TMI Tax Updates e-Newsletter
May 22,2026

Demand of GST on supply of solar invertors and other accessories at 18% - Classification of solar inverters - classifiable as renewable energy devices or parts of solar power generating systems - Eligibility for GST at 5% under Entry 234 of Schedule I to Notification No. 1/2017-CT(R) - Concessional rate of tax - definition of manufacture under Section 2(72) - Intended use in exemption notification - HELD THAT: - The Court held that a solar power generating system is a system comprising components functioning together, and that the inverter, which converts DC generated from solar panels into AC, is an integral part of that system. On the material produced, including purchase orders and invoices, the supplies were shown to have been made for manufacture of solar power based devices and solar power generating system. The benefit under Sl. No. 234 extends not only to supply of the complete system but also to parts for its manufacture. The definition of manufacture was applied to hold that assembly of such parts into a new product with a distinct name, character and use satisfies the requirement of manufacture. The respondents' reliance on the later circular was rejected since it dealt with the 70:30 goods-services valuation clarification and not with denial of the concessional rate. The Court further held, following the principle held in the case of Commissioner of Customs, Bangalore, v. Aditya Birla Nuvo Ltd.[2021 (2) TMI 93 - KARNATAKA HIGH COURT], that expressions such as 'required to manufacture' and 'for use' denote intended use and not actual use, that proof of actual end-use was not a condition of the notification. Since the record established that the solar inverters were intended to be used only as parts of solar power generating systems, the concessional rate at 5% was available. [Paras 23, 24, 26, 27, 28]

The impugned appellate orders, and in one petition the original order as well, were quashed to the extent they denied the concessional rate on the solar inverters and related supplies covered by the finding.

Final Conclusion: The Court held that the petitioner's solar inverters were parts of solar power generating systems falling within Sl. No. 234 of Notification No. 1/2017-CT(R) and entitled to GST at 5%. Accordingly, the impugned orders were quashed to that extent, while liberty was reserved to the petitioner to pursue appellate remedies regarding the remaining demands not adjudicated in the writ petitions.

Classification of polypropylene leno bags - classifiable under Chapter Heading 6305 33 00 or under Chapter Heading 3923 2900 - Textile versus plastic goods - No estoppel against correct classification - Estoppel against classification - Common parlance test. -HELD THAT: - The Court held that although there is no estoppel against claiming classification under the correct tariff heading, the appellant still had to establish that its product answered the requirements of the textile entry. Reading Section XI Note 1(g) with Heading 6305, the Court found that goods made from plastic granules could be treated as synthetic textile only if the requisite parameters as to the strips used in weaving were satisfied. Relying on Raj Pack Well Limited [1989 (9) TMI 120 - MADHYA PRADESH HIGH COURT], the Court accepted that material made from such plastic strips is not classifiable as textile merely because it is woven, and noted that the appellant had produced no material warranting departure from the concurrent findings of the Appellate AAR and the learned Single Judge that the strips used did not qualify as synthetic textile. The Court also took into account that the goods were commonly known in the market as plastic sacks, not textile sacks. [Paras 28, 29, 30, 31, 32]

The claim for classification under Heading 6305 33 00 was rejected and the dismissal of the writ petition was affirmed.

Final Conclusion: The appeal was dismissed. The Court held that, despite the absence of estoppel against seeking a correct classification, the appellant failed to establish that its polypropylene leno bags satisfied the conditions for treatment as textile goods under Heading 6305 33 00, and their classification under Heading 3923 2900 therefore remained undisturbed.

Availability of effective statutory remedy - Validity of the authorization for search and the consequential action taken under the GST - stock discrepancy and penalty/fine order - HELD THAT: - The Hon’ble Supreme Court in Radha Krishan Industries Vrs. State of Himachal Pradesh [2021 (4) TMI 837 - SUPREME COURT], inter alia, that where an effective alternative remedy is available to the aggrieved person, the High Court ought to restrain itself from exercising power under Article 226 of the Constitution of India and when a right is created by statute, which itself prescribes the remedy or procedure for enforcing the right or liability, resort must be had to that particular statutory remedy before invoking the discretionary remedy under Article 226 of the Constitution of India. It is made clear that this rule of exhaustion of statutory remedies is a rule of policy, convenience and discretion.

The Court held that the questions raised as to the validity of the authorization for inspection and the method adopted by the authority to ascertain stock discrepancy were essentially factual matters to be examined by the statutory authorities under the GST enactment. Reiterating the principle that where a statute creates a right and also provides the remedy for enforcing it, the aggrieved person should ordinarily pursue that remedy, the Court declined to exercise jurisdiction under Article 226. The petitioner was therefore left to avail the appellate remedy, with liberty to raise all legal and factual grounds before the appellate authority and seek condonation of delay by explaining the period spent in prosecuting the writ petition. [Paras 6, 7, 8]

The writ petition was dismissed as not fit for interference under Article 226, leaving the petitioner to pursue the statutory appeal, and the appellate authority was directed to consider all grounds on merits.

Final Conclusion: The Court declined to entertain the writ petition on the ground that the challenge involved disputed factual issues and that an effective appellate remedy was available under the GST Act. Liberty was granted to the petitioner to file an appeal, and the appellate authority was asked to consider the matter on merits, including the plea for condonation of delay.

Validity of the impugned show cause notice denying Input Tax Credit - Failure to consider reply to pre-show cause intimation - Requirement of a speaking and reasoned order - HELD THAT: - The Court recorded the admitted position that the petitioner's reply filed in response to the DRC-01A notice, along with supporting documents claiming entitlement to input tax credit, had not been taken into consideration while issuing the subsequent DRC-01 show cause notice. On that procedural defect, and in view of the statement on behalf of the State that a fresh response with relevant documents would be considered by the competent authority, the Court held that the matter required fresh consideration. The authority was therefore required to examine the objections and documents and pass a fresh speaking and reasoned order in accordance with law. [Paras 5, 7]

The impugned DRC-01 notice was quashed, and the competent authority was directed to reconsider the petitioner's objections and documents and pass a fresh speaking and reasoned order within the time fixed by the Court.

Final Conclusion: The petition was disposed of by setting aside the impugned DRC-01 notice on the ground that the petitioner's earlier reply had not been considered, and by directing fresh consideration of the objections and supporting documents through a speaking and reasoned order.

Availability of an efficacious statutory appeal under Section 107 - invocation of writ jurisdiction under Article 226 - violation of natural justice - audi alteram partem - Audit by tax authorities and subsequent adjudication - proper officer lacked jurisdiction to initiate proceedings under Section 73.

Statutory alternative remedy - Maintainability of writ petition - HELD THAT: - The Court held that where a statute creates the right and also provides an appellate remedy, the aggrieved party must ordinarily pursue that remedy before invoking Article 226. On the facts, the petitioner had been served with the show cause notice, granted 30 days to reply, and thereafter granted further time by reminder up to 21.03.2026. The Court found that despite sufficient opportunity, no reply was filed and no material was shown to establish denial of hearing. The plea founded on the personal hearing having been fixed on a holiday was also rejected, as the petitioner neither submitted a reply within the extended time nor showed that any further request for hearing was made thereafter. The exception to the rule of alternate remedy based on breach of natural justice was, therefore, held inapplicable. [Paras 9, 10, 11, 12, 17]

The challenge under Article 226 was declined, the petitioner having failed to bring the case within any recognised exception to the rule of alternate remedy.

Audit by tax authorities and subsequent adjudication - Jurisdiction of proper officer - Completion of audit under Section 65 did not denude the proper officer of jurisdiction to initiate proceedings under Section 73. - HELD THAT: - Reading Section 65 as a whole, the Court held that sub-section (7) expressly contemplates initiation of action under Sections 73 or 74 where audit results in detection of tax not paid, short paid, erroneously refunded, or input tax credit wrongly availed or utilised. The petitioner's contention that once audit had been conducted and discrepancies were stated to have been met, the proper officer could not commence proceedings under Section 73 was found to be contrary to the statutory scheme itself. The show cause notice issued by the State Taxes Officer was therefore not without jurisdiction merely because an audit had earlier been conducted. [Paras 13, 14, 15, 16, 17]

The plea of absence of jurisdiction was rejected, and the competence of the proper officer to proceed under Section 73 after audit was upheld.

Final Conclusion: The writ petition was dismissed as not maintainable, the Court holding that the petitioner had an effective statutory appeal and had failed to establish either breach of natural justice or lack of jurisdiction. Liberty was reserved to pursue the appellate remedy, and the observations in the order were directed not to prejudice the appeal.

Deemed withdrawal -Non-filing of returns stood deemed withdrawn on subsequent filing of returns with payment of tax, interest and late fee - Condonation of delay in filing returns- Best judgment assessment - HELD THAT: - The Court held that Section 62(2) of the Act, 2017 provides that an assessment order made for failure to furnish returns is deemed to be withdrawn once the registered person files the requisite returns and pays the tax, interest and late fee. As the petitioner had thereafter filed the GSTR-3B returns and discharged the attendant liabilities, and the delay in relation to August-2024 was explained by cancellation of registration and its later revocation by the appellate authority, the delay deserved to be condoned. On that basis, recovery could not be pursued on the strength of the assessment orders. [Paras 6, 7]

The assessment orders for the concerned periods were declared to have been deemed withdrawn, and no recovery could be made on the basis of those orders.

Final Conclusion: The writ petition was disposed of by holding that, upon filing of the pending returns and payment of tax, interest and late fee, the assessment orders stood deemed withdrawn under Section 62(2). The respondents were held not entitled to recover tax on the basis of those assessment orders.

Availability of an efficacious statutory appeal under the GST law - Writ petition challenging the demand order - Claimed excess ITC in GSTR-3B in comparison to ITC accumulated in GSTR-2A/2B -HELD THAT: - The Hon’ble Supreme Court in Radha Krishan Industries Vrs. State of Himachal Pradesh [2021 (4) TMI 837 - SUPREME COURT], held, inter alia, that where an effective alternative remedy is available to the aggrieved person, the High Court ought to restrain itself from exercising power under Article 226 of the Constitution of India and when a right is created by statute, which itself prescribes the remedy or procedure for enforcing the right or liability, resort must be had to that particular statutory remedy before invoking the discretionary remedy under Article 226 of the Constitution of India. It is made clear that this rule of exhaustion of statutory remedies is a rule of policy, convenience and discretion.

The Court applied the principle that where the statute creates a right and also provides a remedy for enforcement or challenge, recourse must ordinarily be taken to that statutory remedy before invoking Article 226. Treating the rule of exhaustion of remedies as one of policy, convenience and discretion, the Court found no special circumstance justifying departure from that rule and therefore declined to examine the legality of the impugned demand on merits. Since the petitioner had approached the Court within the period stipulated for appeal under Section 107 of the GST Act, liberty was granted to file the appeal within seven days, with a direction that, upon such filing and compliance with statutory requirements, it be treated as within limitation and decided on merits. [Paras 8]

The writ petition was disposed of without examining the merits, leaving the petitioner to pursue the statutory appeal, which was directed to be treated as within limitation if filed within the time granted.

Final Conclusion: The Court declined to entertain the writ petition against the GST demand order on the ground of availability of an efficacious statutory appeal. Liberty was granted to the petitioner to file the appeal within the time fixed by the Court, to be treated as within limitation subject to statutory compliance.

Scope of adjudication and rectification orders - non-consideration of reply to show-cause notice - denial of personal hearing - violation of principles of natural justice. - HELD THAT: - The Court found from Form GST DRC-06 that the petitioner had in fact replied to the show-cause notice and had expressly opted for personal hearing. The original adjudication order nevertheless proceeded on the erroneous footing that no reply had been filed and did not disclose that any hearing had been granted. The subsequent rectification order acknowledged receipt of the reply, but still did not show that personal hearing was afforded despite the recorded request. The Court held that reply to a show-cause notice cannot be treated as an empty formality and that the adjudicating authority was required to consider the explanation and record reasons for discarding it. The absence of such consideration and of independent application of mind rendered the orders arbitrary and violative of principles of natural justice. [Paras 6]

The orders passed under Sections 73 and 161 were quashed, and the matter was remanded to the adjudicating authority for fresh decision on merits after granting reasonable opportunity of hearing, with liberty to the petitioner to adduce evidence.

