

Admissibility of third party seized documents - addition under Section 69A as unexplained money - presumption under Section 132(4A)/Section 292C in search cases - requirement of corroborative evidence for loose sheets - need to examine author of seized material and to confront documents with assessee - appending of zeros to ledger/excel entries - netting of cash receipts and payments for quantification of undisclosed income

Admissibility of third party seized documents - requirement of corroborative evidence for loose sheets - need to examine author of seized material and to confront documents with assessee - Additions under Section 69A could not be sustained solely on excel sheets found in possession of a third party absent corroborative evidence and without examining the author or confronting the documents with the assessee. - HELD THAT: - The Tribunal held that the excel sheets were typed electronic records seized from a third party and were not in the handwriting of the assessee nor accompanied by any acknowledgement by the assessee. No sale bills, cash receipts, unaccounted purchase bills or other documentary corroboration were found either in the premises of the searched party or in the assessee's premises. The Assessing Officer did not examine the person from whose custody the documents were recovered, nor did he confront the seized material with the assessee or its partners. In the absence of such verification and independent corroboration, the seized excel sheets alone did not constitute adequate evidence to draw an adverse inference and make additions as unexplained money under Section 69A. The Tribunal relied on authorities and analogous reasoning that loose sheets or third party records require corroboration before being treated as the assessee's transactions, and accordingly sustained the CIT(A)'s deletion of the additions. [Paras 10, 11, 15]

Additions made under Section 69A on the basis of excel sheets seized from a third party were unsustainable and deleted.

Presumption under Section 132(4A)/Section 292C in search cases - admissibility of third party seized documents - The statutory presumption under Section 132(4A)/Section 292C does not apply to documents found in possession of a third party and therefore cannot be invoked against the assessee in the present facts. - HELD THAT: - The Tribunal observed that the presumption in Section 132(4A)/292C applies where documents are found in the possession of the searched person; it is not available when material is recovered from a third party's premises. To give evidentiary value to the third party records, the department must examine the person in control of the electronic device and produce statements confronting the seized material with the assessee. As these steps were not taken, the Tribunal held that the presumption could not be applied to treat the excel sheets as the assessee's records or their contents as true. [Paras 12, 13]

Presumption under Section 132(4A)/292C is not attracted to documents seized from a third party; therefore no such presumption was applied against the assessee.

Appending of zeros to ledger/excel entries - requirement of corroborative evidence for loose sheets - The Assessing Officer's practice of appending two zeros to certain cash entries in the seized excel sheets was unjustified and untenable on the available evidence. - HELD THAT: - The Tribunal examined the AO's decision to append two zeros to cash figures based on a statement of an employee of the searched group. It noted that the statement related to a separate unaccounted cash book and did not specifically pertain to the seized excel ledgers relied upon. Bank entries in the seized sheets matched the assessee's bank records without any addition of zeros, which indicated that the amounts in the excel sheets were recorded as actual amounts. The AO also applied the two zero adjustment selectively to some sheets and not to others without satisfactory explanation. Absent further corroborative evidence or confrontation with the assessee, adding two zeros to cash entries was not warranted. [Paras 13]

Appending two zeros to the amounts in the seized excel sheets is unjustified and cannot be relied upon for assessing undisclosed income.

Netting of cash receipts and payments for quantification of undisclosed income - addition under Section 69A as unexplained money - Where cash receipts and cash payments appear in seized material without clear identification of their nature, netting receipts against payments is the appropriate method for arriving at undisclosed income rather than aggregating both. - HELD THAT: - The Tribunal observed that aggregating cash receipts and cash payments leads to an exaggerated and unreasonable computation of undisclosed income because payments are often made out of available receipts. When the nature of entries is not identified, the proper approach is to net off receipts and payments to estimate undisclosed income. The Tribunal upheld the CIT(A)'s approach on quantification as reasonable, while noting that this finding is without prejudice to the earlier conclusion that additions based on the seized material were unsustainable in the absence of corroboration. [Paras 14]

Undisclosed income, where entries are unclear, should be quantified by netting cash receipts and payments rather than simple aggregation.

Final Conclusion: The Tribunal upheld the CIT(A)'s order deleting additions made under Section 69A for AYs 2016-17, 2017-18 and 2018-19 because the Assessing Officer relied solely on excel sheets seized from a third party without corroborative evidence, without examining the author of the documents, and unjustifiably appended zeros to certain entries; the revenue's appeals are dismissed and the assessee's cross objections are rendered infructuous.

Maintenance of books of account - Audit requirements under section 44AB - Non-maintenance under section 44AA - Penalty under section 271B - Distinction between penalty under section 271A and section 271B - Reasonable cause / exemption under section 273B

Maintenance of books of account - Audit requirements under section 44AB - Penalty under section 271B - Non-maintenance under section 44AA - Distinction between penalty under section 271A and section 271B - Whether penalty under section 271B could be levied for AY 2009-10 where books of account were not written up by the due date and audit could not have been carried out - HELD THAT: - The Tribunal found on admitted facts that the assessee's books were not written up within the due date for filing the return under section 139(1). Once the primary obligation of maintaining books under section 44AA was not complied with by the due date, the obligation to get those books audited under section 44AB could not arise in the relevant time-frame. Applying the principle endorsed by the High Courts in Surajmal Parsuram Todi and CIT v. Bisauli Tractors, when the offence of non-maintenance of books is complete, imposition of penalty under section 271B for failure to furnish an audit report is not appropriate; the proper penal provision in such circumstances is section 271A for non-maintenance. The Revenue's factual contention that books had been written up earlier was not supported by concrete evidence and was distinguishable on the record. The Tribunal therefore held that penalty under section 271B could not be sustained and directed deletion of the penalty. [Paras 8]

Assessee's appeal allowed; penalty under section 271B deleted for AY 2009-10.

Maintenance of books of account - Audit requirements under section 44AB - Penalty under section 271B - Non-maintenance under section 44AA - Distinction between penalty under section 271A and section 271B - Whether the same conclusion applies for AY 2010-11 where the facts and issue are identical to AY 2009-10 - HELD THAT: - The Tribunal applied the findings recorded for AY 2009-10 to AY 2010-11 because the legal issue and material facts were identical and accepted by both parties that the same conclusion should govern. Therefore, for the year under consideration the penalty under section 271B could not be sustained for the same reasons: books were not written up by the due date and thus the requirement to get accounts audited within the prescribed time did not arise. [Paras 10]

Assessee's appeal allowed; penalty under section 271B deleted for AY 2010-11.

Final Conclusion: Both appeals allowed: penalties levied under section 271B for Assessment Years 2009-2010 and 2010-11 set aside because books of account were not maintained/written up by the due date, and therefore the obligation to comply with section 44AB (and corresponding penalty under section 271B) did not arise.

Unexplained cash credit - share application money - invocation of section 68 - genuineness and creditworthiness of shareholders - treatment of forfeiture of convertible warrants as transfer - maintainability - low tax effect under CBDT Circular No 17/2019

Unexplained cash credit - share application money - invocation of section 68 - genuineness and creditworthiness of shareholders - Addition of Rs. 2,00,00,000/- as unexplained cash credit under section 68 in A.Y. 2012-13 - HELD THAT: - The Tribunal considered the finding of the CIT(A) that the share application money and premium were received and reflected in the assessee's books in F.Y. 2006-07 and that no amount was credited to the assessee's books in F.Y. 2011-12 except for the formal allotment and transfer to share capital and share premium accounts. Section 68 applies to sums found credited in the books during the year; where the sum sought to be taxed was received in an earlier year and no fresh credit is shown in the year under assessment, the addition under section 68 is not sustainable. The Assessing Officer's reliance on non-service of notices to shareholders and on the asserted lack of proof of genuineness and creditworthiness was considered but the Revenue did not place any new material before the Tribunal to overturn the CIT(A)'s factual and legal conclusion. The CIT(A)'s reasoning that the amount could not be brought to tax in A.Y. 2012-13 because it was received in A.Y. 2007-08 was held to be reasoned and conclusive. [Paras 6, 7]

The addition made by the AO under section 68 is deleted and the CIT(A)'s order upholding deletion is affirmed; the revenue's appeal for A.Y. 2012-13 is dismissed.

Treatment of forfeiture of convertible warrants as transfer - treatment of convertible warrants as capital asset - maintainability - low tax effect under CBDT Circular No 17/2019 - Revenue's appeal challenging CIT(A)'s allowance of long term capital loss on forfeiture of convertible warrants for A.Y. 2011-12 - HELD THAT: - The Tribunal recorded that the tax effect of the issue is below the monetary threshold specified in CBDT Circular No 17/2019 dated 08.08.2019, which precludes filing of revenue appeals before the Tribunal where the tax effect is below Rs. 50 lakhs and applies to pending cases. The Revenue conceded the low tax effect aspect. In view of the Circular, the appeal was dismissed on maintainability grounds and low tax effect; the Tribunal left open the possibility of recall if the Revenue can demonstrate applicability of any exception in the Circular by filing a miscellaneous application. [Paras 8, 9, 10, 11]

The revenue's appeal for A.Y. 2011-12 is dismissed on maintainability/low tax effect under CBDT Circular No 17/2019; leave granted to seek recall on proving applicability of an exception.

