TaxTMI Updates e-Newsletter
May 31,2021

Regular bail under Section 439 Cr.P.C. - Offence carrying maximum sentence of five years - Absence of apprehension of flight risk or tampering with witnesses - Presentation of challan before competent court - Trial delay owing to COVID-19 - Deposit of substantial amount as demonstration of bona fides - No custodial interrogation or investigation required

Regular bail under Section 439 Cr.P.C. - Offence carrying maximum sentence of five years - Absence of apprehension of flight risk or tampering with witnesses - Presentation of challan before competent court - Trial delay owing to COVID-19 - Deposit of substantial amount as demonstration of bona fides - No custodial interrogation or investigation required - Grant of regular bail to the petitioner arrested in connection with alleged CGST offences. - HELD THAT: - The Court exercised its power under Section 439 Cr.P.C. and allowed bail. The decision rests on multiple concurrent considerations: the statutory maximum sentence for the alleged offence is five years, which militates in favour of bail; there was no material or apprehension presented by the department of the petitioner fleeing or tampering with witnesses; the challan has been filed and trial is not proceeding promptly because of COVID-19 disruptions; the petitioner has deposited a substantial amount with the department thereby evidencing bona fides; and the petitioner, being 68 years old, is not required for any custodial interrogation or investigation. Taken together, these factors satisfied the Court that bail was appropriate, subject to the satisfaction of the trial court. [Paras 4, 5]

Petitioner admitted to regular bail subject to the satisfaction of the trial court; copy of order to be sent to the trial court for compliance.

Final Conclusion: Bail application allowed; petitioner released on regular bail subject to conditions and trial court's satisfaction, having regard to sentence ceiling, absence of flight or tampering risk, presentation of challan, COVID-19 delay, deposit by petitioner and lack of custodial necessity.

Speaking order - reasons recorded - reopening assessment under Section 147/148 - change of opinion - application of mind - quasi-judicial function

Speaking order - reasons recorded - application of mind - quasi-judicial function - Validity of the order disposing of the objections to the notice under Section 148 and whether the Assessing Officer applied mind and gave a speaking order. - HELD THAT: - The Court examined the reasons recorded for reopening and the order disposing of the objections and concluded that the Assessing Officer did not properly deal with the objections raised by the assessee. Applying the principles in GKN Driveshafts and the guidance in SABH Infrastructure, the Court held that disposal of objections to a notice under Section 148, though not a statutory formality, is a quasi judicial exercise requiring consideration of each objection and assignment of cogent reasons. On the materials, the AO's order amounted to a mechanical disposal without adequate application of mind and did not reflect a proper consideration of the specific objections placed on record. The Court therefore set aside the order disposing the objections and remitted the matter to the AO to consider the objections afresh and pass a speaking order in accordance with law, without expressing any opinion on the merits of reopening or the underlying tax liability. [Paras 12, 13, 14]

Order disposing the objections dated 18.11.2019 set aside; matter remitted to the Assessing Officer to consider the objections and pass a fresh speaking order in accordance with law within six weeks.

Final Conclusion: Writ partly allowed; the order disposing of the objections to the Section 148 notice is quashed and the matter is remitted to the Assessing Officer for fresh consideration and a speaking order within six weeks; no opinion expressed on merits of reassessment.

Reopening of assessment - notice under Section 148 of the Income-tax Act - reasons recorded for reassessment - disposal of objections by a speaking order - application of mind - change of opinion - failure to disclose fully and truly all material facts

Disposal of objections by a speaking order - reasons recorded for reassessment - application of mind - reopening of assessment - Whether the Assessing Officer duly considered and disposed of the objections to the reasons recorded for reopening the assessment and passed a speaking order reflecting application of mind - HELD THAT: - The High Court found that the Assessing Officer did not properly deal with the objections filed by the assessee against the reasons recorded for reopening. Applying the procedure laid down by the Supreme Court in GKN Driveshafts and the guidance in SABH Infrastructure, the Court held that disposal of objections to a notice under Section 148 is a quasi judicial exercise which must deal with each objection and give cogent reasons for the conclusion. The order disposing of objections in the present case merely recorded that objections were considered but did not reflect a proper application of mind and amounted to a mechanical disposal. Consequently, the Court set aside the order disposing of objections and remitted the matter to the Assessing Officer to consider the assessee's objections and pass a fresh speaking order in accordance with law within the timeframe directed by the Court. The Court expressly declined to express any opinion on the merits of the reassessment itself. [Paras 12, 13, 14, 15]

Order disposing of the objections dated 26.08.2019 is set aside and the matter is remitted to the Assessing Officer to pass a fresh speaking order after considering the objections within six weeks; no opinion expressed on merits.

Final Conclusion: Writ petition succeeds in part: the order disposing of the objections to the reopening notice is quashed for lack of a speaking disposal and remitted for fresh consideration by the Assessing Officer within six weeks; the Court has not adjudicated the merits of reassessment and preserves the assessee's right to challenge any adverse fresh order with the time-relief direction given.

Deduction under Section 80IB(10) - sanctioned built-up area versus actual constructed area - compliance with approved plan as condition for tax benefit - applicability of accounting standards to real estate developers - precedential effect of coordinate bench decision

Deduction under Section 80IB(10) - sanctioned built-up area versus actual constructed area - precedential effect of coordinate bench decision - Assessee entitled to deduction under Section 80IB(10) for AY 2010-11 despite constructed area exceeding the sanctioned built-up area approved in the project plan. - HELD THAT: - The Court examined the admitted substantial question of law and the submissions on both sides, including the Assessing Officer's denial of deduction on the ground that the constructed built-up area exceeded the sanctioned plan. The High Court found the question squarely answered by the coordinate bench decision in Brigade Enterprises Ltd., which the Court regarded as dispositive for the present facts. The Court noted the argument regarding the applicability of accounting standards to real estate developers but concluded that reliance on the earlier decision (Brigade Enterprises) resolves the substantial question in favour of the assessee. Following that dictum, the Court answered the substantial question against the Revenue and in favour of the assessee, thereby upholding the entitlement to the claimed deduction. [Paras 9, 10]

Appeal dismissed; substantial question answered against the Revenue and in favour of the assessee.

Final Conclusion: The High Court dismissed the Revenue's appeal for Assessment Year 2010-11, holding that the substantial question of law is answered against the Revenue and in favour of the assessee, following the precedent of the coordinate bench.