Final Conclusion: The writ petition was disposed of by setting aside the adjudication and rectification orders on the ground of breach of natural justice. The matter was remanded for fresh adjudication on merits after affording the petitioner a reasonable opportunity of hearing.

Service of notice after cancellation of registration - denial of opportunity of reply and hearing - Violation of natural justice - Electronic service on common portal - Adjudication initiated after cancellation of the petitioner's earlier GST registration could not validly proceed on the basis of electronic service of notice on the common portal alone, without physical service of notice. - HELD THAT: - The Court held that once the earlier registration had already been cancelled, adjudication notice issued thereafter could not be treated as duly served merely because it was uploaded on the common portal. In such a situation, the person is no longer expected to keep checking the portal, and proceedings may continue only upon physical service in terms of Section 169(1)(a)(b) of the Act. As no such physical notice was issued or served, the petitioner was effectively denied the opportunity to file objection or reply, amounting to a substantial breach of natural justice and of the statutory right of hearing under Section 75(4). [Paras 7, 8, 9, 10]

The adjudication order was set aside and the matter was remitted for fresh decision after issuance of physical notice along with relied upon documents and after granting opportunity to reply and be heard.

Final Conclusion: The writ petition was disposed of by setting aside the adjudication order on the ground that notice issued only through the common portal after cancellation of registration resulted in denial of opportunity of hearing. The matter was remitted for fresh adjudication after physical service of notice and relied upon documents.

Tribunal justification in remanding the matter to the CIT (Appeals) instead of deciding the appeal on merits -Requirement of reasons in appellate orders -

HELD THAT: - The Court found that the CIT(A)'s order, though lengthy, merely reproduced the assessee's reply and the Assessing Officer's findings, and allowed the appeal in a few lines by relying on an earlier order concerning a different assessee. It held that when the first appellate authority overturns the Assessing Officer, it must record reasons of its own, because reasons are indispensable to enable appellate scrutiny and to disclose how the authority applied its mind to the facts and law. The contention that the Tribunal, as the last fact-finding authority, ought to decide the matter itself was rejected, since acceptance of that submission would reduce the first appellate stage to futility and require the Tribunal to function as the primary appellate forum. The Court also held that Arvind Kumar Jaiswal (D) Thr. Lr. vs. Devendra Prasad Jaiswal Varun [2023 (2) TMI 1429 - SUPREME COURT] did not assist the assessee, as the present case involved no complete or effective adjudication by the CIT(A), making remand appropriate. [Paras 11, 12, 13, 14, 15]

No substantial question of law arose from the Tribunal's order; the remand to the CIT(A) for fresh decision was upheld, with a direction to decide the restored appeal on due priority.

Final Conclusion: The High Court upheld the Tribunal's remand of the matter to the CIT(A), holding that the absence of reasons in the first appellate order made fresh adjudication necessary. The appeal was dismissed, with a direction that the restored appeal be decided according due priority.

Determination of the Arm’s Length Price for export of data processing and office support services - Transfer pricing comparables - Turnover filter - Scale of operations - Transactional Net Margin Method - Verification of export turnover without examining its functional comparability.

Functional comparability - Export turnover filter - IT enabled services - The inclusion of Cepha Imaging Pvt. Ltd. could not be directed only on verification of export turnover without examining its functional comparability with the assessee. - HELD THAT: - The Court noted that the Tribunal proceeded on the footing that the only dispute concerning Cepha Imaging Pvt. Ltd. was the export turnover filter and, on finding that the annual report indicated export revenue, directed the TPO to verify that aspect and include the company if the assessee's contention was correct. The Court held that this approach was incomplete because the Tribunal had not returned any finding on functional similarity, though the Revenue asserted that the company was engaged in e-publishing activity. Since the CBDT notification specifying information technology enabled services did not include e-publishing services, the Tribunal ought also to have required examination of that aspect. The matter was therefore directed to be looked into by the TPO on functional similarity as well, particularly in the light of the notification. [Paras 41, 42, 43]

The question was answered in favour of the Revenue, and the TPO was directed to examine the functional similarity of Cepha Imaging Pvt. Ltd. in addition to the export turnover aspect.

Turnover filter - Scale of operations - Comparability analysis - CG Vak Software & Exports Ltd. was not a proper comparable in view of the extreme turnover disparity between the assessee and the comparable. - HELD THAT: - The Court disagreed with the Tribunal's view that low turnover by itself could not render CG Vak Software & Exports Ltd. incomparable. It held that the scale of operations of the comparable vis-a-vis the tested entity is a relevant factor in transfer pricing analysis and that huge differences in turnover require exclusion of the proposed comparable. On the figures recorded in the judgment, the assessee's ITeS turnover was vastly higher than that of CG Vak Software & Exports Ltd., making the difference one of such magnitude that the company could not be retained as a comparable. The Court relied on decisions recognising that substantial disparity in size and scale affects comparability. [Paras 48, 49, 50, 51]

The question was answered in favour of the Revenue, and the Tribunal's direction to include CG Vak Software & Exports Ltd. as a comparable was held to be erroneous.

Final Conclusion: For AY 2009-10, the appeal was entertained only on the questions relating to Cepha Imaging Pvt. Ltd. and CG Vak Software & Exports Ltd., and both were decided in favour of the Revenue. The Court held that Cepha Imaging required examination of functional similarity in addition to export turnover, and that CG Vak could not be accepted as a comparable in view of the huge turnover disparity; the remaining proposed questions were treated as covered against the Revenue or as findings of fact.

Legal representative of deceased assessee - Validity of reassessment notice on deceased assessee - Distinction between legal heir and legal representative - lack of approval by the Competent Authority

Legal representative of deceased assessee - Distinction between legal heir and legal representative - Service of notice in representative capacity - notice served upon a person claiming only as legal representative and not as a legal heir -HELD THAT: - The Court held that for purposes of proceedings after the death of an assessee, the governing expression under the Act is legal representative and not legal heir. By virtue of Section 159 read with Section 2(29) of the Act and Section 2(11) of the Code of Civil Procedure, the expression is of wider import and includes a person representing or intermeddling with the estate, and is not confined to heirs under succession law.

Since the petitioner had himself replied to the notice expressly in the capacity of legal representative and had participated in that representative capacity, he could not thereafter contend that service upon him was invalid merely because he was not a Class I heir under the Hindu Succession Act. The Court therefore upheld the issuance and service of notice upon him in that capacity. [Paras 11, 12, 13, 14, 15]

The challenge to the notice on the ground that it was issued against a deceased assessee or served on a person who was not a legal heir was rejected.

Sanction by competent authority for extended limitation - Validity of approval under Section 151 - whether Approval granted by the Principal Commissioner was invalid where the reassessment proceedings were sought to be initiated by invoking the extended period of limitation? - HELD THAT: - The Court found that once the respondents had invoked the extended period of limitation, the approval had to be obtained from the authority specified under Section 151(ii), namely the Principal Chief Commissioner. As the approval had instead been granted by the Principal Commissioner, the statutory requirement as to competent sanction was not satisfied. The reassessment notice was therefore rendered unsustainable for want of valid approval. [Paras 16, 18]

The approval was held invalid and the impugned notice was quashed on that ground.

Final Conclusion: The writ petition was allowed in part on the issue of statutory approval. While the Court rejected the objection to service of notice on the petitioner as legal representative of the deceased assessee, it quashed the reassessment notice for want of sanction from the competent authority required where the extended period of limitation was invoked.

Mistake apparent from the record - Rectification of Tribunal's order - Substantial question of law - Debatable issue

Mistake apparent from the record - Rectification jurisdiction - Debatable issue - The Tribunal's refusal to rectify its earlier order under section 254(2) - HELD THAT: - The Court held that rectification under section 254(2) is confined to a patent and obvious error discernible from the record without elaborate argument. A point requiring examination of facts, application of legal provisions to those facts, or debate on the Tribunal's exercise of powers cannot be treated as an apparent mistake. On that standard, the alleged failure of the Tribunal to invoke its powers for summoning or further inquiry, the grievance regarding appreciation of the driver's affidavit in support of delay condonation, and the contention based on non-appreciation of precedent were all matters involving debate and adjudicatory choice, not self-evident errors capable of rectification. The Court also held that a review application could not be used to reopen the merits of the earlier order dismissing the appeals as time-barred. [Paras 15, 16, 17, 18, 19]

No rectifiable mistake apparent from the record was shown, and the dismissal of the miscellaneous applications was therefore justified.

Substantial question of law - Perversity in findings - Scope of appeal under section 260A - HELD THAT: - The Court held that, since the assessee had challenged only the order passed on the rectification applications and not the main appellate order, the High Court's scrutiny was limited to whether the Tribunal had erred in holding that no apparent mistake existed. In an appeal under section 260A, interference is warranted only where a substantial question of law arises, and findings of the Tribunal on factual matters can be disturbed only if shown to be perverse. As the impugned order disclosed a correct understanding of the limited scope of section 254(2), the Court found no perversity and, consequently, no substantial question of law. [Paras 10, 20, 21, 22]

The appeals were not admitted, as the impugned order gave rise to no substantial question of law.

Final Conclusion: The High Court upheld the Tribunal's view that the assessee's grievances did not disclose any mistake apparent from the record within the limited scope of section 254(2). As no perversity or substantial question of law arose from the order rejecting rectification, the appeals were dismissed.

Survival of penalty on quashing of assessment - Penalty u/s 271D - Quashed quantum addition - Satisfaction for initiation of penalty - HELD THAT: - The Tribunal found that the very assessment order in which the additions had been made stood quashed by the co-ordinate Bench in the assessee's own case [2024 (7) TMI 1133 - ITAT DELHI].

Applying the principle stated in CIT vs. Jai Laxmi Rice Mills [2015 (11) TMI 1453 - SUPREME COURT] it held that when the original assessment order itself is set aside, the satisfaction recorded therein for initiation of penalty proceedings does not survive. On that basis, penalty u/s 271D had no independent subsistence. [Paras 6]

The deletion of penalty was upheld and the Revenue's appeal was dismissed.

Final Conclusion: Since the quantum assessment itself had already been quashed in the assessee's case, the penalty proceeding u/s 271D was held to have no surviving basis. The Revenue's appeal was therefore dismissed.

Estimation of profit embedded in bogus purchases and sales - Accommodation entries - Addition of profit element in trading transactions-

HELD THAT: - The Tribunal accepted the core approach adopted by the Commissioner (Appeals) that, where the transactions were treated as accommodation entries in the nature of bogus sales and purchases, the whole of the suspicious turnover could not be brought to tax as income. It held that interference was not warranted with that approach, but only with the rate adopted for estimating the embedded profit. On the facts, the Tribunal considered that the ends of justice would be met by estimating the gross profit attributable to such bogus transactions at 5% instead of 10% sustained by the Commissioner (Appeals). [Paras 7]

The addition was directed to be restricted to 5% of the bogus sales and purchase transactions, and the Revenue's challenge to deletion of the full additions was rejected.

Final Conclusion: The Tribunal upheld the principle that only the profit element embedded in the bogus sales and purchase transactions could be assessed, but reduced the estimate from 10% to 5%. Accordingly, the Revenue's appeal was dismissed and the assessee's cross-objection was partly allowed.

Set off of brought forward capital loss - Rectification u/s 154 - Fee for delayed return filing

Set off of brought forward capital loss - Rectification u/s 154 - Inconsistent processing of revised return - Disallowance of the claimed set off of brought forward long-term capital loss in the revised return for Assessment Year 2019-20 - HELD THAT: - The Tribunal noted that the assessee had claimed set off of the brought forward long-term capital loss in the return for the year under consideration and that, on a rectification application, CPC itself accepted the correctness of that claim and allowed the set off. In those circumstances, CPC could not, while processing the revised return, again disallow the very same claim. The Tribunal held that such action resulted in an erroneous computation of income and reflected an inconsistent approach. [Paras 5]

The disallowance of the brought forward loss set off, as confirmed by the Commissioner (Appeals), was deleted.