Final Conclusion: Both revenue appeals are dismissed: the addition under section 68 for A.Y. 2012-13 is deleted as the sums were credited in an earlier year and not in the year under assessment; the appeal for A.Y. 2011-12 is dismissed on maintainability and low tax effect in view of CBDT Circular No.17/2019, subject to recall if the Revenue proves an applicable exception.

Alternative exemption notification - scope of adjudication limited to show cause notice - de novo adjudication and remand for consideration of alternative claim - interest under section 47(2) of Customs Act, 1962 - penalty enhancement in subsequent proceedings - penalty under section 112 of Customs Act, 1962

Alternative exemption notification - de novo adjudication and remand for consideration of alternative claim - scope of adjudication limited to show cause notice - Acceptance of importer's claim to avail an alternative exemption notification despite it not being claimed in the original bill of entry and the consequent duty determination. - HELD THAT: - The Tribunal had earlier remanded the matter for fresh adjudication limited to consideration of the importer's specific plea that an alternative, more beneficial, exemption notification applied. The Revenue did not dispute that the alternative notification would attract a lower duty; its challenge rested solely on the contention that the claim was not made in the bill of entry. Because the earlier Tribunal had ordered de novo consideration of that specific claim, and the impugned order found the importer eligible to avail the alternative notification, the Revenue's appeal resisting that finding on the narrow ground of non-claim in the bill of entry lacked merit and was dismissed. [Paras 5]

Revenue's appeal dismissed; acceptance of alternative exemption notification upheld and no interference with the finding on eligibility.

Interest under section 47(2) of Customs Act, 1962 - scope of adjudication limited to show cause notice - Whether interest can be levied under section 47(2) where the adjudication was a post-assessment show cause notice and the alternative claim was considered in de novo proceedings. - HELD THAT: - The show cause notice had proposed interest under section 28AA in the earlier round, but the impugned order imposed interest by recourse to section 47(2). The Court analysed that liability to interest under section 47(2) depends on whether the assessment as on the date of issue of the show cause notice stood as a completed assessment. If the fresh adjudication is treated as a post-assessment notice (i.e., the claim arose after assessment), then the argument against recourse to section 47(2) may succeed. In the present facts, having framed the remand narrowly and treated consideration of the post-notice claim within the show cause adjudication, the Tribunal concluded that interest under section 47(2) could not be sustained and accordingly set aside the interest liability. [Paras 6, 7, 8, 9]

Interest liability under section 47(2) set aside.

Penalty enhancement in subsequent proceedings - penalty under section 112 of Customs Act, 1962 - Whether the penalty imposed in the fresh adjudication could be enhanced compared to the earlier adjudication. - HELD THAT: - It is settled that penalty cannot be enhanced in subsequent proceedings except where the party has been placed on notice of the intention to enhance or where the challenge itself puts the party on notice. The earlier adjudication had fixed the penalty at a lower amount. In the fresh proceedings the duty liability was reduced by acceptance of the alternative exemption, and yet the impugned order increased the penalty. That enhancement was contrary to settled law and inequitable in the circumstances. The Tribunal therefore modified the impugned order to restrict the penalty to the amount earlier imposed. [Paras 10]

Penalty limited to the earlier imposed amount.

Final Conclusion: The Tribunal dismissed the Revenue's appeal as lacking merit, upheld the importer's entitlement to the alternative exemption notification as considered on remand, set aside the interest liability under section 47(2), and modified the impugned order to restrict the penalty to the previously imposed amount.

Classification of imported goods as plastic toys - Customs Tariff Heading 95030030 - semi knock down (SKD) condition - incomplete or unfinished articles classification under Rule 2(a) of the General Rules of Interpretation - longer period of limitation under Section 28(4) of the Customs Act, 1962 - mis-declaration to evade duty - Toys (Quality Control Order), 2020 - Policy Condition No.2 to Chapter 95 of ITC(HS) 2017-Schedule 1 (Import Policy)

Classification of imported goods as plastic toys - Customs Tariff Heading 95030030 - semi knock down (SKD) condition - incomplete or unfinished articles classification under Rule 2(a) of the General Rules of Interpretation - Imported consignment declared as parts was correctly classified as plastic toys under CTH 95030030. - HELD THAT: - The Tribunal found on the material on record, including visual inspection opinion from a government registered valuer/chartered engineer and the pattern of importation, that the goods were parts which when assembled formed plastic bubble toys and thus had the essential character of the finished article. The appellant, a regular importer, did not explain any market use of the imported items as standalone parts; instead the facts showed import in semi knock down condition to circumvent import restrictions and lower duty. Rule 2(a) of the General Rules of Interpretation, which treats references to an article as including incomplete or unassembled articles that retain the essential character of the finished article, applies, and importing in SKD form does not exclude classification as the finished article. [Paras 6, 7, 8, 9, 10]

Classification as plastic toys under CTH 95030030 affirmed and appeal on this ground rejected.

Mis-declaration to evade duty - longer period of limitation under Section 28(4) of the Customs Act, 1962 - Toys (Quality Control Order), 2020 - Policy Condition No.2 to Chapter 95 of ITC(HS) 2017-Schedule 1 (Import Policy) - Mis-declaration was willful to evade duty and non-compliance, thus invocation of Section 28(4) is justified. - HELD THAT: - The show-cause notice and the original order recorded the modus operandi that goods were imported in parts in SKD condition to evade higher duty and to bypass mandatory quality control/BIS certification and specific import policy conditions. The Tribunal accepted the revenue's finding that the mis-declaration was deliberate and effected to obtain lesser Basic Customs Duty, bringing the demand within the extended limitation provided by Section 28(4). Accordingly, the extended period for recovery and confirmation of demand was held to be proper. [Paras 14]

Invocation of Section 28(4) sustained and demand upheld; appeal on this ground rejected.

Final Conclusion: The appeal is dismissed; classification as plastic toys under CTH 95030030 and the extended demand under Section 28(4) for willful mis-declaration are upheld.

Amendment of documents under Section 149 - Time limit for amendment of shipping bills - Ultra vires - Discretion of the proper officer to amend documents - Regulations prescribing form, manner and time limit for post-export conversion - Requirement of a speaking order and personal hearing on reconsideration

Amendment of documents under Section 149 - Discretion of the proper officer to amend documents - No statutory time limit is prescribed in Section 149 for filing a request to amend or convert a shipping bill and the provision vests discretion in the proper officer to authorize amendments. - HELD THAT: - Section 149, as it stood prior to its amendment w.e.f. 01.08.2019, confers discretion on the proper officer to authorize amendment of documents presented at the customs house and contains a proviso limiting amendment after clearance/export except on the basis of documentary evidence existing at the relevant time. The statute does not prescribe any time-limit for filing a request for amendment or conversion of a shipping bill; therefore, the legislative scheme itself does not impose a temporal restriction on the exercise of the discretionary power under Section 149. [Paras 4, 5]

Section 149 contains no prescription of any specific time limit for seeking amendment/conversion of shipping bills and vests discretion in the proper officer to authorize amendments.

Time limit for amendment of shipping bills - Ultra vires - CBEC Circular No.36/2010 insofar as it prescribes a three month time limit for requesting conversion/amendment of shipping bills is without jurisdiction and cannot be relied upon. - HELD THAT: - Circular No.36/2010 was issued prior to the amendment of Section 149 empowering the Board to prescribe form, manner and time limits. Because Section 149 did not then confer power on the Board to lay down temporal limits, the circular's prescription of a three month period for making requests for conversion/amendment is inconsistent with the statutory scheme. The Tribunal concurs with the reasoning in judicial decisions (including the Gujarat High Court and the Bombay High Court) that the circular's time limit provision is ultra vires and cannot be applied to deny consideration of an amendment request. [Paras 6, 7]

The Circular No.36/2010 provision prescribing a three month time limit is ultra vires and cannot be acted upon to refuse an amendment/conversion application.

Regulations prescribing form, manner and time limit for post-export conversion - Requirement of a speaking order and personal hearing on reconsideration - The matter is remanded to the jurisdictional Commissioner of Customs to decide the appellant's amendment/conversion applications on merits without raising the CBEC circular time limit objection; a speaking order and opportunity of personal hearing must be given within the prescribed timeframe. - HELD THAT: - Following the finding that the CBEC circular's time limit is not enforceable, the Tribunal set aside the impugned communication denying the amendment request and remitted the matter for fresh consideration by the jurisdictional Commissioner of Customs. The Commissioner must examine the application(s) on merit in accordance with law and the applicable Regulations (which prescribe the Board's powers post amendment), grant a personal hearing before deciding, and record reasons in writing if any extension of time is allowed. The Tribunal directed that a speaking order be passed within five weeks from receipt of the order and that personal hearing be provided prior to any fresh decision. [Paras 8]

Impugned communication set aside; matter remanded to the jurisdictional Commissioner for fresh, reasoned consideration on merits with prior personal hearing, and a speaking order to be passed within five weeks.

Final Conclusion: The appeal is allowed; the communication denying the amendment/conversion request is set aside and the matter remanded to the jurisdictional Commissioner of Customs for fresh merit consideration with personal hearing and a speaking order within five weeks, and the three month time limit in CBEC Circular No.36/2010 cannot be relied upon.