Disallowance under section 40A(ia) - tax deduction at source - proof of payment - salary register and attendance evidence - cash payments and section 40A(3) - remand for fresh evidence and verification - commercial expediency of interest free advances - estimation of household expenses on surmise and conjecture - burden to substantiate rent payments and TDS obligations

Disallowance under section 40A(ia) - tax deduction at source - proof of payment - salary register and attendance evidence - cash payments and section 40A(3) - Allowability of Rs. 3,24,000 paid as salaries to four security guards disallowed for failure to deduct TDS - HELD THAT: - The Assessing Officer disallowed payments of Rs. 3,24,000 treating them as payments to a contractor without deduction of tax and invoked section 40A(ia). The CIT(A) sustained the disallowance on the ground that no salary register, attendance records or mode of payment were produced. The Tribunal found that the assessee, a small proprietor, produced confirmations on firm letter head and that absence of disclosure of mode of payment alone, or payment in cash, did not justify disallowance; payments of Rs. 27,000 per month for four guards were not inherently implausible, and cash payment would not automatically violate section 40A(3). On that basis the Tribunal held the CIT(A) was not justified in sustaining the addition and allowed the ground. [Paras 7]

Addition of Rs. 3,24,000 made on account of security guards' salaries is deleted; appeal allowed on this issue.

Burden to substantiate rent payments and TDS obligations - remand for fresh evidence and verification - Disallowance of shop rent (Rs. 1,20,000) and godown rent (Rs. 2,36,379) for failure to produce verifiable documentary evidence - HELD THAT: - The AO added rent payments where no reply or documentary proof was on record. Before the CIT(A) the assessee produced undated rent agreement copies and certificates alleged to be signed by co owners; the CIT(A) found lack of verifiability and confirmed the addition. The Tribunal observed that the assessee had not produced sufficient documents either at assessment or on remand, but in the interest of justice directed restoration of the matter to the AO to give the assessee one more opportunity to substantiate the payments and TDS position and to decide the issue on facts and law. [Paras 12]

Issue restored to the file of the AO for fresh consideration after giving the assessee one more opportunity to substantiate rent payments and TDS compliance; disposed for statistical purpose.

Commercial expediency of interest free advances - remand for fresh evidence and verification - Disallowance of proportionate interest (Rs. 86,410) on interest free advance of Rs. 5,59,159 - HELD THAT: - The AO disallowed proportionate interest on interest free advances. The assessee asserted advances were for business/commercial expediency relying on precedent, but neither the commercial purpose nor that assessee's capital and free reserves exceeded the advances was established on record. The Tribunal found the factual foundation for commercial expediency was not made out and directed the AO to grant one more opportunity to the assessee to substantiate commercial expediency or capital/reserve position and to decide the matter as per fact and law. [Paras 14]

Matter remitted to the AO for fresh consideration after affording the assessee opportunity to substantiate commercial expediency or capital/reserve position; remand allowed for statistical purpose.

Estimation of household expenses on surmise and conjecture - Estimated addition of Rs. 25,000 on account of alleged low household withdrawals - HELD THAT: - The AO made an estimated addition on the basis that the assessee's recorded withdrawals were low given family composition and husband's earnings; the CIT(A) upheld the estimate. The Tribunal concluded the addition rested on surmises and conjectures and that nothing on record demonstrated extravagant personal expenditure. Accordingly the Tribunal set aside the disallowance and directed deletion of the addition. [Paras 16]

Estimated addition of Rs. 25,000 for household expenses is deleted; ground allowed.

Procedural grounds and condonation requests - Miscellaneous general grounds including plea for condonation of delay and prayer to amend grounds - HELD THAT: - Grounds 6 and 7 were general in nature (request for condonation of delay due to family feuds and leave to amend grounds). The Tribunal dismissed these general grounds without acceding to the reliefs sought. [Paras 17]

Grounds 6 and 7 dismissed.

Final Conclusion: The appeal is partly allowed: the disallowance of salaries to security guards and the estimated household expense addition are deleted; disputes over rent payments and interest free advances are remitted to the AO for fresh consideration after affording the assessee an opportunity to substantiate her claims; general grounds 6 and 7 are dismissed.

Characterisation of property as Hindu Undivided Family property versus self-acquired property - effect of the Hindu Succession Act, 1956 on creation and continuance of HUF property - onus of proof for existence or creation of HUF after 1956 - quashing of reassessment where ownership/character of property is found to differ

Characterisation of property as Hindu Undivided Family property versus self-acquired property - effect of the Hindu Succession Act, 1956 on creation and continuance of HUF property - onus of proof for existence or creation of HUF after 1956 - Whether the property sold in the assessment for A.Y.2010-11 is HUF property or the assessee's individual property and whether the reassessment can stand - HELD THAT: - The Tribunal examined the facts that the assessee's father acquired the property in 1950 and the assessee succeeded on his father's death in 1955, i.e. prior to the coming into force of the Hindu Succession Act, 1956. Applying the principle that inheritance of ancestral property before 1956 may give the property the character of HUF property, and relying on the Supreme Court's rulings (as discussed in the cited authorities) that after 1956 inheritance ordinarily results in self-acquired property unless an HUF existed prior to 1956 or property was thrown into common hotchpotch to create an HUF, the Tribunal held that on the admitted chronology the property vested as HUF property. The Tribunal also observed that the post-1956 presumptions do not apply where the property devolved before 1956 and that the assessee did not face the burden of proving creation of an HUF after 1956 (since the antecedent transfer was prior to 1956). In consequence, the assessment framed against the assessee individually was founded on an incorrect characterisation of ownership. The Tribunal therefore concluded that the assessment order must be quashed insofar as it assessed the gain in the hands of the assessee as an individual. [Paras 8, 9]

Grounds that the property is HUF property are allowed; the assessment framed against the assessee individually is set aside.

Final Conclusion: The Tribunal allowed grounds relating to the characterisation of the property as HUF property (having devolved before the Hindu Succession Act, 1956) and set aside the reassessment for A.Y.2010-11; the remaining grounds were not adjudicated as academic.