Fee for delayed return filing - Due date for filing return - Levy of fee for delay in filing the return for Assessment Year 2018-19 - HELD THAT: - On verification of the return of income, the Tribunal found that the assessee was a partner in the partnership firm for the relevant assessment year and that the return had been filed within the prescribed date. Since there was no delay in filing the return, the levy of fee on the footing that the return was belated was held to be without basis. [Paras 9]

The fee imposed and upheld in appeal was deleted.

Final Conclusion: Both appeals were allowed. The Tribunal deleted the disallowance of set off of brought forward long-term capital loss for Assessment Year 2019-20 and also deleted the fee levied for alleged delay in filing the return for Assessment Year 2018-19.

Search-based reassessment - Section 153C vis-a-vis Section 147 - Independent application of mind V/S Borrowed satisfaction

Assessment u/s Section 153C vis-a-vis Section 147 - Search material relating to other person - Non-obstante clause - search material relating to a third party - HELD THAT: - The Tribunal found from the recorded reasons, the assessment order, the remand report and the appellate order that the information relied upon by the AO stemmed entirely from documents and material found during search on a third party. In such a situation, the special machinery of section 153C, which begins with a non-obstante clause and governs assessment of a person other than the searched person on the basis of seized material pertaining to such person, had to be invoked.

Following the decision in Sejal Jewellers vs. Union of India [2025 (2) TMI 870 - BOMBAY HIGH COURT] as also case of Shyam Sunder Khandelwal [2024 (4) TMI 196 - RAJASTHAN HIGH COURT] view approved therein, the Tribunal held that once the case is founded on seized search material relating to the assessee, recourse to section 147 is impermissible and the reassessment notice is without jurisdiction. [Paras 43, 44, 45, 46, 52]

The notices issued under section 148 and the reassessment proceedings for all the years were held to be not in accordance with law and were quashed.

Validity of reassessment proceedings - Borrowed satisfaction - Non Independent application of mind - Reasons to believe - HELD THAT: - The Tribunal held that neither the reasons recorded nor the assessment order disclosed any independent enquiry by the AO to verify or corroborate the information received from the Investigation Wing. The reopening was founded entirely on information forwarded by the Investigation Wing, without the Assessing Officer forming his own belief on objective material. Applying the principle stated in Shodiman Investments Pvt. Ltd. [2018 (4) TMI 1287 - BOMBAY HIGH COURT] and Meenakshi Overseas (P.) Ltd. [2017 (5) TMI 1428 - DELHI HIGH COURT] the Tribunal held that section 147 requires the Assessing Officer's own satisfaction and cannot be sustained on borrowed satisfaction. [Paras 47, 48, 49, 50, 52]

On this independent ground also, the reassessment proceedings were quashed.

Final Conclusion: The Tribunal held that, since the reassessment was founded solely on material arising from search conducted on a third party, the Assessing Officer could proceed only under section 153C and not under section 147. The reassessment was also vitiated by borrowed satisfaction, and accordingly the proceedings for assessment years 2007-08 to 2012-13 were quashed and all the appeals were allowed.

Addition u/s 41(1) - Remission or cessation of trading liability - Creditor's confirmation of subsisting liability - Outstanding liability in books

HELD THAT: - The Tribunal held that section 41(1) can be invoked only where the assessee has obtained a benefit in respect of a trading liability by way of remission, waiver, extinguishment or cessation, either by operation of law or by a conscious bilateral act.

Mere delay in payment, long pendency of the liability, or discrepancy regarding the assessee's explanation of subsequent payments does not establish such cessation. In the present case, the very material relied upon by the AO, namely the creditor's reply under section 133(6), affirmed that the amount was still receivable from the assessee, which negatived the allegation that the liability had ceased.

Assessee had also continued to reflect the liability in its books and had not written it back. In the absence of any material showing waiver, remission, or legal unenforceability, the foundational requirement for applying section 41(1) was absent. [Paras 7, 8, 9, 10]

The deletion of the addition was upheld and the Revenue's challenge to the relief granted by the CIT(A) was rejected.

Final Conclusion: The Tribunal held that no remission or cessation of liability was proved so as to attract section 41(1), particularly when the creditor had itself confirmed the debt as receivable and the assessee had continued to show the liability in its books. The Revenue's appeal was accordingly dismissed.

Penalty u/s 272A(1)(d) - non-compliance of notices u/s 142(1) -Technical or venial default- Penalty u/s 270A - under-reporting of income arising from a bona fide computational error in income from house property.

Penalty for non-compliance of notice - Technical or venial default - Quasi-criminal penalty - HELD THAT: - The Tribunal held that the penalty rested on an incorrect assumption of complete non-compliance. The record showed that the assessee had responded to the notices by seeking adjournments on the ITBA portal and had thereafter furnished the requisite details before the AO - Once there was participation in the proceedings and subsequent compliance, the conduct could not be treated as contumacious or wilful disregard of statutory notices. Penalty provisions being quasi-criminal in nature were held not to be invocable for mere technical or venial defaults in the absence of conscious and deliberate defiance. [Paras 4]

The penalty levied under section 272A(1)(d) was held to be unsustainable and was deleted.

Penalty u/s 270A - under-reporting of income arising from a bona fide computational error in income from house property -HELD THAT: - The Tribunal found that the assessee's status as one of the co-owners, the rental arrangement, the leave and license agreement, bank particulars and other primary facts had all been disclosed during scrutiny. The addition arose because the assessee's one-third share of rent was mistakenly treated as the total gross rental receipt and was again divided while computing income, resulting in an arithmetical error. The assessee admitted the mistake during the assessment proceedings themselves, and the assessment order recorded that the addition was made because of that admission. On these facts, the Tribunal held that there was neither suppression of primary facts nor any deliberate attempt to under-report income. It further held that section 270A does not make penalty automatic on every difference between returned and assessed income, and that the case fell within the protection of section 270A(6)(a) since the explanation was bona fide and all material facts necessary to substantiate it had been disclosed. [Paras 16, 17, 18, 19, 20]

The penalty levied under section 270A was directed to be deleted.

Final Conclusion: Both appeals were allowed. The Tribunal deleted the penalty for alleged non-compliance of notices as well as the penalty for under-reporting of income, holding that the first rested on an incorrect assumption of non-compliance and the second arose only from a bona fide computational mistake with full disclosure of material facts.

Penalty u/s 271(1)(b) for non-compliance - Subsequent compliance in assessment proceedings - assessment was not framed u/s 144 as a best judgment assessment - HELD THAT: - The Tribunal found that the penalty had been levied for seven instances of non-compliance, but the assessment order itself was a speaking order and had not been passed u/s 144. It further recorded that the assessee had submitted the necessary documents and evidence in the course of assessment proceedings and that only a limited addition was ultimately made.

Applying the view taken in earlier coordinate Bench decisions AKHIL BHARTIYA PRATHMIK SHIKSHAK SANGH BHAWAN TRUST. [2007 (8) TMI 386 - ITAT DELHI-G], and DLF COMMERCIAL ENTERPRISES [2021 (4) TMI 327 - ITAT DELHI] Tribunal held that where subsequent compliance is accepted and the assessment is completed otherwise than by best judgment, the earlier defaults stand ignored and levy of penalty u/s 271(1)(b) is not justified, particularly when no prejudice was shown to have been caused to the Revenue. [Paras 5, 6]

The penalty levied under section 271(1)(b) was directed to be deleted in full.

Final Conclusion: The Tribunal held that, since the assessee had ultimately complied in the assessment proceedings and the assessment was not framed as a best judgment assessment, penalty under section 271(1)(b) could not be sustained. The appeal was accordingly allowed and the penalty was deleted.

Unexplained money u/s 69A - Accommodation entries - Recorded loan transactions through banking channels - unsecured loan received from the lender treated as unexplained money u/s 69A merely on the basis of generalized allegations arising from third-party search material, and the consequential disallowance of interest expenditure and denial of set off of interest income

HELD THAT: - The Tribunal held that the assessee had furnished complete documentary evidence establishing the identity and financial capacity of the lender and the genuineness of the loan transaction, including confirmation, bank statements, audited financial statements, loan agreement, repayment evidence, no-dues certificate and statutory records showing the lender to be a registered NBFC. The transaction was received and repaid through banking channels and stood fully recorded in the regular books of account.

In these circumstances, the Department could not disregard the transaction solely because the lender was allegedly involved in accommodation entry operations in third-party proceedings, unless there was cogent material directly linking the assessee to such mechanism. No evidence of cash trail, fund circulation from the assessee, commission payment or other direct incriminating material was brought on record.

Tribunal further held that section 69A applies where money or valuable article not recorded in the books is found with the assessee and the explanation is absent or unsatisfactory; it was therefore inapplicable where the impugned receipt was transparently recorded in the books and traceable through banking channels. The discrepancy regarding initial non-furnishing of the loan agreement, and the subsequent deployment of funds in companies in which the assessee was a director, were held insufficient to treat the loan itself as fictitious. [Paras 18, 19, 20, 21, 22]

The addition made u/s 69A was deleted, and the consequential disallowance of interest expenditure and denial of set off of interest income were also directed to be allowed.

Final Conclusion: The Tribunal allowed the appeal on merits, holding that the loan transaction was duly substantiated and could not be assessed as unexplained money on the basis of generalized third-party investigation material. The consequential disallowance relating to interest also failed with the deletion of the principal addition.

Rental income from commercial exploitation of property - Business income versus income from house property - Estimated disallowance of expenses - Rule of consistency

Business income versus income from house property - rental receipts from commercial spaces - Commercial exploitation of property - Rule of consistency - HELD THAT: - The Tribunal found that the assessee was incorporated, inter alia, to acquire, manage and let out properties and to provide tenants with services, utilities and amenities. In pursuance of those objects, it had acquired commercial spaces in a commercial complex, equipped them with utilities and amenities, employed staff for operation and maintenance, and let them out in an organised commercial manner by charging licence fee and utility fee. On these facts, the dominant intention was held to be commercial exploitation of business assets and not mere ownership simpliciter. The Tribunal also noted that, from the commencement of the letting activity up to the immediately preceding year, the Revenue had accepted the same receipts as business income in scrutiny assessments, and in the absence of any change in facts or law, the principle of consistency also supported the assessee. [Paras 9, 10, 11, 12, 13]

The assessment of the rental receipts under the head house property was vacated, and the Assessing Officer was directed to assess them as business income.

Estimated disallowance of expenses - Burden of proof - Rejection of books - HELD THAT: - The Tribunal noted that the assessee had furnished head-wise details of the expenses, party-wise particulars, sample invoices and details of tax deduction at source. After such material was produced, the burden shifted to the Assessing Officer to point out specific defects or conduct verification. No particular defect in any item of expenditure was identified, nor were the books of account rejected. The very basis adopted for the disallowance, namely an alleged increase of 25 per cent or more in the expenses as compared with the earlier year, was also found to be factually incorrect. In these circumstances, an estimated disallowance of total expenditure was held to be without justification. [Paras 19, 20, 21]

The disallowance was directed to be deleted in full.

Final Conclusion: The Tribunal allowed the appeal. It held that the rental receipts from the commercially exploited properties were taxable as business income and that the estimated disallowance of expenses, made without pointing out specific defects and on an incorrect factual premise, was liable to be deleted.

Transfer price of power supplied by captive power plants to eligible manufacturing units for deduction u/s 80-IA -Allocation of common expenses - Principle of consistency

Market value of captive power - Specified domestic transaction - deduction u/s 80-IA - Internal CUP - HELD THAT: - The Tribunal held that the controversy stood covered by the earlier coordinate bench decisions in the assessees' own cases [2024 (8) TMI 1727 - ITAT KOLKATA] and by the Supreme Court ruling Jindal Steel & Power Ltd. [2023 (12) TMI 417 - SUPREME COURT] which treated the rate charged by the State Electricity Board or distribution company to industrial consumers as the relevant market value for section 80-IA purposes. The contracted or regulated rate at which surplus power could be supplied by a captive generator to the electricity board was not regarded as the open market rate for a consumer. Applying that principle, the annual landed cost at which the assessees' manufacturing units procured electricity from the distribution company was accepted as the proper benchmark, and the deletion of the transfer pricing adjustments relating to the captive power plants at Mangalpur, Jamuria and Pandoli was upheld. [Paras 11, 12, 19, 27, 32]

The Revenue's challenge to the deletion of the transfer pricing adjustments on transfer value of captive power was rejected.