Rejection of declared value under Rule 10A of the Customs Valuation Rules - Transaction value of identical goods under Rule 5 of the Customs Valuation Rules - Contemporaneous transactions - Principles of natural justice - Credibility of manufacturer's invoice

Transaction value of identical goods under Rule 5 of the Customs Valuation Rules - Contemporaneous transactions - Rejection of declared value under Rule 10A of the Customs Valuation Rules - Credibility of manufacturer's invoice - Validity of the department's rejection of the declared transaction value and its adoption of contemporaneous imports for upward revision under the Customs Valuation Rules - HELD THAT: - The Tribunal examined whether the department's comparative imports qualified as contemporaneous and comparable for application of Rule 5, thereby justifying rejection of the appellant's declared transaction value under Rule 10A. The adjudicating authority relied on three Bills of Entry dated May 2006, March 2007 and May 2007. The May 2006 entry was beyond six months and therefore not an appropriate comparison. Of the remaining two, significant discrepancies remained: differences in thicknesses and absence of conversion of prices from US$ to rupees in the adjudication, large disparities in quantities imported (the appellant's imports were more than double in one comparison and much larger than 25% in the other), and lack of adjustment or discussion regarding dimensions, quality and impurities which materially affect float glass pricing. The Tribunal also noted that the appellant's invoice was directly from the manufacturer, which ordinarily carries greater credence and cannot be displaced except by strong and cogent evidence. The department failed to demonstrate that adjustments made were reasonable, accurate or based on demonstrated evidence as required by Rule 5(c), and did not establish that the comparisons were at the same commercial level. Having regard to these deficiencies, the evidence relied upon could not be accepted as contemporaneous and comparable to justify rejection of the declared value. [Paras 6, 9, 11, 12]

The comparisons relied upon by the department do not satisfy the requirements of Rule 5 and the declared transaction value cannot be rejected on that basis; the adjudication's upward revision is unsustainable.

Principles of natural justice - Credibility of manufacturer's invoice - Whether the Tribunal's earlier directions and principles of natural justice were complied with in the denovo adjudication - HELD THAT: - The Tribunal's earlier order had directed the department to furnish details of relied-upon imports and to adhere to natural justice. The Commissioner (Appeals) recorded that Bills of Entry reflected in the show-cause notice were provided to the appellant and there was no protest on that score; this was treated as substantial compliance. Nevertheless, on the merits the department did not furnish cogent, contemporaneous and comparable evidence sufficient to displace the manufacturer's invoice. The combination of procedural compliance in furnishing documents and the substantive insufficiency of the department's evidence led to setting aside the impugned order. [Paras 4, 6]

Substantial compliance with the Tribunal's direction on furnishing documents was found, but the department's substantive case failed for lack of cogent comparable evidence.

Final Conclusion: The impugned adjudication rejecting the declared transaction value and enhancing the import price is set aside; the department's comparisons were not contemporaneous or demonstrably comparable and the appeal is allowed with consequential relief as per law.

Suspension of legal proceedings under Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 - Suit for recovery of money (ejusdem generis with execution, distress or the like) - Adjudicatory process versus execution/enforcement (liability determination not automatically stayed) - Interference with formulation, consideration, finalisation or implementation of a rehabilitation scheme - Coram non-judice consequence of jurisdictional bar - Compound interest under the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 - Harmonious construction of beneficial statutes (SICA 1985 and 1993 Act)

Suspension of legal proceedings under Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 - Suit for recovery of money (ejusdem generis with execution, distress or the like) - Adjudicatory process versus execution/enforcement (liability determination not automatically stayed) - Interference with formulation, consideration, finalisation or implementation of a rehabilitation scheme - Coram non-judice consequence of jurisdictional bar - Whether Section 22(1) SICA bars a civil suit for recovery of money where the debt sought to be proved has not been admitted and whether the decree was coram non-judice. - HELD THAT: - The Court identified three cumulative requirements for Section 22(1) to suspend proceedings: (i) proceedings under SICA (inquiry, scheme preparation/implementation or appeal) must be pending; (ii) the proceeding must fall within the category enumerated in Section 22(1) or be ejusdem generis (e.g. winding up, execution, distress, appointment of receiver, suits for recovery/enforcement); and (iii) the proceeding must have the effect of threatening the assets of the sick company or interfering with the formulation, consideration, finalisation or implementation of the rehabilitation scheme. Applying these tests, the Court held that although the reference to BIFR was pending when the suit was filed (first two conditions satisfied), the civil suit was a simple adjudicatory proceeding to determine disputed liability and was not of a nature that threatened the company's assets or the rehabilitation scheme. Consequently the adjudicatory process was not stayed by Section 22(1) and the decree was not coram non-judice. The Court emphasised that execution/enforcement (including execution of awards) may be stayed, but an adjudication to determine liabilities does not ipso facto fall within the protective embargo unless it threatens the scheme's implementation. [Paras 82, 97, 98, 99, 142]

Section 22(1) did not bar the suit for recovery in this case; the decree is not coram non-judice.

Compound interest under the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 - Date from which interest accrues and monthly compounding - Harmonious construction of SICA 1985 and the 1993 Act - Exclusion of period during which execution/enforcement is suspended by SICA - Whether the High Court correctly granted 24% compound interest and for what period such interest should be computed. - HELD THAT: - The Court accepted that the 1993 Act entitles a qualifying small-scale supplier to compound interest at the statutory rate (five percentage points above the floor rate) and that the High Court's choice of 24% as the applicable rate was not erroneous. However, applying harmonious construction and the protective purpose of SICA, the Court held that interest should not be allowed to accrue for the period during which FCIL was a sick industrial company and execution/enforcement was suspended (i.e. from the date FCIL was declared sick until deregistration by BIFR). Granting interest for that period would frustrate the object of SICA by exposing a revived company to crippling liabilities and could defeat rehabilitation. Accordingly, the rate of 24% with monthly compounding is upheld but the period from 06.11.1992 to 27.06.2013 is to be excluded from interest computation. [Paras 123, 126, 141, 142, 143]

24% compound interest is permissible under the 1993 Act, but interest shall not be computed for the period during which the defendant company was a sick industrial company (06.11.1992 to 27.06.2013).

Final Conclusion: The High Court's decree is upheld: the trial court's adjudication was not barred by Section 22(1) SICA and is not coram non-judice; the award of 24% p.a. compound interest under the 1993 Act is sustained but the period during which the defendant was a sick industrial company (06.11.1992 to 27.06.2013) is excluded from interest computation. Appeals disposed of accordingly.

Transfer of winding up proceedings to National Company Law Tribunal - Applicability of Insolvency and Bankruptcy Code, 2016 to pending winding up proceedings - Section 434 Companies Act, 2013 - transfer of pending proceedings - Winding up petitions at nascent stage to be transferred to NCLT - Assets in custodia legis as a bar to transfer only where proceedings have reached an irreversible stage

Transfer of winding up proceedings to National Company Law Tribunal - Section 434 Companies Act, 2013 - transfer of pending proceedings - Winding up petitions at nascent stage to be transferred to NCLT - The company petition for winding up was transferred from the High Court to the National Company Law Tribunal and the petition and pending applications were disposed of by the High Court for transfer. - HELD THAT: - The High Court observed that enactment of the Insolvency and Bankruptcy Code, 2016 and the Companies Act, 2013, together with Section 434 of the Companies Act, 2013, contemplate transfer of winding up proceedings pending before High Courts to the NCLT. Reliance was placed on the Supreme Court decision in Action Ispat and Power Private Limited v. Shyam Metalics and Energy Limited, which holds that winding up proceedings that have not progressed to an advanced or irreversible stage ought to be transferred to the NCLT to be dealt with under the Code, while only proceedings where assets are in custodia legis and irreversible steps have occurred should ordinarily be retained by the Company Court. In the present matter no Provisional Liquidator or Official Liquidator had been appointed and the proceedings had not reached an advanced/irreversible stage; accordingly the proceedings did not deserve to continue before the High Court and transfer to the NCLT was appropriate. The Court directed transmission of electronic records to the NCLT and listed the matter before the NCLT for further consideration in accordance with law. [Paras 7, 8, 10, 11]

The company petition and any pending applications are transferred to the NCLT; the High Court disposed of the petition for transfer and directed transmission of records.

Final Conclusion: The High Court transferred the winding up petition to the National Company Law Tribunal under Section 434 of the Companies Act, 2013, directing transmission of records and listing the matter before the NCLT for appropriate orders in accordance with law.