Revisional jurisdiction under section 263 of the Income Tax Act - limited scrutiny / scope of assessment scrutiny - computational error rectifiable under section 154 - erroneous and prejudicial to the interest of revenue - principle of natural justice

Revisional jurisdiction under section 263 of the Income Tax Act - limited scrutiny / scope of assessment scrutiny - erroneous and prejudicial to the interest of revenue - The order passed by the PCIT under section 263 expanding scrutiny and setting aside the assessment as erroneous and prejudicial to the revenue was not justified. - HELD THAT: - The Tribunal found on the record that the AO had identified two specific issues for limited scrutiny (purchase of property and deduction under capital gains) and had examined the complete details furnished by the assessee, including sale of shares, confirmations, bank statements, purchase and registration documents and the deduction claimed. The AO had duly verified and accepted the transactions which were the subject matter of the limited scrutiny. The PCIT's notice and order expanded the scope beyond the selection criteria and concluded that the assessment was erroneous and prejudicial without demonstrating that the AO failed to examine the identified matters. In these circumstances the exercise of revisional jurisdiction to set aside the assessment on that basis could not be sustained. [Paras 10, 11]

The invocation of section 263 to expand scrutiny and to set aside the assessment was invalid and the order under section 263 is quashed on this ground.

Computational error rectifiable under section 154 - revisional jurisdiction under section 263 of the Income Tax Act - A minor computational discrepancy in the deduction claim did not warrant exercise of revisional powers under section 263 and was amenable to correction under the provisions for rectification. - HELD THAT: - The Tribunal observed that the difference between the deduction claimed and the deduction correctly calculable was essentially computational and amounted to a small discrepancy which could have been rectified under the statutory rectification mechanism. The provisions of section 263 are not to be invoked for mere computational errors where other provisions of the Act provide suitable remedy. Therefore, the PCIT's directions to reopen the assessment on that basis were beyond what was legally permissible. [Paras 11]

The PCIT's use of section 263 for a computational error was unwarranted; such discrepancy should have been addressed through rectification rather than revisional proceedings.

Final Conclusion: The appeal is allowed: the order passed by the PCIT under section 263, which expanded the scope of scrutiny and set aside the assessment (including for a minor computational discrepancy), is quashed; the assessment is to stand subject to any appropriate rectification procedure.

Validity of notice under section 147/148 and jurisdiction to reopen - Service of notice and postal refusal treated as valid service - Reopening on the basis of AIR information and adequacy of recorded reasons - Addition under section 69A in respect of unexplained cash deposits - Penalty under section 271(1)(c) consequential on assessment additions

Validity of notice under section 147/148 and jurisdiction to reopen - Service of notice and postal refusal treated as valid service - Notice under Section 148 was validly issued and the reopening proceedings were not void for lack of service or jurisdiction. - HELD THAT: - The Tribunal examined the assessee's challenge to the re-opening based on alleged defective service and jurisdictional infirmity. The postal record showing refusal to accept the notice was treated as effective service. On that basis the challenge to the validity of the notice and the initiation of reassessment under Sections 147/148 was rejected and grounds contesting service and jurisdiction were dismissed. [Paras 8]

Grounds challenging service and jurisdiction (grounds 1-7) dismissed; notice and reopening upheld.

Addition under section 69A in respect of unexplained cash deposits - Reopening on the basis of AIR information and adequacy of recorded reasons - Addition treating bank cash deposits as unexplained income under Section 69A was deleted on merits insofar as the deposits were shown to arise from sale proceeds of agricultural land. - HELD THAT: - On merits the Tribunal found that the bank entries and sale deed reflected the receipt of cash from sale of agricultural land and were evidenced in the assessee's bank account. The CIT(A)'s sustainment of part of the addition (the remaining cash treated as unexplained) was held to be incorrect because the deposits corresponded to the sale transaction dates and were reflected in account records. Consequently the Tribunal allowed the assessee's grounds relating to the addition and deleted the impugned addition. [Paras 8]

Grounds 8-13 allowed; addition under Section 69A deleted.

Penalty under section 271(1)(c) consequential on assessment additions - Penalty confirmed by the lower authorities does not survive once the addition is deleted and is therefore set aside. - HELD THAT: - The penalty proceedings under Section 271(1)(c) were contingent upon the addition which the Tribunal has deleted. In view of the deletion of the addition, the penalty was held to be consequentially unsustainable and was therefore vacated. [Paras 11]

Penalty appeal allowed; penalty set aside as consequential to deletion of addition.

Final Conclusion: For assessment year 2009-10 the reassessment notice was upheld but the additions made under Section 69A in respect of the cash deposits were deleted on merits; consequentially the penalty under Section 271(1)(c) was vacated. ITA No. 7849/Del/2018 is partly allowed and ITA No. 7850/Del/2018 is allowed.

Penalty under section 271(1)(c) - furnishing inaccurate particulars of income - concealment of income - speculative transactions / speculative loss - set-off of share trading losses against business income - making an incorrect claim in law does not amount to furnishing inaccurate particulars - notice under section 274 r.w.s. 271 must specify which limb of section 271(1)(c) is invoked

Penalty under section 271(1)(c) - speculative transactions / speculative loss - furnishing inaccurate particulars of income - set-off of share trading losses against business income - making an incorrect claim in law does not amount to furnishing inaccurate particulars - Sustainability of penalty under section 271(1)(c) for treating genuine share/derivative losses as speculative and denying set off against business income. - HELD THAT: - The Tribunal upheld the view of the learned CIT(A) that the assessee had made full and transparent disclosure of the share and derivative transactions in the audited financial statements and during assessment proceedings, and there was no misrepresentation or concealment of facts. The Assessing Officer's addition arose from a change in the character of otherwise genuine losses (treating business losses as speculative) and denial of set off under the explanation to section 73. Reliance on settled principles (including the Apex Court in Reliance Petro) shows that making an incorrect claim in law, or a disputed legal view as to classification of losses, does not ipso facto amount to furnishing inaccurate particulars of income to attract penalty under section 271(1)(c). The Tribunal noted conflicting judicial views on the issue, held the assessee's position to be a plausible/legal view and, in light of full disclosure and absence of concealment, found no justification for penalty. [Paras 12, 13]

Penalty under section 271(1)(c) cannot be sustained merely because the Assessing Officer treated the business loss as speculative and denied set off; penalty deleted on merits.

Notice under section 274 r.w.s. 271 must specify which limb of section 271(1)(c) is invoked - Penalty under section 271(1)(c) - furnishing inaccurate particulars of income - concealment of income - Validity of penalty proceedings where the notice issued under section 274 r.w.s. 271 is a printed form without striking out the inapplicable limb of section 271(1)(c). - HELD THAT: - The Tribunal found the notice to be defective because it did not indicate whether proceedings were initiated for concealment of income or for furnishing inaccurate particulars of income, the two distinct limbs of section 271(1)(c). Citing precedent where identical procedural defects rendered penalty notices bad in law, the Tribunal held that failure to specify the limb of section 271(1)(c) vitiates the penalty proceedings. On this procedural ground the cancellation of penalty by the CIT(A) was sustained. [Paras 14]

Penalty proceedings are invalid where the notice does not specify which limb of section 271(1)(c) is invoked; notice held bad in law and penalty deleted.