Allocation of common expenses - Principle of consistency - Fixed asset ratio - Common head office expenses allocable to the eligible units apportioned in the ratio of fixed assets OR basis of profitability - HELD THAT: - The Tribunal found that in the assessees' own earlier assessment years the Revenue itself had adopted allocation of common expenses in proportion to fixed assets, and there was no change in facts or law justifying departure from that accepted method. It agreed that allocation based on profitability was unsound, whereas allocation by assets, particularly in a capital-intensive business, was a reasonable basis. Upholding the application of the principle of consistency, the Tribunal affirmed deletion of the further allocation made by the Assessing Officer. [Paras 16, 21, 29, 34]

The assessee's allocation of common expenses on the basis of fixed assets was upheld and the Revenue's contrary allocation on profitability basis was disallowed.

Final Conclusion: The Tribunal dismissed all four Revenue appeals for AYs 2020-21 and 2021-22 in the cases of both assessees. It upheld the CIT(A)'s orders deleting the transfer pricing adjustments relating to captive power valuation and sustaining allocation of common expenses on the fixed asset basis.

Addition in respect of diminution in value of investment of subsidiary written off -Double disallowance - Fresh claim before appellate authorities - Broken period interest on debentures - Foundational facts for treaty benefit - Penalty proceedings u/s 270A

Double disallowance - Write-off of investment in subsidiary - HELD THAT: - The Tribunal found from the return computation that the impugned write-off had already been disallowed by the assessee while computing total income. Since the Assessing Officer started from that returned figure and again added the same amount, the assessment resulted in a second disallowance of an item already added back. Once the Commissioner (Appeals) had accepted the assessee's separate claim for deduction on merits, the proper course was first to remove the duplicated addition from the returned income and then give effect to the deduction allowed in appeal. [Paras 6]

The Assessing Officer was directed to delete the duplicated addition and thereafter allow the deduction for the write-off as already accepted in appeal.

Fresh claim before appellate authorities - Broken period interest on debentures - HELD THAT: - As in the assessee's own case as reported in [2017 (7) TMI 502 - CALCUTTA HIGH COURT] after considering the decision in the case Goetze (India) Ltd [2006 (3) TMI 75 - SUPREME COURT] and Gurjargravures (P.) Ltd. [1977 (11) TMI 1 - SUPREME COURT] has held that the appellate authority has the power to entertain new claim if the grounds raised are bonafide. Thus, in principle, we agree that the assessee is legally entitled to raise this claim before us.

Broken period interest on debentures - As it found that the interest credited up to year-end had merely accrued notionally, but before the due date of interest the debentures were sold and no interest income ultimately became receivable. The appreciation realized on sale, which was offered to tax in the succeeding year as capital gains, already absorbed the broken period accretion. Taxing the same amount again as interest would therefore amount to double taxation of the same income element. [Paras 10, 11, 12]

The Assessing Officer was directed to exclude the broken period interest from the computation of business income for AY 2020-21.

Taxability of dividend distribution of non-residents as per rate provided in the agreement for avoidance of double taxation between India &UK / Singapore -Foundational facts for treaty benefit - HELD THAT: - The Tribunal held that although a fresh claim may be raised, its adjudication required primary material relating to the non-resident shareholders, including documents bearing on treaty eligibility and the tax treatment of the dividend in their hands. It also noted that the record was insufficient to determine consequential matters such as the person entitled to any refund if the claim succeeded. In the absence of these foundational facts, the issue could not be decided either way. The same reasoning was applied mutatis mutandis to the identical issue for AY 2016-17. [Paras 17, 18, 19, 22]

For AY 2020-21 and AY 2016-17, the issue was remanded to the Assessing Officer for calling for the necessary material and deciding the claim afresh in accordance with law.

Penalty proceedings u/s 270A - HELD THAT: - The Tribunal declined to entertain the ground because the controversy raised related only to initiation and no penalty order had yet been passed. It nevertheless clarified that levy of penalty is not automatic and must depend upon the facts and circumstances examined in the penalty proceedings. The Assessing Officer was therefore required to consider the assessee's submissions objectively and uninfluenced by observations made in the assessment order. [Paras 27, 28]

The appeal for AY 2021-22 was dismissed as premature, with liberty to the assessee to raise all contentions in the penalty proceedings.

Final Conclusion: For AY 2020-21, the Tribunal allowed relief on the issues of double disallowance and broken period interest, but remanded the claim relating to treaty-rate taxation of dividend distributed to non-residents for fresh examination. The same dividend-distribution issue for AY 2016-17 was likewise remanded, while the appeal for AY 2021-22 challenging initiation of penalty proceedings was dismissed as premature.

Maintainability of appeal to High Court - Jurisdictional bar - Forum selection -valuation of imported goods- Statutory forum under Section 130E. - HELD THAT: - The Court examined Sections 130 and 130E of the Customs Act, 1962 and held that Section 130 expressly excludes from the High Court's appellate jurisdiction orders relating, among other things, to determination of any question having relation to the value of goods for purposes of assessment. Since the proposed questions in the appeal concerned rejection of declared transaction value and reliance on contemporaneous import data for valuation, the matter fell within the class of cases for which the statutory remedy lies before the Supreme Court under Section 130E. The determinative principle applied was that, where the statute carves out valuation-related questions from the High Court's jurisdiction, the appeal must be filed before the forum specifically designated by the Act. [Paras 6]

The appeal before the High Court was held not maintainable and was dismissed as the proper forum was the Supreme Court under Section 130E.

Final Conclusion: The Court condoned the delay but dismissed the department's appeal on the ground that the dispute related to valuation of goods for purposes of assessment and, therefore, the statutory appeal lay to the Supreme Court and not to the High Court.

Burden of proof for notified goods - Absolute confiscation of smuggled gold - Confiscation of sale proceeds under Section 121 - gold biscuits of foreign origin -failed to establish thelicit source of acquisition of the gold - Statutory presumption under Section 123 - Penalty for improper importation - Seeking release of the gold on payment of redemption fine - Recovery of Ten Tola gold biscuits, collectively weighing 699.810 grams, having purity of 99.8%.

Burden of proof for notified goods - Absolute confiscation of smuggled gold - Redemption fine - HELD THAT: - The Hon’ble Supreme Court, in D. Bhoormull v. Collector of Customs [1974 (4) TMI 33 - SUPREME COURT], has held that in matters relating to smuggling, the Department is not required to prove its case with mathematical precision and that the burden shifts upon the person concerned once reasonable belief is established. Similarly, in Balumal Jamnadas Batra v. State of Maharashtra [1975 (8) TMI 50 - SUPREME COURT], it has been held that the benefit of doubt cannot be granted in the absence of any satisfactory explanation and the goods were held liable for confiscation. Further, various decisions of this Tribunal have consistently held that where the person in possession fails to discharge the burden under Section 123, the seized gold is liable for confiscation. The ratio of these decisions clearly supports the view that absence of documentary evidence coupled with the nature of the goods is sufficient to uphold confiscation.

Gold being a notified item, the burden lay on the persons from whose possession it was seized to prove licit acquisition and lawful possession. The appellants produced no bills, vouchers, invoices, or other contemporaneous material either at the time of seizure or during adjudication. The assay report showing high purity, read with the absence of documentary evidence, left the statutory presumption unrebutted and rendered the goods liable to confiscation. The Tribunal further held that redemption is not a matter of right, and where the goods are found to be smuggled and lawful possession is not established, absolute confiscation is justified. [Paras 11, 12, 13]

The absolute confiscation of the seized gold was upheld and the plea for redemption on payment of fine was rejected.

Confiscation of sale proceeds under Section 121 - Corroborative evidence - Nexus with smuggled goods - HELD THAT:- It is a settled position of law that statements recorded during investigation, in the absence of corroborative evidence, cannot ipso facto form the sole basis for sustaining a serious charge such as confiscation of currency on the ground of it being sale proceeds of smuggled goods. The allegation of the Revenue requires to be supported by cogent material indicating a clear nexus between the seized currency and the alleged smuggling activity. In the present case, it is seen from the record that no investigation appears to have been conducted to trace the source of the currency, nor has any attempt been made to establish a linkage between the seized gold and the alleged generation of sale proceeds in the form of the impugned currency. There is no iota of evidence on record so as to arrive at the conclusion that the seized amount represents proceeds of smuggled gold. Further, the formation of a “reasonable belief”, which is a sine qua non for seizure and confiscation under the provisions of the Customs Act, is not discernible from the records insofar as the Indian currency is concerned. Mere suspicion, howsoever strong, cannot take the place of proof.

For invoking Section 121, there had to be evidence showing a clear nexus between the seized currency and sale of smuggled goods. No investigation had been undertaken to trace the source of the currency or to link it with the seized gold, and the record did not disclose the requisite reasonable belief insofar as the currency was concerned. Suspicion, however strong, could not substitute proof; therefore, the finding that the currency represented sale proceeds of smuggled goods was unsustainable. [Paras 14, 15]

The confiscation of the Indian currency was set aside.

Penalty for improper importation - Possession and involvement - Quantum of penalty - HELD THAT: - The Tribunal found no evidence supporting the involvement of the appellant who was merely accompanying the person from whom the goods and currency were recovered, and specifically noted that no gold or currency had been recovered from his possession. In contrast, the other appellant was directly connected with possession and handling of the foreign-origin gold, and his acts were held to attract penalty under Section 112. Having regard to the limited nature of his involvement, the Tribunal considered the original penalty excessive and reduced it. [Paras 16]

Penalty on Shri Rajendra Roy was set aside, while penalty on Shri Avijit Bhandari was upheld in principle but reduced.

Final Conclusion: The Tribunal upheld the absolute confiscation of the seized gold, set aside the confiscation of the Indian currency for want of proof that it represented sale proceeds of smuggled goods, and deleted the penalty on one appellant. The penalty on the other appellant was sustained but reduced.

Tariff classification of Optical Network Terminals (ONT)/Optical Network Units (ONU) (home gateway units) and Optical Line Terminals (OLT) - classifiable under CTI 8517 62 90 rather than CTI 8517 69 50/8517 69 90 - Benefit of exemption under Notification No. 24/2005-Cus and exemption to OLTs under Notification No. 57/2017-Cus - Residual entry - Consideration of expert evidence - Extended period of limitation - Penalty for misclassification.

Residual entry - Reception and transmission of data - HELD THAT: - The Tribunal held that, within heading 8517, the first question was whether the goods fell under CTSH 8517 62 covering machines for reception, conversion and transmission or regeneration of voice, images or other data, or under the residual CTSH 8517 69. On the undisputed functions of ONT/ONU, namely receiving broadband connectivity through optical fibre and transmitting it to the subscriber's devices, they were found to be machines receiving and transmitting data and therefore squarely covered by CTSH 8517 62. Since CTI 8517 69 50 is only a sub-classification under the residual entry 8517 69, goods once found classifiable under 8517 62 could not be shifted to 8517 69 merely because they were installed at the subscriber's premises. For the same reason, OLTs, which provide the link between the internet service provider and the subscriber and also receive and transmit data, were likewise held classifiable under CTI 8517 62 90 as 'other' under that sub-heading. [Paras 21, 22, 27]

Classification of ONT/ONU and OLT under CTI 8517 62 90 was upheld.