Refund of deposit by secured creditor - obligation to provide property-wise break-up of sale proceeds - liability to pay interest for wrongful retention of deposited sums - court directions for compliance and consequences of disobedience

Refund of deposit by secured creditor - liability to pay interest for wrongful retention of deposited sums - obligation to provide property-wise break-up of sale proceeds - The applicant/third party objector was entitled to refund of the deposit and IFCI was liable to refund the amount along with interest. - HELD THAT: - The court found that IFCI had received the applicant's deposit from the DRT on 19.03.2010 but failed to furnish a property-wise break-up of the proceeds it remitted to the Official Liquidator, thereby preventing the Official Liquidator from verifying whether the applicant's deposit had been included. Despite repeated directions to furnish detailed accounts and the filing of successive affidavits and annexures, IFCI's submissions did not satisfactorily account for the applicant's Rs. 57.50 Lacs; Annexure statements failed to identify the applicant or show the requisite remittance particulars and IFCI even sought to withdraw earlier annexures citing errors. Given IFCI's inability to properly account for the sum and the Official Liquidator's consequent inability to verify the claim, the court held IFCI accountable to refund the deposit. The court applied the legal principle that a secured creditor or party claiming to have remitted auction proceeds must produce adequate particulars so that refunds due to unsuccessful bidders can be ascertained, and that wrongful or unverified retention of deposited funds attracts liability to refund with interest. The court therefore directed IFCI to refund the amount with interest at the rate directed and prescribed a penal rate in default. [Paras 8, 21, 22, 23]

IFCI to refund Rs. 57.50 Lacs to the applicant with interest at 18% per annum from 19.03.2010 until realization; payment within six weeks, failing which IFCI to pay penal interest at 24% per annum from the date of judgment until realization.

Final Conclusion: The petition is allowed: IFCI is directed to refund the applicant's deposit with interest as ordered; the Official Liquidator's inability to verify the claim due to IFCI's failure to furnish a proper break-up was a key factor in making IFCI liable.

Financial debt - financial creditor - default - Section 7 of the Insolvency and Bankruptcy Code - assignment of receivables on "as is where is" and "no recourse" basis

Financial debt - financial creditor - default - assignment of receivables on "as is where is" and "no recourse" basis - Section 7 of the Insolvency and Bankruptcy Code - Whether the Appellant established existence of a financial debt owed by the Corporate Debtor and a default sufficient for admission under Section 7 after receiving the debt by way of Deed of Assignment - HELD THAT: - The Bench applied the statutory definitions of financial debt and financial creditor and the guiding principles in Innoventive Industries to examine whether the assigned claim had the essential characteristic of a financial debt - namely disbursal against consideration for the time value of money - and whether default was proved. The record showed inconsistencies and lack of corroboration: the alleged dues appeared in earlier financials but were not reflected separately in IIL's financial statements from 2017-18 onwards; there was no balance confirmation as on 31.03.2017; auditors recorded inability to ascertain correctness of outstanding balances; the amount was written off in the Corporate Debtor's books by journal entry and not shown as payable as on 31.03.2018. The Liquidator's disclosure clarified that the receivables were assigned on an "as is where is" and "no recourse" basis and that no representations or warranties as to amount or recoverability were given; the assigned block included trade receivables and IIL's accounts treated the exposure as "receivables" rather than an intercorporate loan. An assignee steps into the shoes of the assignor and cannot claim better rights; where the assignment concerned trade receivables on a no recourse basis and there was no evidence of disbursement constituting a loan (i.e., consideration for time value of money), the claim lacked the trappings of a financial debt. Given the absence of clear, precise and specific proof of a financial debt and of default as required in Part V of Form 1 under Section 7, the Adjudicating Authority rightly found that the Section 7 application did not establish debt and default. [Paras 22, 23, 25, 26]

The Adjudicating Authority's rejection of the Section 7 petition was correct; the Appellant failed to prove a financial debt and default entitling admission under Section 7.

Final Conclusion: The appeal is dismissed. The Adjudicating Authority did not err in holding that the appellant did not establish the existence of a financial debt and default; no interference with the impugned order is warranted.

Person aggrieved - locus standi to challenge liquidation proceedings - maintainability of appeal under Section 61 of the Code - role of Stakeholders' Consultation Committee in valuation - sale as a going concern - due process and value maximization - validity of e-auction to a sole bidder

Person aggrieved - locus standi to challenge liquidation proceedings - maintainability of appeal under Section 61 of the Code - Whether the appellant is a person aggrieved entitled to prefer appeals under Section 61 of the Code - HELD THAT: - The Tribunal held that an appellant under Section 61 must be a person 'aggrieved', i.e., one who has suffered legal injury or infringement of a vested right. The appellant (an operational creditor) had been represented in the Stakeholders' Consultation Committee (SCC) through its authorised representative, had knowledge of the valuation reports placed before the SCC, and did not object to the draft valuation or earlier auction rounds. Major stakeholders (primarily financial creditors) did not challenge the valuation or sale. The sale purchaser had paid the sale consideration, and the sale proceeds had been distributed; the certificate of sale had been issued. On these facts the appellant could not be said to have suffered a legal injury justifying challenge under Section 61 and therefore lacked locus standi to maintain the appeals. [Paras 35, 36]

Appeals dismissed as not maintainable since the appellant is not a person aggrieved under Section 61 of the Code.

Role of Stakeholders' Consultation Committee in valuation - sale as a going concern - due process and value maximization - validity of e-auction to a sole bidder - Whether there was any legal infirmity in the valuation process or conduct of the e-auction (including sale to a sole bidder) for the going-concern sale - HELD THAT: - The Tribunal recorded that two independent IBBI-registered valuers prepared valuation reports based on financial statements, land transactions, inventories, ownership documents and other material; draft reports were placed before the SCC and no objections were raised by SCC members, including the appellant's representative. The reserve price was derived from those valuations and adjusted to exclude assets already sold in prior auction rounds. Qualified bidders had access to a virtual data room and site visits; only one bidder submitted a final bid after due diligence. The Tribunal found that the sale process followed the statutory scheme and Regulations, the SCC participated in valuation, and sale to a sole bidder at or above reserve price is not per se illegal. Consequently, no error was shown in the conduct of the e-auction or in the approval of the sale. [Paras 29, 30, 31, 37]

No infirmity in valuation or e-auction process; sale as a going concern to the successful bidder was in accordance with law and did not merit interference.

Final Conclusion: Both appeals are dismissed: they are not maintainable because the appellant is not a person aggrieved under Section 61 of the Code; alternatively, the sale and e-auction process were conducted in accordance with the Code and Regulations and disclose no legal infirmity, hence no interference is warranted.

Admission of contingent claim at a nominal value pending litigation - judicial non-interference with the commercial wisdom of the Committee of Creditors - requirement under Section 30(2)(b) to pay operational creditors at least liquidation or distribution under Section 53 priorities - fair and equitable test under Section 30(2)(e) of the Code - waterfall / priority of distribution under Section 53

Admission of contingent claim at a nominal value pending litigation - Regulation 14 of the IBBI (CIRP) Regulations, 2016 - Classification and admission of the appellant's claim as a contingent claim admitted at a nominal value of Rs. 1 - HELD THAT: - The Tribunal accepted that the Appellant's demand arose from an order of a statutory authority which was the subject of a pending appeal before APTEL, so the debt had not been crystallised. The Resolution Professional had placed a note recording the contingent nature of the claim and admitted it at a notional value. The Tribunal held that where a claim is dependent on the outcome of pending litigation, the RP may admit it at a notional value in accordance with the regulatory scheme and practice, and relied upon the Supreme Court's decision in Essar Steel India Ltd. (as recorded by the Adjudicating Authority) endorsing admission at a notional value of Rs. 1 for such disputed claims. On that basis the classification/admission by the RP was held to be proper and not susceptible to interference. [Paras 16, 19, 20, 28, 29]

The admission of the Appellant's claim as contingent and recorded at Rs. 1 was upheld and the challenge to that classification was dismissed.

Requirement under Section 30(2)(b) to pay operational creditors at least liquidation or distribution under Section 53 priorities - fair and equitable test under Section 30(2)(e) of the Code - judicial non-interference with the commercial wisdom of the Committee of Creditors - waterfall / priority of distribution under Section 53 - Validity of the resolution plan insofar as it provides NIL payment to operational creditors and whether the Adjudicating Authority should interfere with the CoC's commercial decision - HELD THAT: - The Tribunal examined the admitted liquidation value and the admitted claims profile and concluded that, given the liquidation value would be exhausted by CIRP costs and secured financial creditors, the liquidation value attributable to operational creditors was NIL. Applying the test in Section 30(2)(b), the Tribunal held that the plan satisfied the statutory requirement because operational creditors would receive no more in liquidation or by distribution under Section 53(1). The Tribunal further recorded that the CoC had considered competing resolution plans, negotiated potential payments to operational creditors, and approved the commercially preferable plan by 100% votes; in the absence of any contravention of law the Adjudicating Authority ought not to judicially second-guess the commercial wisdom of the CoC. Consequently, objections that the plan was violative of Section 30(2)(e) or unfair to operational creditors were rejected. [Paras 24, 25, 26, 27, 29]

The resolution plan's provision of NIL to operational creditors was held to be lawful in the facts of the case and the CoC's commercial approval was not interfered with; the challenge was dismissed.

Final Conclusion: The appeal was dismissed: the Adjudicating Authority's approval of the resolution plan was upheld, the RP's admission of the Appellant's claim as contingent and recorded at a notional value of Rs. 1 was sustained, and the Tribunal declined to interfere with the CoC's commercial decision which satisfied the statutory tests applied.