Final Conclusion: The Tribunal dismissed the Revenue's appeal; the penalty levied under section 271(1)(c) was deleted-both on merits (absence of concealment and bona fide legal view on classification of losses) and on the procedural ground that the penalty notice failed to specify which limb of section 271(1)(c) was invoked.

Maintainability of assessment against deceased assessee - Nullity of orders passed without participation of legal heirs - Revision under section 263 of the Income-tax Act - Assessment under section 143(3) read with section 147 of the Income-tax Act

Maintainability of assessment against deceased assessee - Nullity of orders passed without participation of legal heirs - Revision under section 263 of the Income-tax Act - Assessment under section 143(3) read with section 147 of the Income-tax Act - Assessment and revision orders passed in the name of the assessee after her death were not maintainable and were set aside. - HELD THAT: - The appellate tribunal noted that the assessee died on 05.10.2018, whereas the Pr. CIT's revision order under section 263 was dated 22.03.2019 and the consequential assessment order under section 143(3) read with section 263 was dated 15.07.2019, both passed in the name of the deceased. The tribunal observed that the legal heirs were not party to the earlier proceedings and were unaware of the facts necessary to contest the orders before the authorities. In these circumstances, an assessment and a revision order recorded in the name of a person who had already died lacked legal validity. Having regard to those facts, the tribunal found that the orders had no legs to stand and therefore set aside the assessment order dated 05.07.2019 as not maintainable in law.

The assessment order passed on the deceased assessee is set aside; the appeal is allowed.

Final Conclusion: The tribunal allowed the appeal, holding that the revision order under section 263 and the consequential assessment passed in the name of the assessee after her death were not maintainable and setting aside the impugned assessment order.

Deduction of tax at source on interest on compensation under section 194A and consequential disallowance under section 40(a)(ia) - responsibility for TDS where compensation with interest is deposited with Court versus liability of acquiring authority - classification of mine-related civil works as plant and machinery for depreciation purposes - allowability of penalty-like or delay payments as business expenditure under section 37(1) - consequential nature of interest under section 234C

Deduction of tax at source on interest on compensation under section 194A and consequential disallowance under section 40(a)(ia) - responsibility for TDS where compensation with interest is deposited with Court versus liability of acquiring authority - Deletion of disallowance under section 40(a)(ia) made for non-deduction of TDS on interest deposited with Courts/revenue officers. - HELD THAT: - The Tribunal, following its coordinate-bench decision in the assessee's own case for earlier years, examined the Board Circulars and judicial pronouncements addressing who bears responsibility for TDS on interest awarded in land-acquisition matters. The authorities and Circular No.526 (and subsequent clarifications) recognize that the collector/acquiring authority is the person on whom the obligation to deduct tax under section 194A primarily falls; where the assessee had only deposited amounts with the Court and had not actually paid the interest to the ultimate claimants, the assessee could not be treated as the responsible deductor. On the facts the assessee had merely deposited the enhanced compensation and interest with the Court and was not in a position to ascertain timing of payment to recipients; therefore the disallowance under section 40(a)(ia) was unsustainable and deleted. [Paras 5]

Disallowance under section 40(a)(ia) for non-deduction of TDS on interest deposited with Court is deleted.

Classification of mine-related civil works as plant and machinery for depreciation purposes - Assets and expenditures relating to mine development and civil works in the assessee's coal-mining operations are to be treated as plant and machinery and depreciable at 15%. - HELD THAT: - Having considered the nature and functional nexus of the expenditures (retaining walls, dumper platforms, RCC bridges, land levelling, bunkers, inter-seam tunnels, water dams and related works) to extraction operations, the Tribunal followed the coordinate-bench and higher-court reasoning accepting that such works are integral to mining activity and thus fall within the block 'plant and machinery'. The Tribunal observed that the Income-tax Act does not rigidly define 'plant and machinery' and prior decisions in the assessee's own case and relevant precedents justify treating these mine-development expenditures as plant and machinery; accordingly the higher rate of depreciation (15%) applies. [Paras 6, 7]

Depreciation to be allowed at 15% under the block 'plant and machinery' instead of 10%.

Allowability of penalty-like or delay payments as business expenditure under section 37(1) - Deletion of addition made for payments characterized as penalty/fine where the assessee established they were compensatory payments for delay or procedural non-compliance and not penal sanctions. - HELD THAT: - The assessee explained that the impugned payments to state departments were for delay in submission of forms or compliance with procedures and therefore constituted compensatory or routine business expenses rather than fines or penalties for contravention of law. The assessee's explanation was accepted by the Tribunal and, in absence of documentary support for treating them as penal payments, the addition was directed to be deleted as allowable expenditure under section 37(1). [Paras 8, 9]

Addition for the questioned payments is deleted and treated as allowable business expenditure under section 37(1).

Consequential nature of interest under section 234C - Interest charged under section 234C is consequential and the AO is directed to act accordingly. - HELD THAT: - The Tribunal noted that the interest under section 234C arises as a consequential computation. Having addressed the primary issues of assessment adjustments, the Tribunal directed that the charging of interest under section 234C be dealt with by the assessing officer in the consequential computation, consistent with the other adjustments allowed. [Paras 10]

Direction to the AO to compute or adjust interest under section 234C consequentially.

Final Conclusion: Both appeals filed by the assessee for AY 2013-14 and AY 2014-15 are allowed: the TDS-related disallowance under section 40(a)(ia) is deleted, mine-related civil works are held to be plant and machinery allowing depreciation at 15%, the addition for alleged penalties is deleted as allowable business expenditure under section 37(1), and interest under section 234C is to be adjusted consequentially by the assessing officer.