Denial of exemption on ONT/ONU under Notification No. 24/2005-Cus and on OLT under Notification No. 57/2017-Cus, without considering the telecom expert's report produced by the appellant. - HELD THAT: - The Tribunal noted that the appellant had produced an expert report specifically opining that ONT/ONU and OLT were not optical transport network equipment. The Commissioner, while denying the exemption benefits on the footing that the goods were excluded optical transport equipment or related products, neither considered that report nor gave reasons for disagreeing with it, and had not examined or cross-examined the expert. Since the exclusion from exemption turned on that technical characterisation, the exemption issue required fresh consideration after taking the expert report into account. [Paras 31, 41]

The denial of exemption was remanded to the Commissioner for fresh decision after considering the expert report and, if necessary, examining or cross-examining the expert.

Extended period of limitation - Suppression of facts - Wilful misstatement - HELD THAT: - The Tribunal held that invocation of the extended period required collusion, wilful misstatement or suppression of facts. Although the appellant had earlier classified the goods under a different tariff item and later changed the classification, that circumstance by itself was held insufficient to establish any of those elements. On the material available, the Tribunal found no sufficient evidence of collusion, wilful misstatement or suppression of facts and therefore concluded that the extended period could not be invoked. [Paras 37]

The demand for the extended period of limitation was set aside.

Penalty under section 114A - Penalty under section 114AA - Misclassification - HELD THAT: - The Tribunal held that penalty under section 114A rested on the same elements as invocation of the extended period and therefore could not survive once the finding on limitation failed. As regards section 114AA, it held that misdeclaration concerns false statement of fact, whereas classification is a matter of opinion and assessment. Since the appellant had correctly declared the goods and the dispute was only as to the proper tariff item, the case did not involve any false or incorrect statement in a material particular so as to attract section 114AA. [Paras 39, 40]

Penalties under sections 114A and 114AA were set aside.

Final Conclusion: The Tribunal upheld the classification of ONT/ONU and OLT under CTI 8517 62 90, but remanded the question of exemption under the two notifications for fresh consideration after examining the telecom expert's report. The demand for the extended period and the penalties under sections 114A and 114AA were set aside, and the impugned order was modified accordingly.

Entitlement to provisional release of the seized goods and seized cash - Maintainability of single-member appeal in provisional release matters.

Single-member jurisdiction - Provisional release -HELD THAT: - The Tribunal held that the matter concerned only provisional release of seized goods and currency, and no adjudication determining duty or penalty had yet taken place. Following Rajguru Enterprises Pvt Ltd. vs. Commissioner of Cus. (Prev), Mumbai [2010 (8) TMI 339 - CESTAT, MUMBAI], such a dispute was held to be within the competence of the Single Member Bench for final disposal. [Paras 8]

The objection to the Bench's competence was rejected and the appeal was taken up for final decision.

Provisional release - Consistency with earlier order in own case - HELD THAT: - The Tribunal noted that in the appellant's own earlier imports, provisional release had already been allowed, and that the classification dispute had thereafter been settled in the appellant's favour by a subsequent final order. In that background, the Tribunal held that the same approach should govern the present seizure also. The release was, however, confined to the provisional stage and made subject to execution of bond for an amount equivalent to the value of the seized goods and the probable fine and penalty, without affecting the department's further proceedings on merits. [Paras 8, 9]

Provisional release of the seized goods and currency was directed on execution of the prescribed bond, leaving the merits open for further proceedings.

Final Conclusion: The Tribunal held that the appeal concerning provisional release was maintainable before the Single Member Bench and directed provisional release of the seized goods and currency on bond. It clarified that the order was confined to provisional release and would not prejudice further proceedings on merits.

Misdeclaration of country of origin - import of ferrous waste and re-melting scrap from Dubai/UAE -Validity of pre-shipment inspection certificate - Foreign Trade Policy compliance - Confiscation, redemption fine and penalty could not be sustained on the ground that the imported ferrous scrap was misdeclared as being of UAE origin or imported in violation of the Foreign Trade Policy. - HELD THAT: - The Tribunal held that, under Indian law, import of ferrous waste and scrap and re-melting scrap from Dubai/UAE was freely allowed and there was no statutory bar on such imports. It found that the importer had produced the commercial invoice, packing list, certificate of origin, bill of lading, PSIC and container tracking, and that there was no misdeclaration on record. The Tribunal further held that the office memorandum issued by DGFT could not retrospectively invalidate a valid PSIC issued by the PSIA. On facts, the inspection had taken place on 12.04.2023, after Dubai Customs Notice 08/2022 had ceased to operate on 19.03.2023 and before Notice 05/2023 was issued on 19.04.2023; hence, at the time of inspection, there was no operative ban on export from Dubai. The subsequent retrospective ban in UAE was held not to affect the import already made after compliance with the conditions of the Foreign Trade Policy. [Paras 6, 7, 8]

The finding of misdeclaration was held to be legally unsustainable, and the confiscation-related redemption fine and penalty were set aside.

Final Conclusion: The appeal was allowed. The Tribunal held that the import was made with valid documents and without any violation of the Foreign Trade Policy, and therefore the redemption fine and penalty were not sustainable.

Penalty under section 112(b) - Third-party records - Admissibility of statements recorded under section 108 - Statutory requirements for compliance with section 138B -Penalty for dealing with goods liable to confiscation - Knowledge or belief as a condition for penalty. - HELD THAT: - The Tribunal found that the appellants had consistently stated that they had only supplied fabricated material and scrap to the SEZ unit under ARE-1 certificates and had no purchase transactions with it. They had also placed material to show that they were manufacturers and not traders, and that M.S. ingots were not even used as inputs in their manufacturing activity. The impugned order did not deal with these facts and proceeded only on the basis of records maintained by the SEZ unit and the statement of the appellants' manager. The Tribunal held that such statement could not be relied upon when the procedure contemplated under section 138B had not been followed. It further held that penalty under section 112(b) requires both involvement in acquiring possession of or dealing with goods liable to confiscation and knowledge or belief that such goods were so liable. Since the appellants had not purchased the goods, there was no basis to hold that they had dealt with non-duty paid goods or had knowledge that the goods were liable to confiscation. [Paras 18, 19, 20, 21, 22]

The penalties imposed on both appellants under section 112(b) were set aside and the appeals were allowed.

Final Conclusion: The Tribunal held that the essential ingredients for penalty under section 112(b) were not established against the appellants. The impugned order, insofar as it imposed penalty on them, was set aside.

Enhancement of assessable value - Unconditional acceptance of enhanced value - Challenged to assessment after payment without protest. - HELD THAT: - The Tribunal found from the record that the appellant had categorically accepted the enhanced value proposed by the proper officer, paid duty accordingly, and obtained clearance of the goods without lodging any protest or making the acceptance conditional. No material was produced to show that provisional assessment had been sought or that consent was given only to secure urgent clearance and avoid demurrage. On that factual basis, the decision in Niraj Silk Mills vs. Commissioner of Customs (ICD), Patparganj [2024 (11) TMI 1361 - DELHI HIGH COURT] was held inapplicable, since that case involved protest and reservation of the right to question reassessment. The Tribunal followed Commissioner of Customs (Preventive), Jaipur vs. CMR Nikkei India Pvt. Ltd. [2022 (8) TMI 114 - CESTAT AHMEDABAD] and held that a subsequent appellate challenge to the enhanced value was not open in such circumstances. [Paras 7, 9, 10, 11, 12]

The appeal against enhancement of value was held to be devoid of merit and was dismissed.

Final Conclusion: The Tribunal upheld the rejection of the appeal and held that, in the absence of any protest or conditional acceptance, the appellant could not question the enhancement of value after having accepted it, paid duty, and cleared the goods.

Customs duty and interest leviable on goods supplied to a unit in the Special Economic Zone for authorised operations - Override of charging provisions by SEZ law - Penalty dependent on sustainable duty demand - Penalty beyond show cause notice.

Whether the appellant was liable to pay any customs duty, even if it is assumed that the appellant has supplied MS Scrap to NTAL, which has a factory at SEZ? - HELD THAT: - The Tribunal held that even on the assumption that the appellant had supplied the goods to the SEZ unit, no customs duty was payable because supplies for authorised operations in an SEZ were covered by the statutory scheme considered in Cummins Turbo Technology vs. Commissioner of Customs, Central Excise & Central Tax, Indore [2023 (11) TMI 1077 - CESTAT NEW DELHI], which was followed. Since the show cause notice did not allege that the goods were not meant for authorised operations, the demand lacked legal authority. Once the demand itself was without authority of law, interest also could not be sustained. In view of this conclusion, the Tribunal found it unnecessary to examine the factual allegation of clandestine supply. [Paras 10, 11, 12]

The demand of customs duty and the consequential interest were set aside.

Penalty dependent on sustainable duty demand - Penalty under section 114 - HELD THAT: - The Tribunal noted that the penalty under section 114 had been imposed on the footing that the appellant had evaded payment of duty. As the Tribunal had already held that no duty was legally payable on the alleged supplies to the SEZ unit, the foundation for alleging evasion disappeared. The penalty under section 114, therefore, had no basis. [Paras 13]

The penalty under section 114 was set aside.

Penalty beyond show cause notice - Penalty under section 114AA - HELD THAT: - The Tribunal accepted the appellant's contention that the notice did not call upon him to show cause against imposition of penalty under section 114AA. In the absence of such proposal in the show cause notice, confirmation of penalty under that provision was beyond the notice and could not be sustained. [Paras 14]

The penalty under section 114AA was set aside.

Final Conclusion: The Tribunal held that the customs duty demand on the alleged supplies to the SEZ unit was without authority of law, since the case was not that the supplies were outside authorised operations. Consequently, the interest demand and the penalties under sections 114 and 114AA also failed, and the impugned order, insofar as it concerned the appellant, was set aside.

Admissibility of statements recorded under section 108 - Statutory requirements for compliance with section 138B - Penalty for dealing with goods liable to confiscation - Knowledge or belief as a condition for penalty.

Relevancy of transporter statements - Statutory requirements forSection 138B compliance - The statements of the three transporters recorded under section 108 could not be treated as relevant against the appellant in the absence of compliance with section 138B. - HELD THAT: - The Tribunal held that the allegation against the appellant rested on the statements of three transporters. Since neither the show cause notice nor the impugned order disclosed that the procedure contemplated under section 138B had been followed, those statements could not be treated as relevant material for sustaining the allegation that the appellant had purchased goods clandestinely removed from the SEZ. The Tribunal relied on M/s Surya Wires Pvt. Ltd. vs. Principal Commissioner, CGST, Raipur[2025 (4) TMI 441 - CESTAT NEW DELHI]for this proposition. [Paras 12, 13]

The transporter statements were held insufficient for reliance against the appellant.

Conditions for penalty under section 112(b) - Knowledge of confiscable nature of goods - HELD THAT: - The Tribunal held that imposition of penalty under section 112(b) requires proof of two conditions: the person must have acquired possession of, or been concerned in dealing with, goods liable to confiscation, and must also have knowledge or reason to believe that such goods were liable to confiscation. On the findings recorded, both requirements were absent. There was nothing to show that the appellant had dealt with the goods in the manner contemplated by the provision, and the impugned order disclosed no basis to attribute to the appellant any knowledge or belief that the goods were liable to confiscation under section 111. [Paras 14, 15, 16]

The penalty imposed on the appellant under section 112(b) was unsustainable and was set aside.

Final Conclusion: The Tribunal held that the statements relied upon against the appellant were not relevant in the absence of compliance with section 138B, and that the statutory requirements for penalty under section 112(b) were not established. The penalty imposed on the appellant was therefore set aside and the appeal was allowed.

Entitlement to duty exemption when the export obligation was met through exports of indigenously procured serpentine products - goods manufactured from imported marble were cleared into the Domestic Tariff Area - cutting marble blocks into slabs or tiles - Manufacture - DTA clearances -adjustment of the excise duty paid against the customs duty - Extended period of limitation - Confiscation and redemption fine - Penalty in absence of suppression.