Extension of time for completion of Corporate Insolvency Resolution Process beyond the outer limit of 330 days - exercise of discretion under the proviso to Section 12 and Rule 11 for granting a further grace period - paramountcy of stakeholders' interest (home buyers) in insolvency resolution - submission and approval of resolution plans by Committee of Creditors

Extension of time for completion of Corporate Insolvency Resolution Process beyond the outer limit of 330 days - exercise of discretion under the proviso to Section 12 and Rule 11 for granting a further grace period - paramountcy of stakeholders' interest (home buyers) in insolvency resolution - Whether the period for completion of CIRP can be extended beyond the statutory outer limit in the facts of these cases and whether a 90 day extension should be granted. - HELD THAT: - The Tribunal applied the exceptional case principle articulated in the Supreme Court's decision in Essar Steel and subsequent NCLAT authorities, observing that ordinarily 330 days is the outer limit but that, in exceptional circumstances where only a short period is required and extension would serve stakeholders' interests, the Adjudicating Authority/Tribunal may grant further time. Having considered the chronology of earlier extensions, the stage reached in the CIRP, the conduct of proceedings before the CoC and the fact that delaying factors could not be exclusively ascribed to the Resolution Professional or the home buyers, the Tribunal concluded that a further limited extension was justified. The Tribunal therefore quashed the Adjudicating Authority's denial of extension and allowed the IA seeking a 90 day extension, while warning that no further extension would be granted and expressly refraining from adjudicating the merits of resolution plans themselves. [Paras 32, 46, 50]

Allowed the application for extension and granted a further 90 days to complete CIRP; quashed the impugned orders refusing extension; no further extension would be permitted.

Submission and approval of resolution plans by Committee of Creditors - paramountcy of stakeholders' interest (home buyers) in insolvency resolution - Whether resolution plans by the home buyers had been submitted and approved by the Committee of Creditors for the projects concerned. - HELD THAT: - The Tribunal noted the record of the Resolution Professional's compliance report and submissions that multiple resolution plans (six project plans) had been received and that plans were put to voting and approved by the CoC on 16.04.2023. It found the Adjudicating Authority's contrary finding-that no plan had been received or approved-to be perverse in the facts of these cases. Nevertheless, the Tribunal clarified that it was not deciding the merits of any plan or the ultimate entitlement of any stakeholder; its consideration was limited to whether extension should be granted to enable completion of the resolution process and CoC voting on merits. [Paras 16, 35, 41, 42]

Recorded that resolution plans had been submitted and placed before the CoC (with approval recorded on 16.04.2023); held that the Adjudicating Authority's finding to the contrary was perverse, but refrained from adjudicating plan merits.

Final Conclusion: The Company Appeals are allowed; the impugned orders dated 26.04.2023 are quashed and the IA seeking a 90 day extension to complete the CIRP is allowed. The Tribunal limited its order to grant a one time 90 day extension to enable conclusion of the resolution process and did not decide the merits of any resolution plans; no further extension will be granted.

Proviso to Section 45(1) of the PMLA - sick or infirm - medical bail - exercise of judicial discretion - right to life under Article 21 - adequate and effective medical treatment in custody - personal liberty

Proviso to Section 45(1) of the PMLA - sick or infirm - exercise of judicial discretion - medical bail - Applicant entitled to bail under the proviso to Section 45(1) of the PMLA on medical grounds and the Court's exercise of discretion thereunder - HELD THAT: - The Court analysed the scope of the proviso to Section 45(1) of the PMLA which permits release on bail of a person who is "sick or infirm" and observed that the proviso was inserted to mitigate the rigour of the main bail bar. The words "sick" and "infirm" are disjunctive; not every illness qualifies and the court must assess severity. Medical reports establish that the applicant suffers from multifocal duodenal neuroendocrine tumours with spread to D1-D3, for which Whipple's surgery (a high risk supramajor procedure) was recommended but declined in favour of chemotherapy; he also has other ailments and severe depression. The wife suffers from recurrent, life threatening cancer and requires the applicant as primary caretaker. Considering the applicant's age, comorbidities, the critical condition of his wife, and the cumulative impact on his physical and mental health, the Court concluded that the applicant falls within the proviso and that discretion should be exercised to grant bail for a limited period. The Court emphasised that such discretion must be judicious and fact sensitive, and that falling within the proviso does not render the main part of Section 45(1) irrelevant but allows exceptional relief when circumstances justify it. [Paras 14, 15, 16, 29, 32]

Applicant to be released on bail for a limited period under the proviso to Section 45(1) PMLA

Adequate and effective medical treatment in custody - personal liberty - right to life under Article 21 - Availability of hospital treatment does not automatically preclude grant of medical bail and personal liberty considerations weigh in favour of release - HELD THAT: - The Court rejected a narrow approach that if adequate treatment is available in hospital (including hospital of choice) then bail must be denied. While recognising the State's obligation to provide requisite treatment in custody, the Court held there is a qualitative difference between treatment received as an undertrial and treatment as a person at liberty, and that insisting solely on adequacy of in custody treatment would render the proviso otiose. The Court noted precedents which require judicial satisfaction that in custody treatment is inadequate before denying bail, but here the cumulative facts (age, nature and spread of malignancy, other ailments, mental infirmity, and wife's condition) justified release despite the availability of care in hospital. [Paras 30, 31, 32]

Availability of treatment in custody did not preclude granting limited medical bail

Exercise of judicial discretion - conditions of bail - Bail to be subject to stringent conditions and limited duration to allay prosecution's apprehensions of flight and tampering with evidence - HELD THAT: - The Court found prima facie that the applicant has roots in society and that risks of flight or tampering with evidence were remote. Nonetheless, to address prosecution concerns the Court imposed stringent conditions: two months' bail, PR bond and sureties, jurisdictional restriction to Greater Mumbai, surrender of passport, furnishing contact details, prohibition on tampering with evidence or contacting co accused, and undertaking to abide by conditions. Breach would render bail liable to cancellation. The Court emphasised the limited scope of its observations to the bail question and not on merits of the prosecution. [Paras 33, 34]

Grant of bail for two months subject to specified conditions; violation to attract cancellation of bail

Final Conclusion: Bail partly allowed: the applicant, suffering from advanced neuroendocrine duodenal tumours and affected by his wife's terminal illness, falls within the proviso to Section 45(1) PMLA; the Court exercised discretion to grant limited medical bail for two months subject to stringent conditions while restricting its observations to the question of bail only.

Sabka Vishwas (Legacy Dispute Resolution) Scheme - amnesty under SVLDRS - settlement under Section 127 of the Finance (No.2) Act, 2019 - confirmation of demand under Section 73 of the Finance Act, 1994 - payment requirement and condonation for failed electronic transfer - interest on delayed payment - quashing of adjudication order subject to compliance

Sabka Vishwas (Legacy Dispute Resolution) Scheme - amnesty under SVLDRS - payment requirement and condonation for failed electronic transfer - interest on delayed payment - quashing of adjudication order subject to compliance - Whether the petitioner, having failed to complete the electronic payment on 30.06.2020 due to technical reasons during lockdown, is nevertheless entitled to the benefit of settlement under the SVLDRS scheme and relief from the confirmed demand. - HELD THAT: - The Court accepted the petitioner's uncontested factual position that an attempt was made to remit the estimated settlement amount in Form SVLDRS-3 dated 25.02.2020 by NEFT and RTGS on 30.06.2020, during which the amount was debited and thereafter re-credited, probably due to technical glitches. Having regard to the objective of the SVLDRS scheme and the exceptional circumstances of pandemic-related lockdowns and the failed electronic transaction, the Court held that the substantial amnesty afforded by the scheme should not be denied on that account. The Court therefore granted relief on the condition that the petitioner deposit the estimated amount as specified in Form SVLDRS-3 within 30 days from receipt of a copy of the order, and that interest be paid at 9% from 30.06.2020 until the date of actual payment. Upon such compliance the impugned Order in Original confirming the demand would be quashed and the respondents directed to issue Form SVLDRS-4 and close the dispute; failure to make the payment within the stipulated period would result in dismissal of the petition. [Paras 9, 10, 11]

Petition allowed; impugned order quashed subject to payment of the amount in Form SVLDRS-3 within 30 days with interest at 9% from 30.06.2020, and respondents to issue Form SVLDRS-4; failure to pay within the time will result in dismissal of the petition.

Final Conclusion: Writ petition allowed: the adjudication order confirming the service tax demand for 2013-14 to 2015-16 is quashed on condition that the petitioner deposits the estimated SVLDRS amount within 30 days with interest at 9% from 30.06.2020; upon compliance respondents shall issue Form SVLDRS-4 and close the matter, otherwise the petition shall be treated as dismissed.

Prospective operation of statutory amendment - application of amendment not to be retrospective - refund of tax paid pursuant to a prospective amendment - prohibition on recovery of amounts prior to effective date - remand to assessing authority for adjudication of refund claim

Prospective operation of statutory amendment - application of amendment not to be retrospective - Explanation under Section 65(105) as prospective amendment - Amendment introduced by the Finance Act, 2005 to Explanation under Section 65(105) will not apply prior to 18.04.2006 and cannot be applied retrospectively. - HELD THAT: - The court accepted the position that the Supreme Court has held the 2005 amendment to be prospective in nature and not applicable to periods before 18.04.2006. Consequently, the amendment cannot be applied to impose liability for actions or transactions occurring prior to that effective date. The respondents therefore cannot validly recover amounts alleged to be due for periods earlier than 18.04.2006. [Paras 3, 7]

The amendment does not apply prior to 18.04.2006; no recovery may be made for amounts prior to that date.