Opening stock treated as unexplained income - Acceptance of sales prima facie implies existence of corresponding stock or purchases - Rule of consistency in income-tax proceedings - Relevance of post-closure inspection under Section 133B

Opening stock treated as unexplained income - Acceptance of sales prima facie implies existence of corresponding stock or purchases - Relevance of post-closure inspection under Section 133B - Rule of consistency in income-tax proceedings - Whether the assessing officer was justified in treating the assessee's opening stock of Rs. 51,051,565/- as unexplained income and adding it to the assessee's total income for AY 2013 - 14. - HELD THAT: - The Tribunal affirmed the Commissioner (Appeals) and rejected the assessing officer's addition. The decision rests on these determinative considerations: (a) the assessing officer did not disbelieve the assessee's sales or disturb the gross profit; where sales are accepted and the trading result is not rejected, it is not open to the Revenue to discard the corresponding debit side (opening stock or purchases) and treat the credit side (sales) as unexplained income; (b) the assessee's earlier years' scrutiny assessments had accepted opening and closing stock and the trading account figures, and that history of acceptance (invoked under the rule of consistency) meant the opening stock for the year under consideration had prima facie been established; (c) the physical inquiry under Section 133B relied upon by the assessing officer was conducted long after the business was closed and therefore had limited evidentiary value vis-a -vis the earlier accepted accounts; and (d) on the facts (small declared gross and net profit relative to the claimed opening stock, evidence of party-wise sales, receipts by account-payee cheques and confirmations), the assessing officer's hypothesis that the entire opening stock was nonexistent and represented laundered money was unsustainable. For these reasons the Tribunal held the addition contrary to law and fact and deleted it, following established authorities that acceptance of sales without corresponding rejection of purchases/stock undermines a conclusion of unexplained income. [Paras 9, 10, 11]

Addition of Rs. 51,051,565/- treated as opening stock and held to be unexplained income is deleted; appeal of assessing officer dismissed.

Final Conclusion: The Tribunal dismissed the revenue's appeal and upheld the deletion of the addition: the assessing officer was not justified in treating the accepted sales as unexplained income by denying the corresponding opening stock, particularly having regard to prior years' acceptance of stock and the limited probative value of a post-closure inspection.

Royalty - Explanation 2 to Section 9(1)(vi) - TDS under Section 194J - Disallowance under Section 40(a)(ia) - Unexplained income under Section 69A - Burden of proof and documentary substantiation for additions

Royalty - Explanation 2 to Section 9(1)(vi) - TDS under Section 194J - Disallowance under Section 40(a)(ia) - Deletion of addition disallowing the minimum guarantee payment as 'royalty' and invoking section 40(a)(ia) for non-deduction of TDS - HELD THAT: - AO treated the minimum guarantee paid by the assessee to acquire theatrical/distribution/exhibition rights as 'royalty' within the meaning of Explanation 2 to clause (vi) of Section 9(1) and held that failure to deduct TDS under Section 194J attracted disallowance under Section 40(a)(ia). The CIT(A) found that AO had not shown which part of Explanation 2 applied and relied on the Mumbai Tribunal decision in Asiavision Home Entertainment (P.) Ltd. to conclude that payments for sale, distribution or exhibition of cinematographic films fall outside the definition of 'royalty' for TDS purposes. The Tribunal noted that on an identical issue in the assessee's own case for A.Y. 2011-12 a coordinate Bench had dismissed Revenue's ground and that Revenue did not point to any distinguishing facts or any higher court adverse ruling. In the absence of material to demonstrate that the payments fell within the Explanation to Section 9(1)(vi) or that the coordinate Bench decision had been set aside, the Tribunal found no reason to interfere with the CIT(A)'s conclusion deleting the disallowance. [Paras 6, 7, 10, 11]

Addition disallowing the minimum guarantee payment as 'royalty' and invoking Section 40(a)(ia) deleted; Revenue's ground dismissed.

Unexplained income under Section 69A - Burden of proof and documentary substantiation for additions - Deletion of addition under Section 69A in respect of Rs. 20,00,000 alleged to be not recorded in books - HELD THAT: - AO treated Rs. 20,00,000 as unexplained money under Section 69A because Form 26AS showed Rs. 40,00,000 credited by a payer while the assessee's ledger reflected the amounts in two different accounts. The CIT(A) found that the assessee had explained that the payer had merged an earlier concern (Jordan Electronics) into itself, produced a declaration to that effect, and had in fact recorded the entire amount in the assessee's books though reflected in two accounts; further, the AO proceeded on suspicion without pursuing available enquiries. The Tribunal observed that Revenue did not point to any material to rebut the CIT(A)'s findings and therefore upheld deletion of the addition. [Paras 14, 16, 17, 18]

Addition made under Section 69A deleted; Revenue's ground dismissed.

Final Conclusion: Both grounds of the Revenue are dismissed and the appeal is accordingly dismissed.

Computation of book profit under section 115JB - reversal of provision for bad and doubtful debts and reduction from book profits - Explanation 1 to section 115JB and proviso regarding prior-year additions - revenue neutrality as a test for applicability of tax provision - purposive construction and benefit of two reasonable views to the assessee - interest under section 234C consequential on assessment

Computation of book profit under section 115JB - reversal of provision for bad and doubtful debts and reduction from book profits - Explanation 1 to section 115JB and proviso regarding prior-year additions - revenue neutrality as a test for applicability of tax provision - purposive construction and benefit of two reasonable views to the assessee - Whether the assessee could reduce the amount of reversal of provisions for bad and doubtful debts from book profits under section 115JB for A.Y. 2013-14 where the provisions in A.Y. 2009-10 and A.Y. 2010-11 were not added back to book profits but such addition would have been revenue-neutral. - HELD THAT: - The Tribunal examined Explanation 1 to section 115JB and the proviso relied upon by the revenue, which mandates that amounts withdrawn from provisions may not be reduced from book profit unless those provisions had earlier increased book profit. The Revenue established that the provisions in A.Y. 2009-10 and A.Y. 2010-11 were not added back to book profits and therefore sought to disallow the reduction by adding back the reversal in A.Y. 2013-14. Applying a purposive construction, the Tribunal held that where undertaking the statutory exercise of increasing prior years' book profits would have been an empty, revenue-neutral act (i.e., would not have led to any additional tax on book profits because tax under normal computation exceeded MAT), invoking the proviso to defeat the assessee's claim would be fruitless. The Tribunal relied on the principle that when two reasonable views are possible, the view favourable to the assessee should be adopted. In that factual matrix the Tribunal concluded that Explanation 1 proviso was not applicable and set aside the orders of the lower authorities, allowing the assessee to reduce the reversal of provisions from book profits for A.Y. 2013-14. [Paras 14, 15, 16]

The addition of the reversal amount to book profits under section 115JB is not sustained and the issue is decided in favour of the assessee for A.Y. 2013-14.