100% EOU duty-free import conditions - Domestic Tariff Area clearances - Customs exemption - HELD THAT: - The Tribunal held that the controversy stood covered by the earlier decision in Jain Grani Marmo Pvt. Ltd.[2026 (3) TMI 858 - CESTAT NEW DELHI], which had been treated by the department itself as governing the present matter. Following that decision, it was held that serpentine marble and marble were not similar goods, and therefore export of serpentine products could not satisfy the condition attached to duty-free import of marble blocks by a 100% EOU. Since the imported marble blocks were not used for the intended purpose contemplated under the exemption scheme, the benefit of the customs notifications was unavailable and customs duty was payable on the imported marble blocks. [Paras 12, 13]

The customs duty demand was upheld on merits in respect of the normal period.

Extended period of limitation - Departmental knowledge - B-17 bond - HELD THAT: - The Tribunal found that the department was aware of the appellant's imports, exports and DTA clearances, as returns were regularly filed, exports were under excise supervision, and DTA clearances were made with permission of the Development Commissioner. In these circumstances, suppression of facts with intent to evade duty was not established. Relying on Jain Grani Marmo Pvt. Ltd.[2026 (3) TMI 858 - CESTAT NEW DELHI], the Tribunal restricted recovery to the normal limitation period. It further held, following Commissioner of C. Ex., Pune-I vs. Emcure Pharmaceuticals Ltd [2016 (12) TMI 847 - BOMBAY HIGH COURT], that execution of a B-17 bond does not place the assessee outside the statutory limitation framework and cannot justify recovery for the extended period in the absence of the required ingredients. [Paras 13]

The customs demand for the extended period was set aside and recovery was confined to the normal period alone.

Manufacture - Cutting of marble blocks into slabs - Central excise duty - HELD THAT: - The Tribunal held that during the relevant period Chapter Note 6 treated cutting, sawing, sizing or similar processes for converting stone blocks into slabs or tiles as not amounting to manufacture. It followed the ratio of Jain Grani Marmo Pvt. Ltd.[2026 (3) TMI 858 - CESTAT NEW DELHI], which had held that for DTA clearances from an EOU, central excise duty under the proviso to section 3(1) could arise only if the activity answered the definition of manufacture under section 2(f) of the Central Excise Act, and not merely the wider concept under the EXIM Policy. The Tribunal rejected the department's attempt to apply a separate and broader meaning of manufacture to EOUs for levy of excise duty on DTA clearances. [Paras 14]

The entire central excise duty demand was set aside.

Adjustment of duty - Excise duty paid on DTA clearances - Customs duty liability - HELD THAT: - The Tribunal found that the excise duty had not been paid under a mere wrong understanding but during a period when the legal position on manufacture was in dispute and the department had also accepted such payment at the time of DTA clearances. On that basis, it held that the decision in Mafatlal Industries, pressed by the department to require a separate refund route, was inapplicable. The Tribunal then followed Nikhil Industries Pvt. Ltd. vs. Commissioner of Central Excise [2004 (11) TMI 158 - CESTAT, NEW DELHI] and South Asian Petrochem Ltd vs. C.C. (Airport & Admn.) Kolkata [2007 (4) TMI 245 - CESTAT, KOLKATA], as affirmed in Commissioner vs. South Asian Petrochem Ltd [2008 (4) TMI 703 - CALCUTTA HIGH COURT], to hold that duty already paid to the Central Government under one head could be adjusted against the duty payable under another head in the circumstances of the case. [Paras 15]

The appellant was held entitled to adjustment of the excise duty paid against the customs duty demand surviving for the normal period.

Confiscation - Redemption fine - Penalty in absence of suppression - HELD THAT: - The Tribunal held that sections 111(d) and 111(o) were not attracted because import of the marble blocks was not prohibited and no import condition of that character was violated. It also found that the goods were no longer physically available, having already been converted into slabs or tiles and cleared, and followed the principle noticed in M/s. Mahindra Aerostructures Pvt. Ltd. and M/s. Tangirala Subrahmanya Sarma, DGM vs. Commissioner of Customs, Chennai [2025 (6) TMI 690 - CESTAT CHENNAI] that both liability and availability are necessary for confiscation. Since confiscation itself failed, redemption fine could not survive. On penalty, the Tribunal reiterated that all material facts were within departmental knowledge and that suppression with intent to evade duty had not been established; therefore, penalties on all appellants were unwarranted. [Paras 16, 17]

The confiscation order, redemption fine and all penalties were set aside.

Final Conclusion: The Tribunal upheld the customs duty demand only for the normal period, set aside the extended-period demand, deleted the entire central excise demand, and permitted adjustment of excise duty already paid against the surviving customs liability. Confiscation, redemption fine and all penalties were also set aside, and the appeals were allowed to that extent.

Misclassification and confiscation under section 111(m) - Penalty under section 112(a)(ii) - HELD THAT: - The Tribunal held that section 112(a)(ii) is attracted only when the goods are liable to confiscation under section 111. Mere wrong classification in the Bill of Entry does not by itself amount to misdeclaration attracting confiscation under section 111(m). Following the view taken in Challenger Cargo Cargo Carriers Pvt Ltd vs. Principal Commissioner of Customs (Import) Inland Container Depot, Tughlakabad, New Delhi [2022 (12) TMI 621 - CESTAT NEW DELHI], the Tribunal found that even if the goods were misclassified or duty was wrongly self-assessed, the goods did not become liable to confiscation. Since confiscability itself was absent, the penalty imposed on the appellant under section 112(a)(ii) had no legal basis. [Paras 7, 8, 9]

The penalty imposed on the appellant under section 112(a)(ii) was set aside.

Final Conclusion: The Tribunal held that mere misclassification of the imported goods did not render them liable to confiscation under section 111(m), and therefore penalty under section 112(a)(ii) could not be imposed on the appellant. The appeal was accordingly allowed to that extent.

Classification of goods - Import of MICOM relays having contact rating over 7 amperes - classifiable as relays under CTI 8536 49 00 or as feeder management intelligent electronic devices under CTI 8536 90 90 - multifunctional goods -Benefit of exemption for relays of contact rating upto 7 amperes under Notification No. 12/2012 - Principal Function Test - Composite machine classification - Trade parlance - Penalty for incorrect exemption claim.

Principal function test - Classification of multifunctional goods - Relays - HELD THAT: - The Tribunal held that the primary function of all four products was to control, protect and supervise an electrical system from overcurrent and overvoltage in transformers. The additional digital and monitoring features were only ancillary and did not change the essential character of the goods. Applying Note 3 to Section XVI, classification had to follow the machine performing the principal function. The Commissioner had shifted the goods from the specific entry for relays to the residual entry only because they offered additional functions, which was contrary to the principal function test and also inconsistent with trade parlance, where the goods were ordered and understood as relays. [Paras 35, 38, 39, 40, 46]

All the four imported products were held classifiable under CTI 8536 49 00 as relays.

Contact rating - Exemption notification - Relays upto 7 amperes - The three products other than MICOM were entitled to exemption as their contact rating was below 7 amperes, while MICOM was not entitled to the exemption because its contact rating exceeded 7 amperes. - HELD THAT: - The Tribunal found from the technical brochures that Midos relays, relays for tap changer control and transformer monitoring, and K-range relays each had a contact rating of 5 amperes. No evidence was produced by the department to show that these three products had a contact rating above 7 amperes. The Commissioner had erroneously treated them on the same footing as MICOM without any independent finding. Consequently, exemption under Serial No. 376 read with List 21 was available to those three products, but not to MICOM, whose contact rating above 7 amperes was not disputed for exemption purposes. [Paras 20, 21, 22, 40, 46]

Exemption was allowed for the three non-MICOM relays and denied for MICOM.

Penalty under sections 114A and 114AA - Penalty on company officials - Voluntary payment before show cause notice - HELD THAT: - The Tribunal held that once the demand relating to the three non-MICOM products was unsustainable, penalty linked to that part could not survive. As regards MICOM, the duty and applicable interest had been paid prior to issuance of the show cause notice. For penalty under section 114AA, the Tribunal noted that the incorrect statement related only to MICOM, but in view of the pre-notice payment, such penalty could not be sustained. The penalties on the three employees under sections 112 and 114AA were also set aside, the Tribunal observing that the explanation of internal oversight regarding the technology upgrade in MICOM was plausible and, in any event, the differential duty with interest had already been paid before the notice. [Paras 42, 43, 44, 46]

Penalties under sections 114A and 114AA on the appellant and under sections 112 and 114AA on the three individuals were set aside.

Final Conclusion: The Tribunal held that all four imported products were relays classifiable under CTI 8536 49 00. Exemption was allowed to the three products having contact rating below 7 amperes, but not to MICOM, and the consequential demand, interest and penalties to that extent, including the penalties on the three individual appellants, were set aside.

Maintainability of appeal in baggage matters - statutory bar in the proviso to Section 129A(1) -Distinction between smuggled goods and goods imported as baggage -reasonable belief of goods seized under Section 110 - Admissibility of witness statements without examination - Customs valuation based on manufacturer's confirmed invoice - Condition of re-export on redemption.

Maintainability of appeal- Goods imported as baggage - Smuggled goods - Revision versus appeal -HELD THAT: - The Tribunal held that the departmental objection based on the bar relating to goods imported or exported as baggage could not be accepted in the facts of the case. The proceedings had been initiated and pursued by the department on the basis that the seized articles were smuggled goods, with reliance on the confiscatory and penal provisions applicable to smuggling. Proceeding on that footing, the department could not invoke the exclusion clause meant for orders relating to goods imported as baggage. The Tribunal further held that the statutory right of appeal under section 129A could not be displaced by relegating the appellant to the narrower revisional remedy, and the request for deferment on the possibility of cross-objections also lacked merit. [Paras 10, 12]

The preliminary objection to maintainability was rejected and the appeal was held to be competent before the Tribunal.

Natural justice - Cross-examination - Admissibility of statements - Customs valuation - The remand ordered by the Commissioner (Appeals) on the question of cross-examination and valuation was unwarranted, and the value of the Jacob watch had to be accepted on the basis of the manufacturer's invoice confirmed by email. - HELD THAT: - The Tribunal held that, where the department had chosen not to examine the witnesses in adjudication, their statements could not be treated as evidence for the purpose of valuation, and the matter need not have been remanded merely to allow cross-examination. The Commissioner (Appeals) had himself found no substance in the departmental stand for discarding the manufacturer's email and had accepted that the department had received invoice No. 622 through the manufacturer's Chief Legal Officer. Against that material, the photocopy relied upon by the department contained blanks in crucial columns and remained uncorroborated, while the concerned person later disowned the version attributed to him. In these circumstances, the adjudicating authority had erred in mechanically adopting the show cause valuation, and the manufacturer's confirmed invoice furnished the reliable basis for valuation. The Tribunal, however, upheld confiscation and noted that valuation of the other seized goods was not in dispute. [Paras 21, 23, 25, 26, 29]

The remand was set aside on this aspect; confiscation was upheld, but the value of the Jacob watch was accepted at US$ 8,30,000 as per the manufacturer's confirmed invoice, and the contrary valuation based on the uncorroborated photocopy was rejected.

Redemption fine - Option of redemption - Re-export condition - The option of redemption could not be confined by a condition that the confiscated goods be re-exported. - HELD THAT: - Relying on the principle noticed in Rational Art & Press Pvt Ltd.[2007 (4) TMI 340 - CESTAT, MUMBAI] following Amba Lal vs Union of India [1960 (10) TMI 1 - SUPREME COURT], the Tribunal held that, while granting an option to redeem confiscated goods, no condition of compulsory re-export could be imposed. The redemption option therefore had to remain available to the appellant either for home consumption on payment of duty, interest, fine and penalties, or for re-export on payment of fine and penalties. [Paras 30]

The condition restricting redemption to re-export was struck down and the appellant was left free to choose redemption for home consumption or re-export on the stated payments.

Quantum of penalty - Composite penalty - HELD THAT: - Having regard to the peculiar facts found in the case, the Tribunal held that the penalties were excessive and warranted reduction. At the same time, the redemption fine already fixed was not disturbed. [Paras 31]

The redemption fine was maintained, the composite penalty under section 112(a) and 112(b) was reduced to Rs. 10 lakhs, the penalty under section 114AA was reduced to Rs. 50 lakhs, and the appellant was held entitled to set off the amounts already deposited.