Refund of tax paid pursuant to a prospective amendment - remand to assessing authority for adjudication of refund claim - Claim for refund of tax paid under the impugned amendment prior to 18.04.2006 is to be agitated before and decided by the authority concerned. - HELD THAT: - The court directed that the petitioner may apply to the concerned authority for refund of tax paid pursuant to the amendment for periods prior to 18.04.2006. The authority is required to examine the application on its merits, considering relevant aspects, and to decide the refund claim, preferably within six months from receipt of the application. The court did not adjudicate the merits of the refund claim but entrusted factual and merit-based determination to the administrative authority. [Paras 4, 6]

Petitioner to seek refund from the authority; authority to decide the application on merits preferably within six months.

Final Conclusion: The court held that the 2005 amendment to the Explanation under Section 65(105) operates prospectively and does not apply before 18.04.2006; recovery of amounts for periods prior to that date is barred, and any refund claim by the petitioner is to be decided by the competent authority on its merits within the stated timeframe.

Recipient of service - reverse charge - payment processing services - service tax on foreign bank charges - trade discount - extended period of limitation - penalties for suppression/intent to evade - negative list / place of provision of services regime

Recipient of service - payment processing services - trade discount - Appellant's liability to service tax on amounts deducted by M/s Amsco (3% TPA) for payment processing of export proceeds to C&A - HELD THAT: - The Tribunal found no service-provider-recipient relationship between the appellant and M/s Amsco because the contractual arrangement for the Trade Payment Arrangement was between the foreign buyer M/s C&A and M/s Amsco who are both outside India, and the appellant had no contract with M/s Amsco. The 3% deduction was indicated in the purchase orders and disclosed in invoices and shipping bills and therefore represented a trade discount reflected in the net invoice amount. The appellant merely received net proceeds and had no legal recourse or binding obligation to M/s Amsco; the Amsco communication was informational and did not create contractual liability of the appellant. Applying these factual and legal conclusions, the Tribunal held that the appellant was not the recipient of any service from M/s Amsco and thus not liable to service tax thereon. [Paras 7]

Demand of service tax on amounts retained by M/s Amsco set aside; appellant not liable.

Service tax on foreign bank charges - recipient of service - negative list / place of provision of services regime - Appellant's liability to service tax on charges deducted by foreign banks while remitting export proceeds - HELD THAT: - The Tribunal concluded that the contracts for remittance and related services were between the foreign banks and the overseas entities (M/s C&A / Amsco) and that the appellant had no service agreement with the foreign banks. The service, if any, was rendered to the Indian bank (which received the funds) and not to the appellant; the appellant neither chose nor contracted with the foreign banks and merely received amounts credited via the Indian bank. The Tribunal relied on CBEC circulars and earlier Tribunal precedents holding that charges deducted by foreign banks in such collection/remittance processes are bank-to-bank transactions and not taxable as services received by the exporter. [Paras 8, 11]

Demand of service tax on foreign bank charges set aside; appellant not liable.

Extended period of limitation - penalties for suppression/intent to evade - Validity of invocation of extended limitation period and levy of penalties against the appellant - HELD THAT: - The Tribunal held that extended limitation and penalties were not sustainable because there was no intent to evade tax: the appellant had no contractual relations with M/s Amsco or the foreign banks, deductions were disclosed in invoices and shipping bills, drawback was claimed on the net amount, and any service tax, if at all payable, would be revenue-neutral for an exporter. On these findings the Tribunal found lack of mala fide or suppression and rejected the imposition of penalties and extended limitation. [Paras 9]

Invocation of extended limitation and penalties set aside.

Final Conclusion: All impugned orders confirming service-tax demands, interest and penalties are set aside; the appeals are allowed with consequential relief, if any, in accordance with law.

Liability of developer/builder/promoter for construction services prior to 1.7.2010 - construction of residential complex service - commercial or industrial construction service - works contract service - site formation service - invocation of extended period/limitation where issue is debatable and interpretational

Liability of developer/builder/promoter for construction services prior to 1.7.2010 - construction of residential complex service - works contract service - commercial or industrial construction service - Demand of service tax on the land owner's share under construction of residential complex, commercial/industrial construction and works contract services for the period prior to 1.7.2010 is not sustainable. - HELD THAT: - The appeal concerned demands raised for the period October 2006 to September 2011, with a material portion of the dispute falling prior to 1.7.2010. The Board's Circular (reproduced in the order) clarified that a developer/builder/promoter would not be liable to pay service tax in respect of construction of residential complexes prior to 1.7.2010 as such activity was treated as self service until transfer of ownership. The Tribunal applied that circular and the reasoning in Krishna Homes and Pragati Edifice Pvt. Ltd. , and noted that the legislative amendment (explanation to Section 65(105)(zzzh)) bringing such works contracts within taxable service was effective only from 1.7.2010. For commercial construction it relied on the view in Real Value Promoters and the approach in Jain Housing & Construction Ltd. (and its acceptance by the Apex Court) that demands under CCS/RCS/CICS cannot be sustained for earlier periods. On examination of the Annexures showing demands raised on land owner consideration, the Tribunal held that the legal position and Board clarification disentitle the Department to demand service tax for the period prior to the effective date, and therefore the impugned demands under these heads must be set aside. [Paras 8, 9, 10]

Demand under construction of residential complex, commercial/industrial construction and works contract services on land owner share for the period prior to 1.7.2010 is set aside.

Site formation service - composite agreement and ancillary activities - Amounts characterised as development charges do not sustain a demand under Site Formation Service on the facts of this case. - HELD THAT: - The Department did not contend that the appellant specifically carried out site formation services distinct from its role as developer/promoter. The agreements were for joint development to provide construction of residential and commercial complexes and the so called development charges were collected as part of the composite consideration for construction. Citing the Tribunal's reasoning in Hallmark Infrastructure and similar findings in Radius Corporation Ltd. , the Tribunal held that site formation and clearing activities carried out by the developer on its own land as part of enhancing saleability are self service or incidental to the primary construction activity and cannot be separately taxed as Site Formation Service where no specific service provider-recipient relationship for that distinct service is shown. Accordingly the demand under Site Formation Service cannot be sustained on the facts presented. [Paras 11, 12, 13]

Demand under Site Formation Service is not maintainable and is set aside.

Invocation of extended period/limitation where issue is debatable and interpretational - Extended period of limitation cannot be invoked where the liability was debatable and interpretational and the appellant had discharged part of the tax. - HELD THAT: - The Tribunal observed that the question whether a promoter/builder/developer is liable to pay service tax for the construction activities during the relevant period was subject to genuine debate and required interpretation, which had prompted the Board to issue the clarificatory Circular. The appellant had already discharged service tax on 33% of the land owner share, and there was no finding of suppression with intent to evade tax. In these circumstances the Tribunal held that invocation of the extended period was not justified and answered the limitation issue in favour of the appellant. [Paras 14]

Extended period cannot be invoked; limitation objection is decided in favour of the appellant.

Final Conclusion: The impugned order confirming demands, interest and penalties is set aside; the appeal is allowed and the demands under construction related services and Site Formation Service for the relevant period are quashed, with the extended period objection rejected and consequential relief to follow.

Service tax liability on handling and forwarding charges - Aspect theory - Taxation of services versus taxation of goods - Overlapping taxation - Extended period of limitation - Remand for computation and penalty reconsideration

Service tax liability on handling and forwarding charges - Aspect theory - Taxation of services versus taxation of goods - Handling and forwarding charges recovered by the appellant are liable to service tax during the negative list regime. - HELD THAT: - The Tribunal accepted the reasoning that where a composite transaction has distinct service elements and the contract/invoice is not indivisible, the service aspect may attract service tax notwithstanding payment of VAT on the invoice value. Reliance was placed on the aspect theory as explained by the Supreme Court and followed by High Courts, which permits taxation of different aspects of the same transaction by distinct legislatures so long as the essential character of each levy remains within the competence of the enacting legislature. The Bench noted that the handling charges were separately shown and pertained to services such as unloading, monitoring and safeguarding of vehicles till delivery, and therefore bore the character of services chargeable to service tax in the negative list regime. The fact that VAT had been paid on the invoice did not disentitle the Centre from levying service tax on the service component where the transaction is divisible. [Paras 4]

Service tax payable on the handling and forwarding charges during the negative list regime is upheld.

Extended period of limitation - Remand for computation - Penalty reconsideration - Extended period of limitation would not apply; matter remanded to the original adjudicating authority to confine demand to the normal period and to reconsider imposition of penalty afresh. - HELD THAT: - The Bench observed that the department had knowledge of the recovery of handling charges when the show cause notices were issued and that earlier litigation on the same point (including an earlier favourable final order in the party's own case) was already in progress. In view of that knowledge and the earlier proceedings, the Tribunal held that the conditions for invoking the extended period were not made out. Consequently, the Tribunal set aside invocation of extended limitation and directed remand to the original authority to compute demand limited to the normal period and to decide penalty anew. [Paras 5]

Extended period not to be invoked; appeal allowed by way of remand for quantification limited to normal period and fresh consideration of penalty.