Interest under section 234C consequential on assessment - Whether interest under section 234C is leviable in respect of the assessment adjustments made. - HELD THAT: - The Tribunal observed that the question of interest under section 234C is consequential to the assessment adjustments and noted the assessee's submission that interest is leviable on returned income and not on assessed income. The Tribunal did not decide the correctness of the claim on merits but directed that the Assessing Officer consider the issue afresh in accordance with law when giving effect to the assessment. [Paras 17]

Left open as consequential; the Assessing Officer to consider and decide the interest under section 234C as per law.

Final Conclusion: Appeal partly allowed: the Tribunal set aside the addition under section 115JB and decided the main issue in favour of the assessee for A.Y. 2013-14; the question of interest under section 234C is left to the Assessing Officer to decide consequentially as per law.

Addition under section 69 as unexplained investment - spontaneous exchange of information from foreign tax authorities - corroboration and confrontation rule for information from foreign sources - burden of proof on Revenue for making additions - allowance for irrecoverable loan as loss under section 37(1) - remand for verification of irrecoverability of debt

Addition under section 69 as unexplained investment - spontaneous exchange of information from foreign tax authorities - corroboration and confrontation rule for information from foreign sources - burden of proof on Revenue for making additions - Sustainability of additions made under section 69 based solely on information received from Australian tax authorities and statements not furnished to or confronted with the assessee - HELD THAT: - The Tribunal found that the Assessing Officer's additions rested solely on statements and an affidavit obtained by Australian authorities and on an assertion of hawala transfers, without any corroborative material in the file. The assessee had repeatedly sought copies of the foreign statements, which were not furnished, and the AO did not bring any independent evidence to establish that the impugned funds were the assessee's monies. In these circumstances, reliance on foreign information which was neither confronted to the assessee nor supported by other material could not sustain an addition. The Tribunal observed that the authorities cited by the assessee support the principle that Revenue bears the burden to prove that unexplained receipts or investments belong to the assessee and that mere suspicion or uncorroborated statements are insufficient to make an addition under section 69. Consequently the additions based on the Australian material were held to be unsustainable and were deleted. [Paras 11]

Additions under section 69 based on the Australian information are deleted for lack of corroboration and failure to confront the assessee with the relied-upon material.

Allowance for irrecoverable loan as loss under section 37(1) - remand for verification of irrecoverability of debt - Treatment of the written-off amount claimed by the assessee as a bad debt / irrecoverable loan and its allowability - HELD THAT: - The Tribunal noted that the assessee claims the amount was a loan given earlier and has become irrecoverable, and that it was written off in the profit and loss account. The Revenue disputed that the debt had earlier been taken into account or that the requirements for deduction under the provision cited by the assessee were satisfied. The Tribunal observed that if a loan has become irrecoverable it may be allowable as a loss under section 37(1) and that a mere incorrect citation of the statutory provision by the assessee is not fatal. As the factual question of irrecoverability and the documentary evidence require examination, the Tribunal did not decide the claim on merits but remitted the matter to the Assessing Officer for fresh examination and verification, directing that the assessee be given an opportunity of being heard. [Paras 14]

Issue remitted to the Assessing Officer for examination of the claim of irrecoverability and allowability in light of section 37(1); assessee to be heard.

Final Conclusion: The appeals are allowed insofar as the additions under section 69 for the assessment years 2009-10, 2011-12, 2012-13 and 2013-14 are deleted for lack of corroborative material and failure to confront the assessee; the claim relating to the written-off loan is remanded to the Assessing Officer for fresh examination of irrecoverability and allowability, with opportunity to the assessee to be heard.

Power of revision under section 263 - Erroneous and prejudicial to the interest of revenue - Proper enquiries/verification requirement under Section 263 (Explanation to s.263) - Section 153C - date of search and year of search - Limitation for assessment under section 153B - Jurisdiction and competence of Assessing Officer after centralization - Requirement of prior approval under section 153D - Application of section 2(22)(e) on inter corporate deposits - Application of section 68 to credits from directors

Section 153C - date of search and year of search - Limitation for assessment under section 153B - Jurisdiction and competence of Assessing Officer after centralization - Requirement of prior approval under section 153D - Assessment barred by limitation nullifies subsequent 263 - Validity of the assessment order dated 30.08.2016 and consequential exercise of power under section 263. - HELD THAT: - The Tribunal held that documents seized in the search on the Krrish Group were handed to the assessee's AO on 29.08.2013, and therefore, by virtue of section 153C the date of search for the assessee is 29.08.2013 which falls in AY 2014-15. As a consequence the impugned assessment should have been framed by the AO having jurisdiction after centralization (Central Circle I, Faridabad) and not by the AO who passed the order. The Tribunal further found that the limitation for completion of assessment under the special provisions expired on 31.03.2016 and that the AO's order dated 30.08.2016 was therefore barred by limitation. The AO also failed to issue the mandatory notice under section 153C and did not obtain prior approval of the JCIT as required under section 153D before framing the assessment for a search year. For these reasons the original assessment was held to be without jurisdiction and bad in law, and the consequential order under section 263 based on that assessment was declared void. The Tribunal also allowed the additional grounds raising these legal contentions for adjudication. [Paras 15]

Original assessment dated 30.08.2016 quashed as barred by limitation, framed by wrong AO and in contravention of section 153C/153D; consequential order under section 263 set aside; additional grounds allowed.

Power of revision under section 263 - Erroneous and prejudicial to the interest of revenue - Proper enquiries/verification requirement under Section 263 (Explanation to s.263) - Whether the Principal CIT was justified in invoking section 263 on the ground that the Assessing Officer had passed the assessment without making proper enquiries/verification and that the assessment order was erroneous and prejudicial to the revenue. - HELD THAT: - On the merits the Tribunal examined the specific complaints of the PCIT - alleged inadequate examination of expenses and depreciation, non application of section 2(22)(e) to inter corporate deposits, non disallowance of proportionate interest on advances to sister concerns, and alleged non examination of credits from Mr. Vinod Ambawatta. It was found that the AO had issued a detailed questionnaire and the assessee had furnished point wise replies with supporting documents. The Tribunal accepted the assessee's submissions that (i) depreciation and finance cost had been consistently allowed in earlier years and the assets were in the company's name, (ii) inter corporate advances were made in earlier years and relevant years had been assessed, (iii) own capital and free reserves exceeded interest free advances so as to negate a deeming under section 2(22)(e), and (iv) the assessee had filed confirmations, identity proofs, ITR and bank details to meet the requirements of section 68 for credits from the director, whose own assessments had been completed. In that factual and documentary context the Tribunal concluded that the AO's treatment could not be characterised as an order that was erroneous within the meaning of section 263 and that the PCIT had not itself carried out or recorded the necessary inquiries to establish error; merely directing a de novo assessment was not permissible. Accordingly the invocation of section 263 on these grounds was held unjustified. [Paras 15]

PCIT's invocation of section 263 on the basis of alleged lack of proper enquiries/erroneous order was not justified on the merits; those aspects do not render the AO's order 'erroneous' within section 263.