Final Conclusion: The Tribunal held the appeal to be maintainable, set aside the remand, upheld confiscation, and accepted the manufacturer's confirmed invoice as the proper basis for valuation of the Jacob watch. The condition confining redemption to re-export was struck down, the appellant was given the option of redemption for home consumption or re-export, and the penalties were reduced while maintaining the redemption fine.

Territorial jurisdiction of Special Court to take cognizance of the complaint relating to offences under the Insolvency and Bankruptcy Code - Jurisdiction Based on Registered Office - Special statutory scheme overriding general criminal jurisdiction - Jurisdiction to try the complaint under the Insolvency and Bankruptcy Code lay with the Special Court connected to the place where the registered office of the company is situated, and not with the Special Court at Gwalior. - HELD THAT: - The Court found it undisputed that the registered office of the company was at New Delhi and that the allegations arose from alleged non-compliance of directions issued by the NCLT, Principal Bench, New Delhi. Reading the statutory scheme, particularly Section 60(1) of the Code together with the notified Special Court for the National Capital Territory of Delhi, the Court held that offences under the Code are to be tried by the Special Court having jurisdiction over the place where the registered office is located. This special statutory arrangement was held to override the general rules of territorial jurisdiction under the Code of Criminal Procedure. On that basis, the respondent's reliance on residence of the directors, continuing default, or consequences at Gwalior was rejected. [Paras 13, 14, 15, 16]

The assumption of jurisdiction by the Court of IX Additional District and Sessions Judge, Gwalior was held unsustainable, and the complaint was directed to be presented before the competent Special Court at New Delhi or other competent court having jurisdiction, without any opinion on the merits.

Final Conclusion: The petition was disposed of by holding that the Special Court at Gwalior lacked territorial jurisdiction to entertain the complaint under the Insolvency and Bankruptcy Code. The complaint was directed to be returned for filing before the competent court having jurisdiction at New Delhi, with all merits left open.

Preferential transaction under Section 43 -Perfection of security interest - Ordinary course of business - Antecedent debt - Debenture Subscription Agreement(“DSA”) - Beneficial position under insolvency waterfall. - The registered Deed of Mortgage dated 29.07.2021 executed by the corporate debtor in favour of the appellant constituted a preferential transaction under Section 43 of the Insolvency and Bankruptcy Code, 2016. - HELD THAT: - The DSA originally contemplated creation of a first charge. However, the Mortgage Deed ultimately created only a second charge arrangement over certain identified units. This itself demonstrates that the Mortgage Deed was not merely a ministerial or mechanical continuation of the DSA, but was a fresh and substantially altered arrangement entered into under changed financial circumstances.

The Appellate Tribunal held that the decisive inquiry was not the existence of a prior contractual promise in the Debenture Subscription Agreement, but whether a perfected and enforceable security interest came into existence only within the statutory look-back period. The DSA required creation of a first charge within 30 days, yet no registered mortgage or perfected charge was created for nearly seven years. During that period, the corporate debtor created prior charges in favour of other lenders, and the appellant, despite being aware of those developments, remained unsecured. The Mortgage Deed of 29.07.2021 was therefore not treated as a mere continuation of an already perfected security, particularly when it created only a second charge instead of the first charge originally contemplated and was executed without NOC from the first charge holder. The Tribunal drew a distinction between a contractual stipulation to create security and an actually perfected security enforceable against the insolvency estate, and rejected the contention that the mortgage related back to 2014. It further found that the mortgage secured an antecedent debt, since no fresh financial assistance was advanced when the mortgage was executed; that it improved the appellant's position under Section 53 by converting it from an unsecured financial creditor into a secured creditor, even if only as a second charge holder; and that it fell within the look-back period, having been executed shortly before commencement of CIRP and after registration of the Section 7 application.

On the exception under Section 43(3), the Tribunal held that a mortgage created seven years after the underlying disbursement, to secure an old debt and immediately before insolvency, could not be regarded as a transaction in the ordinary course of business. Applying the test stated in Anuj Jain [2020 (2) TMI 1259 - SUPREME COURT], Interim Resolution Professional for Jaypee Infratech Ltd. Interim Resolution Professional vs. Axis Bank Ltd. & Ors. [2020 (2) TMI 1259 - SUPREME COURT], the Tribunal concluded that all ingredients of Section 43 stood satisfied. The authorities cited by the appellant on the principle that no party should benefit from its own wrong, and the interim order relied on regarding participation in CIRP, were held inapplicable because the controversy was governed by the specific avoidance framework under the Code. [Paras 71, 72, 73, 74, 75]

The mortgage was held to be an avoidable preferential transaction, and the order releasing and discharging the security interest was affirmed.

Final Conclusion: The Appellate Tribunal dismissed the appeal and upheld the finding that the Mortgage Deed dated 29.07.2021 was a preferential transaction under Section 43 of the Code. The appellant's claim that the deed merely perfected a pre-existing security was rejected, and the discharge of the security interest was sustained.

Maintainability of application for admission under Section 9 - Pre-existing dispute - Disputed questions of fact - Unliquidated damages -operational debt and default in the face of repeated correspondence, termination of work orders - non-completion and deficient performance - stoppage of work by the Airport Authority of India.

Pre-existing dispute - Disputed questions of fact - HELD THAT: - The Appellate Tribunal found no infirmity in the Adjudicating Authority's view that the work was to be completed within the stipulated period and that the Appellant had failed to perform the assigned task within time. It noted repeated correspondence from the Respondent before the demand notice, disputing the quantity and quality of work, calling upon the Appellant to rectify defects, and culminating in termination of the work order prior to invocation of the Code. These disputes were held to be real and not spurious, and the controversy as to performance, delay, quality, termination, and consequent liability was found to involve disputed questions of fact incapable of determination in insolvency proceedings. [Paras 36, 37, 41, 42, 45]

The finding of pre-existing dispute was upheld, and dismissal of the Section 9 application was sustained.

Unliquidated damages - Frustration of contract - Civil trial - The Appellant's case founded on alleged lack of permission and resulting frustration or breach of contract did not give rise to an operational debt enforceable under Section 9, but at best to a claim for unliquidated damages triable by a civil court. - HELD THAT: - The Tribunal held that even on the Appellant's own case that the work was obstructed because permission for crushing was lacking and the contract stood frustrated or breached, the consequence would only be a claim for damages. Such a claim, being one for unliquidated damages arising out of alleged frustration or breach, could be granted only by a civil court after trial. The Tribunal also held that the FIR proceedings and the dismissal of the writ petition did not assist the Appellant in establishing an operational debt within the framework of Section 9. [Paras 38, 39, 40, 43, 44]

The Appellant was left to pursue appropriate remedies outside insolvency proceedings, and the Section 9 route was held unavailable.

Final Conclusion: The Appellate Tribunal upheld the dismissal of the Section 9 application, holding that the record disclosed genuine pre-existing disputes as to performance, delay, quality, and termination of the work orders. It further held that the Appellant's case, even if accepted as one of frustration or breach of contract, could at best support a civil claim for unliquidated damages and not insolvency relief.

Rejection of the Section 7 application without calling for the respondent's reply and without examining the real nature of the transaction - Remand for fresh consideration of nature of debt - Commercial Effect of Borrowing -Acknowledgment in books of account - HELD THAT: - It is established principle of law that IBC is not intended to be used as a recovery mechanism for all types of claims, particularly those arising from the internal management of a company by its directors/promoters. Capital Contributions by Directors/Promoters Cannot Be Retrospectively Treated as Financial Debt.

It is stated that the Code under the proviso for Section 7(5) grants an opportunity to an applicant to cure any shortcoming or rectify any defect in the petition. The Ld. Adjudicating Authority had granted the same opportunity to the Appellant herein. However, the Appellant herein himself failed to provide the same and rectify the defects are there were no documents to establish that the funds were in the nature of a loan. This failure to comply with the order of the Ld. Adjudicating Authority has correctly been noted in paragraph 5 of the Impugned Order that despite an opportunity, the appellant herein failed to cure such defect, therefore, the appellant cannot at the appellate stage contest the same.

The Appellate Tribunal found that the corporate debtor's books reflected the amount in the name of the appellant under long term borrowings, which was sufficient to indicate acknowledgment of debt. At the same time, the appellant's demand notice referred to a share purchase agreement and an assignment through a gift deed, while the respondent's reply stated that the funds were infused for working capital requirements in proportion to shareholding. These materials raised a serious question as to the real nature of the transaction. Since that aspect required detailed examination, the Adjudicating Authority ought at least to have called for the respondent's reply before rejecting the application on maintainability. The matter therefore required fresh consideration on merits, without treating any observation in the appellate order as conclusive. [Paras 48, 49, 50, 51, 52]

The impugned order was set aside to the extent indicated, and the matter was remanded to the Adjudicating Authority for decision on merits after proper examination of the nature of the debt.

Final Conclusion: The Appellate Tribunal held that, in view of the acknowledgment in the books and the conflicting materials bearing on the character of the transaction, the Adjudicating Authority ought not to have rejected the Section 7 application without fuller examination. The matter was remanded for fresh decision on merits, uninfluenced by the appellate observations.

Maintainability of section 9 application - Existence of operational debt and default - Non-annexing invoices with the demand notice - Pre-existing dispute - debt and default stood - Royalty under contract.

Demand notice - Operational debt - Invoices - Non-annexure of invoices with a demand notice in Form 3 did not invalidate the Section 8 demand notice where the claim arose from the Technical Guidance Agreement itself. - HELD THAT: - The Tribunal held that Rule 5 permits an operational creditor to deliver either a demand notice in Form 3 or a copy of an invoice with notice in Form 4. Where the liability flows from the contract and the agreement itself provides the basis for computation of the minimum royalty payable, invoices are not an indispensable part of the transaction. Since the agreement did not mandate raising invoices for the minimum royalty and the operational debt could be established from the contractual terms themselves, the finding that the demand notice was defective for want of annexed invoices was unsustainable. [Paras 28, 29, 30, 33, 34]

The rejection of the Section 9 application on the ground that invoices were not enclosed with the demand notice was held to be erroneous.

Pre-existing dispute - Debt and default - Admission of liability - The materials on record did not disclose a pre-existing dispute sufficient to defeat the Section 9 proceedings, and the existence of operational debt and default stood established. - HELD THAT: - The Tribunal found that the respondent had acknowledged liability of about Rs. 63 lakhs in its letter and that the correspondence between the parties showed, at best, account reconciliation and disagreement on quantification. The primary requirement in a Section 9 proceeding was whether there existed an operational debt and default above the applicable threshold, and not a final adjudication of the exact amount payable. As the respondent had not disputed default of operational debt exceeding the threshold and its defence founded on absence of invoices was rejected, the conditions for initiation of Section 9 stood satisfied. [Paras 27, 35, 36, 37, 38]

The Tribunal held that debt and default were admitted and allowed the appeal, permitting payment of the admitted amount within the time granted, failing which the Adjudicating Authority could proceed to admit the corporate debtor into insolvency.

Final Conclusion: The appeal was allowed. The Tribunal held that the demand notice was not defective merely because invoices were not annexed, found that operational debt and default stood established without any real pre-existing dispute, and granted the respondent time to pay the admitted amount, failing which admission under Section 9 could follow.

Entitlement to bail in the pending money-laundering proceedings - Prolonged incarceration - Age and custody period. - HELD THAT: - The Court noted that the co-accused had already been granted bail either by the High Court or by the Court itself. It further took into account that the appellant was 64 years old and had remained in custody for more than two years. On that combined consideration, the Court found it appropriate to grant bail. [Paras 4, 5, 6]

The impugned order was set aside and the appellant was directed to be released on bail on terms and conditions to the satisfaction of the Trial Court.

Final Conclusion: The appeal was allowed and bail was granted to the appellant, the Court resting its decision on parity with co-accused, the appellant's age, and the period of incarceration already undergone.