Final Conclusion: The Tribunal held that handling and forwarding charges constituted taxable services under the negative list regime and that payment of VAT did not preclude service tax on the divisible service element; however, since the department had prior knowledge and earlier related litigation existed, extended limitation was held inapplicable and the matter is remanded to the original authority for demand computation confined to the normal period and for fresh adjudication of penalty.

Transfer of right to use goods - Supply of Tangible Goods for Use (STGU) - Business Support Services (BSS) - Consulting Engineer Services - Reverse Charge Mechanism (RCM) - Declared services - Taxation of Services (Provided from Outside India and Received in India) Rules - performance in India under Rule 3(ii)

Transfer of right to use goods - Supply of Tangible Goods for Use (STGU) - BARECON / bareboat charter - Whether hire of rigs on bareboat charter from GGES amounted to STGU attractable to service tax on reverse charge - HELD THAT: - The Tribunal examined the BARECON 2001 bareboat charter terms as a whole and applied the established test for transfer of right to use goods - transfer of possession and effective control. Material clauses (delivery, maintenance and operation, appointment of master and crew, insurance, liberty to repaint and fly charterer's flag, obligation to keep the vessel in possession and at absolute disposal of charterer, and repossession only on breach) demonstrate that possession and effective control of the rigs vested with the appellants during the charter period. Limited inspection rights, requirement to display ownership notice and client-imposed use-conditions did not negate the transfer of possession and effective control. Reliance on Tribunal and High Court decisions (e.g., International Seaport Dredging; Petronet LNG; Great Eastern shipping line of authorities) and departmental guidance were considered and applied. On these facts the activity was held to be a transfer of right to use goods and therefore outside the STGU taxable entry; the adjudged STGU demands were unsustainable and set aside. [Paras 8, 13]

STGU demand arising from bareboat charter of rigs is not sustainable; transfer of right to use goods established and demand set aside.

Business Support Services (BSS) - Reverse Charge Mechanism (RCM) - Taxation of Services (Provided from Outside India and Received in India) Rules - performance in India under Rule 3(ii) - Whether payments to overseas vendors for crew handling, husbandry, weather forecasting, DGPS, satellite communications etc. attracted service tax on reverse charge as Business Support Services or import of services - HELD THAT: - The Tribunal analysed the statutory definition of support services of business or commerce and the explanatory material. The foreign vendors did not provide promotional or marketing activities for the appellants' goods; the services were performed wholly outside India while the rigs were stationed abroad. Rule 3(ii) of the Import of Services Rules requires that specified services be performed in India (or partly in India) to qualify as import of service; as these services were performed outside India they do not qualify as taxable imported services under RCM. Consequently the BSS-based demands confirmed by the Commissioner were held unsustainable and set aside. [Paras 10, 13]

Service tax demand on payments to the foreign vendors under BSS / import of services is not sustainable; demands set aside.

Consulting Engineer Services - Reverse Charge Mechanism (RCM) - Whether payment to Mr. Balbir Singh Negi for monitoring, supervision and technical assistance constituted taxable consulting engineer services recoverable under RCM - HELD THAT: - The Tribunal found on the documentary record and assignment letters that the services were provided on assignment basis by a consulting engineer (not merely an employee relation determinative). The monitoring, inspection and technical supervision in relation to ships/rigs being constructed abroad were consumed by the appellants in India and reporting was to the appellants in India. Payment was appropriately subject to service tax under clause (g) of Section 65(105) as consulting engineer services and the Commissioner's demand (including interest and penalty equivalent) in respect of that head was upheld. The tribunal rejected the contention that Form 16 or payroll treatment alone changed the tax character of the service. [Paras 11, 12]

Demand for consulting engineer services upheld; service tax, interest and penalty in respect of that demand sustained.

Final Conclusion: The appeal is allowed in part: demands in the impugned order relating to supply of tangible goods for use (STGU) and Business Support Services (BSS) are set aside, while the demand in respect of consulting engineer services (with interest and penalty) is confirmed; the appeal is disposed accordingly.

Wrongful availing of Cenvat credit under Rule 4(7) of the Cenvat Credit Rules, 2004 - payment within three months of invoice as condition for availing Cenvat credit - liability to reverse Cenvat credit where service tax not paid to the service provider - onus on service recipient to prove non-release of retained payment on account of contractual certification - interest and consequences for non-reversal of Cenvat credit

Wrongful availing of Cenvat credit under Rule 4(7) of the Cenvat Credit Rules, 2004 - payment within three months of invoice as condition for availing Cenvat credit - liability to reverse Cenvat credit where service tax not paid to the service provider - onus on service recipient to prove non-release of retained payment on account of contractual certification - Appellant availed Cenvat credit without the service tax having been paid to the service provider and is liable to reverse the credit and pay interest; appeal dismissed. - HELD THAT: - The appellant received construction services from M/s. S.S. Infratech during April 2016 to March 2017 under an agreement which permitted retention of a security portion until architect's certification. The department found an outstanding invoice amount and that the appellant had availed Cenvat credit though the corresponding service tax remained unpaid to the service provider. Rule 4(7) permits the service recipient to avail credit only where the service tax is paid within three months of the invoice; the proviso requires payment of the value and service tax as indicated in invoices within that period. The appellant failed to produce any evidence that the retained amount was withheld lawfully for want of architect's certification or that the service tax had been discharged by the service provider. In absence of such proof and having remained absent before the Tribunal, the appellant did not rebut the departmental findings that the credit was wrongly availed. The adjudicating authorities' findings on these points are therefore upheld and the credit reversal with consequential interest stands sustained. [Paras 4, 5]

Order under challenge is upheld; appeal dismissed and the reversal of Cenvat credit with interest is sustained.

Final Conclusion: The Tribunal upheld the departmental finding that Cenvat credit availed in respect of construction services for April 2016 to March 2017 was not permissible as the corresponding service tax was not paid to the service provider within the time prescribed under Rule 4(7), the appellant failed to prove lawful retention of payment, and the appeal is dismissed.

Personal penalty under Rule 26(1) of Central Excise Rules, 2002 - settlement under Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 (SVLDRS) - effect of main party's SVLDRS settlement on penalties against co-noticees - non-survivability of personal penalty upon SVLDRS settlement - abatement of evasion of duty

Personal penalty under Rule 26(1) of Central Excise Rules, 2002 - settlement under Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 (SVLDRS) - non-survivability of personal penalty upon SVLDRS settlement - Whether the personal penalty imposed under Rule 26(1) is sustainable where the main party's duty-evasion case has been settled under SVLDRS-2019 and the appeal in the main case has been disposed of - HELD THAT: - The Tribunal found that the appellant's penalty under Rule 26(1) was imposed in connection with duty evasion attributed to M/s. Phenix Construction Technologies. The main party's case was settled under SVLDRS-2019 and this Tribunal had disposed of the main appeal by order dated 10.06.2021. Reliance was placed on multiple precedents of the Tribunal which hold that once the main case of duty evasion is settled under SVLDRS-2019, any personal penalty on a co-noticee does not survive. Applying that settled principle to the facts before it, the Tribunal concluded that the personal penalty imposed on the appellant is not sustainable in view of the main party's SVLDRS settlement and the disposal of the main appeal. [Paras 4, 5]

The personal penalty imposed under Rule 26(1) is not sustainable in view of the main party's settlement under SVLDRS-2019 and is set aside.

Final Conclusion: The appeal is allowed and the personal penalty imposed on the appellant under Rule 26(1) is set aside in view of the settlement of the main party's case under SVLDRS-2019 and the Tribunal's prior disposal of the main appeal.

Commercial or Industrial Construction Service - Exemption for services provided to Government - Service-recipient-wise bifurcation - Extended period/limitation - Remand to Adjudicating Authority

Commercial or Industrial Construction Service - Exemption for services provided to Government - Service-recipient-wise bifurcation - Whether the demand confirmed under Commercial or Industrial Construction Service required service-recipient-wise bifurcation and fresh consideration of claims of exemption for services rendered to government bodies. - HELD THAT: - The Tribunal observed that the demand related to diverse services rendered to different recipients but neither the show cause notice nor the adjudication order contained any bifurcation by service recipient. Levy of service tax depends on the nature of the service and on the category of the service recipient, particularly where the assessee claims exemption for services provided to government entities. Several subsequent judicial decisions on identical issues were delivered after the adjudicating authority's order and were not considered by that authority. In these circumstances the Tribunal found that the matter could not properly be crystallised without a service-recipient-wise allocation and fresh adjudication of exemption claims in light of the authorities that were not earlier considered. [Paras 4, 5]

Matter remanded to the Adjudicating Authority for service-recipient-wise bifurcation and reconsideration of exemption claims relating to services provided to government bodies; impugned orders set aside.

Extended period/limitation - Remand to Adjudicating Authority - Whether the demand raised by invoking the extended period was legally maintainable or time-barred in the absence of suppression of facts. - HELD THAT: - The Tribunal noted that the issue of limitation (invocation of the extended period) had not been properly considered by the Adjudicating Authority. Given that relevant authorities on the point were delivered after the impugned order and were not placed before the adjudicator, and considering that the factual question of suppression or otherwise was material to the applicability of the extended period, the Tribunal held that the matter requires fresh consideration by the Adjudicating Authority. [Paras 4, 5]

Issue of extended period/limitation is remanded to the Adjudicating Authority for fresh consideration; appeals allowed to the extent of remand.