Application of section 2(22)(e) on inter corporate deposits - Application of section 68 to credits from directors - Whether additions or disallowances should have been made under section 2(22)(e) or section 68 in respect of inter corporate deposits, advances and credits from the director. - HELD THAT: - The Tribunal found that most inter corporate deposits and advances were given in preceding years and were assessed (many under 153C read with 143(3)); the impugned year largely reflected receipts of earlier advances. The AO (even after the 263 order) did not make any addition under section 2(22)(e) nor disallow depreciation or finance cost. Regarding credits from the director, the assessee produced confirmations, identity proofs, ITRs and bank details and the director's assessments had been completed by the relevant AO; in these circumstances the AO's decision not to make additions under section 68 could not be treated as erroneous. The Tribunal therefore held there was no merit in directing reassessment on these specific heads. [Paras 15]

No addition under section 2(22)(e) or under section 68 warranted on the record; AO's conclusions on these points are not 'erroneous' so as to sustain revision under section 263.

Final Conclusion: The appeal is allowed. The Tribunal quashed the Principal CIT's order under section 263 as it was based on an assessment that was time barred, framed by an AO lacking jurisdiction post centralization and in breach of the requirements of sections 153C/153D; on the merits the Tribunal also found no error in the AO's treatment of depreciation, inter corporate advances, interest disallowance and credits from the director.

Protection against suits for acts done in good faith - Limitation for proceedings other than suits under Section 155(2) - Limitation for malicious prosecution under Limitation Act Entry 74 - Exclusion of the day from computation of limitation (Section 12)

Limitation for proceedings other than suits under Section 155(2) - Protection against suits for acts done in good faith - Whether Section 155(2) of the Customs Act, 1962 applies to civil suits for malicious prosecution or only to proceedings other than suits. - HELD THAT: - A comparative reading of Section 155(2) with its predecessor provision in the Sea Customs Act, 1878, and judicial decisions leads to the conclusion that the wording of Section 155(2) was not intended to prescribe notice and a three-month limitation for suits. The predecessor provision distinguished between notice of proceedings and limitation for such proceedings and expressly excluded suits from the obligation; the modern provision, despite compressed wording, continues that effect. High Court decisions and analogous provisions in related statutes confirm that the one month notice and three month limitation in Section 155(2) are procedural pre conditions for "other proceedings" and do not govern civil suits. Accordingly, suits for malicious prosecution are not subject to the notice and three month limitation under Section 155(2) and remain subject to the general limitation law. [Paras 31, 32, 33, 34, 35]

Section 155(2) does not apply to civil suits; it applies to proceedings other than suits, and its notice and three month bar do not govern a suit for malicious prosecution.

Limitation for malicious prosecution under Limitation Act Entry 74 - Exclusion of the day from computation of limitation (Section 12) - Whether the suit for malicious prosecution filed on 11th April 2008 was within the one year limitation prescribed by Entry 74 of the Schedule to the Limitation Act, 1963. - HELD THAT: - Entry 74 of the Schedule prescribes one year from the date when the plaintiff is acquitted or the prosecution is otherwise terminated. Section 12(1) of the Limitation Act requires exclusion of the day from which the period is to be reckoned. The respondent was acquitted on 11th April 2007; excluding that day, the one year period began on 12th April 2007 and expired on 11th April 2008. The plaint was presented on 11th April 2008 and therefore fell within the one year period. Alternative contentions based on the later Supreme Court judgment concerning quashing of a show cause notice need not be adjudicated because the suit is within limitation on the basis of the acquittal and statutory computation rules. [Paras 37, 38, 40, 41, 42]

The suit, presented on 11th April 2008, was within the one year limitation under Entry 74 read with Section 12(1) of the Limitation Act, 1963, and is therefore not time barred.

Final Conclusion: The High Court dismissed the petition: Section 155(2) does not apply to civil suits, and the suit for malicious prosecution filed on 11th April 2008 was within the one year limitation under the Limitation Act when computed excluding the day of acquittal; the trial court's decision upholding maintainability is affirmed and the suit is to be decided expeditiously.

Rectification of mistake (ROM) - mistake apparent on record - confiscation for import contrary to any other law - National Treatment / compliance of imports with domestic laws - validity of Equipment Type Approval (ETA) vis-a -vis country of manufacture - penalty under Section 112(a) of the Customs Act - typographical error in recitation of penal provision

Rectification of mistake (ROM) - mistake apparent on record - Whether the Final Order contained a mistake apparent on record capable of rectification under Rules 41 read with Section 129B(2) and whether paragraph 5 required correction to reflect that only two ETAs were fake while fourteen ETAs were held valid by DOT clarification. - HELD THAT: - The Tribunal reiterated that ROM under Rules 41 is confined to patent mistakes apparent on the face of the record and cannot be used as a roundabout review of debatable factual or legal conclusions. Applying that principle, the Bench examined the Final Order and the record of the Order-in-Original. The Final Order had recorded that all ETAs produced by the importer were fake. The record, however, showed only two ETAs were fake while fourteen ETAs were issued by DOT naming the manufacturer as Fitbit Inc., USA though the imports were of goods manufactured in China. The DOT subsequently clarified in the minutes of the meeting held on 24.11.2016 that ETAs issued for identical products by the same brand owner are valid notwithstanding difference in country of origin if technical specifications are identical. Given this discrepancy between the Final Order's recording and the documentary record, the Tribunal found a patent error in paragraph 5 which required rectification and directed modification of the Final Order to accurately record the two fake ETAs and the validation of the other fourteen ETAs by DOT's later clarification. [Paras 13, 14, 15, 16, 35]

Paragraph 5 of the Final Order was rectified to record that two ETAs were fake and fourteen ETAs were subsequently held valid by DOT; the Final Order was modified accordingly.