Entitlement to anticipatory bail in view of the prima facie material - Custodial interrogation - Parity in bail - Economic offences deep-rooted conspiracies and involving huge loss of public funds - involvement of the applicants in commission of offence under Section 7, 7A & 12 of the PC Act.

Anticipatory bail - Custodial interrogation - HELD THAT: - The Court found from the FIR and the material collected in the case diary that the applicant's involvement in the offences under the Prevention of Corruption Act was prima facie reflected. Particular reliance was placed on the memorandum statement of the co-accused indicating the applicant's influential position in the administration and his role in the shift from the online system to the manual system in relation to the alleged coal scam. On that basis, the Court held that confrontation of the applicant with the incriminating material required custodial interrogation. The Court further treated the allegations as involving a serious economic offence with deep-rooted conspiracy and adverse impact on public funds and the State economy, and held that the considerations governing bail operated against grant of anticipatory protection. [Paras 22, 25, 26, 27]

The application for anticipatory bail was rejected as not fit for exercise of discretionary protection.

Claim for anticipatory bail on the basis of parity with an earlier order of the coordinate Bench and with co-accused enlarged on bail. - HELD THAT: - The Court held that the earlier order of the coordinate Bench operated in a different factual setting, since that matter proceeded on the footing that the offence alleged there had been committed within the territory of another State and the applicant had not been arrayed as an accused in the crime registered there. In contrast, the present case concerned allegations within Chhattisgarh and an ongoing investigation against the applicant. The Court also held that parity with co-accused granted bail by the Supreme Court was unavailable because those accused had been granted bail after remaining in custody for a substantial period, whereas the present matter concerned a prayer for anticipatory bail. The plea of parity was therefore held to be misconceived. [Paras 24, 28]

Parity was refused and did not furnish any ground to grant anticipatory bail.

Final Conclusion: The High Court rejected the application for anticipatory bail, holding that the material on record prima facie disclosed the applicant's involvement and that custodial interrogation was necessary in view of the seriousness of the alleged economic offence. The pleas based on parity with an earlier order of the coordinate Bench and with co-accused enlarged on bail were held inapplicable.

Entitlement to anticipatory bail - large-scale economic offence involving organised illegal online betting, corruption, and laundering of proceeds of crime - Custodial interrogation - Reasonable Apprehension - Parity in bail - Mala fide implication.

Anticipatory bail - Economic offences - Custodial interrogation - Anticipatory bail was not warranted in the case arising out of the alleged Mahadev Online Book App scam. - HELD THAT: - The Court held that the case concerns grave economic offences involving organised illegal betting, corruption, laundering of proceeds, and a deep-rooted conspiracy extending across jurisdictions. Relying on the settled principle that economic offences stand on a different footing in bail matters, the Court found that investigation was still in progress and that crucial aspects relating to digital evidence, financial trails, hawala transactions and conspiracy linkages were yet to be fully unearthed. In that background, and in view of the prosecution assertion that custodial interrogation may become necessary, grant of anticipatory bail at that stage was considered likely to adversely affect a fair and effective investigation. [Paras 23, 28, 29, 30, 31]

Anticipatory bail was declined having regard to the gravity of the alleged economic offences, the ongoing investigation and the possible need for custodial interrogation.

Mala fide implication - Parity in bail - The applicant's plea that his implication was mala fide because he was not named in earlier proceedings, and his claim of parity with other accused, were rejected. - HELD THAT: - The Court held that the mere fact that the applicant had not been arraigned in earlier FIRs, prosecution complaints or charge-sheets did not by itself establish innocence or prevent further investigation if material subsequently surfaced. Allegations of political vendetta, fabricated implication and successive arrests were treated as matters requiring evidence and not capable of conclusive adjudication at the anticipatory bail stage. The Court further held that parity could not be claimed mechanically in cases of criminal conspiracy and economic offences, since the role attributed to each person has to be examined independently, and the absence of an immediate charge-sheet against the applicant was not conclusive of absence of incriminating material. [Paras 26, 27]

The pleas of mala fides, absence of earlier arraignment and parity were not accepted as grounds for anticipatory bail.

Final Conclusion: The anticipatory bail application was dismissed. The Court held that, in view of the grave nature of the alleged economic offences, the ongoing investigation into digital and financial evidence, and the possible need for custodial interrogation, no case for exercise of discretionary anticipatory bail jurisdiction was made out.

Supply of electricity as sale of goods - Taxability under Management, Maintenance or Repair Service - Transformer installation charges- Whether the supply of electricity and installation of transformer for supply of electricity are liable to taxed under the category of “Management, Maintenance or Repair Service” or not ? - HELD THAT: - The Tribunal treated the controversy as covered by its earlier decision in Commissioner of CGST & Central Excise, Kolkata Vs. M/s DLF Infocity Developers (Kolkata) Ltd.[2025 (8) TMI 1658 - CESTAT KOLKATA], wherein, on the basis of authorities holding electricity to be goods, supply of electricity to tenants was held to be a transaction of sale of goods and not a taxable service. Applying that principle, the Tribunal held that the appellant's supply of electricity to occupants against payment could not be brought to tax as Management, Maintenance or Repair Service. On that basis, it further held that no service tax was payable either on account of supply of electricity or on installation of transformer for such supply. [Paras 7, 8]

The demand of service tax on electricity supply and transformer installation charges was set aside, and the penalties were held to be not imposable.

Final Conclusion: The Tribunal allowed the appeal, holding that supply of electricity was a sale of goods and therefore not taxable as Management, Maintenance or Repair Service. On that basis, the service tax demand on electricity supply and transformer installation charges, together with penalties, was set aside.

Revenue sharing arrangement - Joint venture - Principal-to-principal basis - Taxability of services - Transfer of right to use goods - Deemed sale - Healthcare exemption - Negative list regime - The arrangements entered into by the appellant with hospitals and Jamia Hamdard were held to be joint venture arrangements based on revenue sharing and not taxable services rendered by the appellant to the other contracting party. - HELD THAT: - The Tribunal followed its earlier decisions in M/s Peerless Hospitex Hospital & Research Centre Limited [2025 (7) TMI 1709 - CESTAT KOLKATA] and M/s Apollo Gleneagles Hospital Limited [2024 (8) TMI 1604 - CESTAT KOLKATA] and also referred to O P Jindal Institute of Cancer and Research [2024 (10) TMI 824 - CESTAT CHANDIGARH], where similar hospital-based revenue sharing arrangements were examined. It held that the appellant and the other contracting parties were acting in furtherance of a joint venture with defined reciprocal duties and obligations, and that the revenue earned from patients was being shared as part of that common arrangement. On that basis, the Tribunal concluded that the appellant was not providing any independent service to the hospitals or Jamia Hamdard on a taxable footing. [Paras 37, 38]

No service tax was payable by the appellant, and the impugned order was set aside with consequential relief.

Final Conclusion: The Tribunal held that the appellant's arrangements with hospitals and Jamia Hamdard were joint venture revenue sharing arrangements and did not involve provision of taxable service by the appellant to the other party. The service tax demand, interest and penalty confirmed by the impugned order were therefore set aside and the appeal was allowed with consequential relief.

Entitlement to exemption on rent-a-cab services provided to a Special Economic Zone unit - Benefit of Notification No. 4/2004-ST -Overriding effect of the SEZ Act - Authorised operations in Special Economic Zone. - HELD THAT: - The Tribunal held that section 26(1)(e) of the SEZ Act grants exemption from service tax on taxable services provided to a developer or unit for carrying on authorised operations in a Special Economic Zone, and section 51 gives the SEZ Act overriding effect over anything inconsistent in any other law. Relying on GMR Aerospace Engineering Ltd[2019 (8) TMI 748 - TELANGANA AND ANDHRA PRADESH HIGH COURT], it held that the general exemption notification issued under section 93 of the Finance Act, 1994 cannot control or curtail the special exemption available under the SEZ Act. Consequently, the requirement in Notification No. 4/2004-ST that the service be used wholly within the SEZ area was held inapplicable for denying the benefit to the appellant. [Paras 9, 10, 11, 12, 13]

The demand was held unsustainable on merits, and the impugned order was set aside with consequential relief.

Final Conclusion: The Tribunal held that the SEZ Act prevailed over the condition contained in Notification No. 4/2004-ST and that the claimed exemption could not be denied on the ground that the Rent-a-Cab service was not used wholly within the SEZ area. The demand and consequential liability were therefore set aside.

Refund claims of duty paid under protest - Unjust enrichment - Passing of duty incidence - Accounting treatment in profit and loss account - Chartered accountant certificate - HELD THAT: - The certificate issued by the Chartered Accountant certifying that the duty incidences have not been passed on the customers has been discarded by the Revenue without any cogent reasons. In fact, the certificate issued by the Chartered Accountant is a sufficient evidence to certify that the burden of unjust enrichment has not been discharged by the appellant, as held in the case of Commissioner of Central Excise, Mumbai-I vs. Shethia Audio Video Pvt. Ltd. [2003 (2) TMI 133 - CEGAT, MUMBAI] of the said order as under: “6. While agreeing with the Revenue that the question of payment of duty is linked with manufacture and does not depend upon the registration of a manufacturer with the Central Excise authorities, we agree with the findings that the material produced by the respondent before him in the form of Chartered Accountant's certificate was sufficient for satisfaction that the duty burden which was discharged on a subsequent date to the clearances, was not passed on to the respondent's buyers. No material has been produced before us to show anything to the contrary.”

The Tribunal held that, during the relevant period, the appellant was selling the goods below cost and was not showing the duty element separately in its invoices. On those facts, recovery of the duty burden from customers could not be presumed. It further held that mere booking of the duty element as expenditure in the books of account or profit and loss account does not by itself establish passing on of the duty incidence. The Chartered Accountant certificate certifying that the duty burden had not been passed on was treated as sufficient evidence, particularly when the Revenue had discarded it without cogent reasons and had produced no material to the contrary. On that basis, the appellant was found to have rebutted the plea of unjust enrichment. [Paras 7, 8, 9, 10, 12]

The appellant was held to have passed the bar of unjust enrichment; the refunds were rightly sanctioned, and the consequential recovery of the refunded amounts and interest was not sustainable.

Final Conclusion: The Tribunal held that the appellant had not passed on the duty incidence and had therefore overcome the objection of unjust enrichment. The refund claims were held to have been rightly sanctioned along with interest, and the connected recovery proceedings failed.

Negotiable Instruments Act - Dishonour of Cheque - Presumption of Service of the statutory notice - Rebuttable Presumption under Section 139 of the Negotiable Instruments Act - Preponderance of Probabilities - Legally enforceable debt or liability.

Service of statutory demand notice - Presumption of postal service - Avoidance of notice - HELD THAT: - The Court held that an endorsement showing the addressee was absent for seven days did not, by itself, amount to deemed service. Though deliberate avoidance can be established by evidence, the appellant did not examine any postal authority or adduce material to dislodge the respondent's case that he was away from home owing to his mother's illness. Since the respondent had prima facie explained his absence and no further attempt was made to effect service, the finding of the Magistrate treating notice as duly served was not accepted. [Paras 8, 9]

The Court concluded that service of demand notice upon the respondent was not established.

Legally enforceable debt or liability - Rebuttal of statutory presumption - Preponderance of probabilities - HELD THAT: - While the signature and issuance of the cheques were not disputed, the Court held that the surrounding circumstances rendered the alleged loan transaction doubtful. No specific date, time or month of the alleged loan was proved; the supporting witness did not sustain the complainant's version in cross-examination; there was no written agreement; and the evidence showed that both parties were connected with a chit-fund business, making the defence that the cheques were connected with that business a probable one. Applying the principle that the presumption under Section 139 is rebuttable on a standard of preponderance of probabilities, the Court accepted that the respondent had raised a probable defence and that the complainant had failed to establish the existence of an enforceable debt. [Paras 10, 15, 17]

The Court held that the statutory presumption stood rebutted and Section 138 was not attracted.

Final Conclusion: The appeal against acquittal was dismissed. The Court affirmed the trial court's conclusion that service of the statutory notice was not proved and that the complainant had failed to establish that the cheques were issued towards a legally enforceable debt or liability.