Final Conclusion: Impugned orders set aside and appeals allowed by way of remand to the Adjudicating Authority for service-recipient-wise bifurcation, fresh adjudication of exemption claims in respect of services to government bodies, and reconsideration of the invocation of the extended period.

Obligation to maintain separate accounts for inputs and input services under Rule 6 - option of proportionate reversal of CENVAT credit under Rule 6(3)/(3A) - effect of reversal of CENVAT credit with interest as tantamount to non availment of credit - demand of percentage of value of exempted goods under Rule 6(3)(i) (5%/10%/8%) - remand for verification of proportionate reversal/records

Option of proportionate reversal of CENVAT credit under Rule 6(3)/(3A) - effect of reversal of CENVAT credit with interest as tantamount to non availment of credit - demand of percentage of value of exempted goods under Rule 6(3)(i) (5%/10%/8%) - Whether a demand for payment calculated as a percentage of the value of exempted goods can be sustained where proportionate reversal of CENVAT credit (with interest) or compliance under Rule 6(3A) is relied upon by the manufacturer. - HELD THAT: - The Tribunal applied the established principle that where an assessee reverses the CENVAT credit attributable to inputs or input services used in or in relation to exempted goods, and pays interest thereon, that reversal operates as if the credit had not been availed ab initio. The Bench surveyed binding and persuasive decisions which hold that proportionate reversal (including under the procedure in Rule 6(3A)) negates the basis for imposing a demand equal to 5%/10% (or similar percentage) of the value of exempted goods. On that legal foundation the Tribunal concluded that a demand based on Rule 6(3)(i) is not sustainable where the assessee has effectively complied by reversing the attributable credit with interest; accordingly, the impugned demand confirming such percentage based recovery could not be upheld as a matter of law unless verification establishes non compliance.

Demand calculated as a percentage of the value of exempted goods is not sustainable as a legal proposition where proportionate reversal of CENVAT credit with interest has been effected; impugned demand set aside in law subject to factual verification.

Obligation to maintain separate accounts for inputs and input services under Rule 6 - remand for verification of proportionate reversal/records - Whether the appellant in the present case had maintained the requisite separate records or, alternatively, had effected proportionate reversal in accordance with Rule 6 so as to defeat the percentage based demand. - HELD THAT: - The Tribunal found that the adjudicating authority's conclusion rejecting the appellant's claim of separate records could not be sustained without re examination of the documents the appellant relied upon. Given the settled law that proportionate reversal (and compliance with the procedure under Rule 6(3A)) precludes a percentage based demand, the Tribunal remanded the matter for de novo consideration to verify the asserted records, the correctness and quantum of any reversal already made, and whether the statutory procedure (including intimation and monthly/annual reconciliation where applicable) has been followed or substantially complied with. The remand contemplates examination of the appellant's Annexures and ER 1/RG registers and a fresh quantification in light of the authorities cited.

Matter remitted to the original adjudicating authority for de novo consideration and verification of records and any proportionate reversal, with directions to decide afresh.

Penalty and extended period/limitation in the context of Rule 6 disputes - Whether penalties and extended period demands arising from the Rule 6 allegations are sustainable in the facts of this case. - HELD THAT: - The Tribunal observed that where proportionate reversal with interest has been made, and where there is no evidence of mala fide suppression, demands for the extended period and penalties may be unsustainable. Because the adjudicating authority did not carry out the necessary verification (quantification of reversal, existence of procedural lapses, and assessment of bona fides), these aspects require fresh adjudication in the remand proceedings. The Tribunal therefore did not finally adjudicate penalty and limitation but indicated that on verification and in absence of mala fide conduct such demands/penalties are likely to be meritless.

Penalty and extended period issues remitted for fresh adjudication; their sustainability to be decided after verification of records and facts.

Final Conclusion: The impugned order confirming a percentage based demand under Rule 6 is set aside and the matter is remitted to the original adjudicating authority for de novo consideration of (a) whether separate accounts/records were maintained or, alternatively, whether proportionate reversal of CENVAT credit (with interest) was effected in accordance with Rule 6(3)/(3A), and (b) consequent issues of quantification, interest, penalty and limitation; the adjudicating authority is directed to decide the matter afresh within three months.

Interest Waiver Scheme, 2021 - waiver of penalty for late deposit of tax - opportunity of hearing - ex parte orders set aside - fresh decision on merits after hearing

Waiver of penalty for late deposit of tax - ex parte orders set aside - opportunity of hearing - Validity of orders rejecting the petitioner's applications under the Interest Waiver Scheme, 2021 which were passed without affording an opportunity of hearing - HELD THAT: - The Court found that the applications filed by the petitioner sought waiver of penalty imposed for delay in payment of tax and that identical orders rejecting those applications were passed by the revenue authorities without affording the petitioner an opportunity of hearing. On prima facie consideration the ex parte rejection orders dated 23.12.2020 were held to be defective. The Court set aside those impugned ex parte orders and directed the authority to afford the petitioner a hearing before passing any fresh order.

Impugned ex parte rejection orders dated 23.12.2020 are set aside and the matter remitted for fresh consideration after affording opportunity of hearing.

Fresh decision on merits after hearing - Interest Waiver Scheme, 2021 - Directions for disposal on merits and temporal bar not to be applied mechanically - HELD THAT: - The Court directed respondent no. 4 to pass a fresh order on the petitioner's application under the Interest Waiver Scheme, 2021 within three months from the date of the order, after giving the petitioner due opportunity of hearing. The Court recorded that if, on merits, the petitioner is found entitled to relief the same should not be denied solely on the ground of time having passed. The issue was remitted to the competent authority for fresh adjudication on merits subject to the specified procedural requirement and timeline.

Respondent no. 4 to decide the application afresh on merits after hearing within three months; temporal delay alone shall not defeat entitlement if the petitioner is otherwise found entitled.

Final Conclusion: The ex parte rejection orders dated 23.12.2020 are quashed; respondent no. 4 is directed to afford hearing and decide the petitioner's applications under the Interest Waiver Scheme, 2021 for Assessment Year, 2015-16 / 2016-17 within three months, and relief, if merited, shall not be denied merely for delay.

Construction of contract - price adjustment based on Wholesale Price Index - claims arising from subsequent legislation - non-obstante clause in price adjustment provision - deference to majority arbitral award - scope of interference under Section 34 of the Arbitration and Conciliation Act, 1996 - circumscribed jurisdiction on appeal under Section 37 of the Arbitration and Conciliation Act, 1996 - public policy and patent illegality

Claims arising from subsequent legislation - price adjustment based on Wholesale Price Index - non-obstante clause in price adjustment provision - construction of contract - Allowability of claims for increase in royalty, sales tax and forest transit fee consequent to subsequent legislation separate from WPI-based price adjustment - HELD THAT: - The Court considered whether upward revisions in royalty, sales tax and forest transit fee imposed by subsequent legislation fell within the WPI-based price adjustment regime or constituted a separate head of compensation under the substantive part of clause 70.8. Relying on the construction adopted in National Highways Authority of India v. M/s. ITD Cementation India Ltd. and on the material before the Arbitral Tribunal and the High Court, the Court accepted the view that escalation premised on market fluctuations (captured by WPI) is distinct from additional costs resulting from subsequent legislation, which fall under clause 70.8. The Division Bench's factual conclusion that there was an effective increase in sales tax (as reflected in the circular) was upheld. Given that the Arbitral Tribunal's construction on this point was a possible and reasonable view and not perverse or contrary to public policy or patent illegality, the courts below correctly upheld the award on these claims. [Paras 11, 12]

Claims for enhanced royalty, sales tax and forest transit fee consequent to subsequent legislation were held to be admissible separately and the award on these claims is upheld.

Construction of contract - deference to majority arbitral award - scope of interference under Section 34 of the Arbitration and Conciliation Act, 1996 - circumscribed jurisdiction on appeal under Section 37 of the Arbitration and Conciliation Act, 1996 - Whether the claim for initial 150 mm embankment formed part of clearing and grubbing (and thus not payable) or was payable as embankment work - HELD THAT: - Two expert members of the three-member Arbitral Tribunal found in favour of the respondent while the third dissented. The High Court and the Single Judge examined the material and the majority technical view, noting there was no evidence showing the embankment was constructed merely by backfilling or that the engineer had uniformly required removal of the top 150 mm as part of clearing and grubbing. Given the limited scope of judicial review under Sections 34 and 37, the Court will not reappraise the factual or technical conclusions of the arbitral majority unless the view is untenable or perverse. The majority view of the technical tribunal was a possible view based on the record and not vitiated by patent illegality; accordingly the courts below were justified in refusing to interfere. [Paras 13, 14]

The award in respect of the embankment claim (initial 150 mm) is upheld; the majority technical finding was sustained and not reopened by the courts.

Final Conclusion: The concurrent findings of the Arbitral Tribunal, the Single Judge under Section 34 and the Division Bench under Section 37 were held to be within the permissible limits of judicial review; the appeals are dismissed with no order as to costs.