Validity of Equipment Type Approval (ETA) vis-a -vis country of manufacture - confiscation for import contrary to any other law - Whether goods imported under the fourteen ETAs (which named Fitbit Inc., USA as manufacturer though the goods were manufactured in China) were liable to confiscation after DOT's clarification that ETAs for identical products by the same brand owner remain valid notwithstanding country of manufacture. - HELD THAT: - The Tribunal analysed the DOT minutes recording that where the same company manufactures an item with identical specifications in different countries, a fresh ETA for each country is not required and pending consignments could be cleared on that basis. On that legal and factual matrix, the Tribunal concluded that the fourteen ETAs which were earlier treated as invalid on account of country-of-origin mismatch were to be regarded as valid pursuant to the issuing authority's later clarification. Consequently, goods imported under those fourteen ETAs are not liable to confiscation under Section 111(d) insofar as those ETAs were concerned. The two consignments covered by the two fake ETAs remained liable as those ETAs were not issued by the DOT. [Paras 5, 15, 35]

Goods imported under the fourteen validated ETAs are not liable for confiscation; goods imported under the two fake ETAs remain liable.

Compliance of imports with domestic laws - National Treatment / compliance of imports with domestic laws - confiscation for import contrary to any other law - Whether import of the wireless devices could be treated as not violative of law on the ground that ITC(HS) classified the tariff heading as freely importable, and whether non-compliance with the ETA requirement attracts confiscation under Section 111(d) via paragraph 2.03 of the Foreign Trade Policy. - HELD THAT: - The Tribunal held that paragraph 2.03 of the Foreign Trade Policy, framed under the FTDR Act, mandates that domestic laws, technical specifications and other regulatory requirements applicable to domestic goods apply, mutatis mutandis, to imports. This articulation of National Treatment means that an item being 'free' under ITC(HS) does not negate compliance obligations under other domestic laws or regulatory notifications. The ETA requirement under GSR 45(E)/2005 and the DOT position thus bore on import legality. On the facts, because the ETAs (in respect of the two fake certificates) were not genuine and because non-compliance with applicable domestic regulatory requirements falls within Section 111(d), the Tribunal sustained liability for confiscation and penalty to the extent the import contravened such requirements. The appellant's precedents relied upon were distinguished as predating FTP 2015-20 and not considering paragraph 2.03. [Paras 23, 26, 27, 28, 29]

Compliance with domestic regulatory requirements under paragraph 2.03 of the FTP is a condition of import; non-compliance can render goods liable to confiscation under Section 111(d).

Penalty under Section 112(a) of the Customs Act - typographical error in recitation of penal provision - Whether the penalty imposed should have been under Section 112(a)(ii) (pertaining to evasion of duty) or under Section 112(a)(i) (pertaining to prohibited goods), and whether the quantum of penalty requires reconsideration in view of the validation of fourteen ETAs. - HELD THAT: - The Tribunal observed that the departmental allegations and the adjudicatory focus related to prohibition/illegality of import and not to evasion of duty; consequently the factual matrix falls within clause (i) of Section 112(a) rather than clause (ii). The mention of Section 112(a)(ii) in the operative part was held to be a typographical mistake which does not vitiate the imposition under the correct factual head. However, since fourteen of the sixteen ETAs were found valid by the issuing authority and only two ETAs (covering less than half the imports) were fake, the Tribunal concluded that the overall penalty required reduction. Exercising remedial adjustment in the Final Order, the penalty under Section 112(a) was reduced and the quantum fixed by the Bench was Rs. 4,50,000. [Paras 30, 31, 33, 34, 35]

Typographical reference to Section 112(a)(ii) corrected as being inapt to the facts; penalty sustained under Section 112(a)(i) but reduced in quantum to Rs. 4,50,000.

Rectification of mistake (ROM) - Whether the appellant's plea that they had obtained genuine ETAs subsequently in lieu of fake ones warranted rectification relieving goods from confiscation. - HELD THAT: - The Tribunal examined the contention that fresh genuine ETAs were subsequently obtained and found that this submission had been considered in the Final Order (recorded in paragraph 3) and rejected (paragraph 7) on merits. As the matter had been debated and decided in the Final Order, it did not amount to a patent mistake susceptible to ROM. Accordingly, no correction was warranted on this ground. [Paras 16, 17]

The submission regarding subsequent obtainment of genuine ETAs was considered on merits in the Final Order and does not constitute a mistake apparent on record; no rectification on this ground.

Final Conclusion: The ROM application was allowed in part: the Final Order was rectified to record that two ETAs were fake while fourteen ETAs were validated by DOT's later clarification; consignments covered by the fourteen validated ETAs are not liable to confiscation, consignments under the two fake ETAs remain liable; the penalty sustained under Section 112(a) was reduced and re-quantified by the Bench. The remainder of the Final Order was affirmed.

Transaction value - inclusion of costs and services in transaction value - cost of transportation - proviso to rule 10(2) requiring notional freight where cost not ascertainable - paid or payable - imputed costs - Customs Valuation (Determination of Value of Imported Goods) Rules, 2007

Transaction value - cost of transportation - proviso to rule 10(2) requiring notional freight where cost not ascertainable - paid or payable - Whether any amount towards cost of transportation (freight) is required to be included in the assessable value of remnant Aviation Turbine Fuel (ATF) under section 14(1) of the Customs Act read with rule 10(2) of the 2007 Rules. - HELD THAT: - The Court held that valuation under section 14(1) is founded on the transaction value, i.e., the price actually 'paid' or 'payable' for the goods for delivery at the time and place of importation, and the first proviso permits addition only of amounts 'paid' or 'payable' for specified costs and services to the extent and in the manner provided by the Rules. Rule 10(2) likewise contemplates addition of the cost of transportation where such cost is incurred or where there is a liability to pay; the proviso to rule 10(2) prescribes a notional 20% of FOB only when the cost of transport is not ascertainable. Where no transport of the goods for delivery to India occurs and no liability to pay transport costs is created (as remnant ATF in aircraft tanks is a consumable carried for propulsion and safety, not cargo), there is neither an incurred cost nor a 'payable' amount that can be added. The notional addition under the proviso applies only when an actual cost exists but cannot be ascertained, not where cost is non-existent. The Court relied on the purposive reading of section 14(1), the decision of the Supreme Court in Wipro concerning actual versus notional additions, and the Tribunal precedents (InterGlobe and follow-on decisions) that remnant ATF is not transported as goods and thus freight is not attributable. Consequently, imputed or notional transport charges cannot be grafted onto the transaction value where no transport liability or cost exists. [Paras 64, 73, 74, 87, 88]

No amount towards alleged transportation cost is required to be included in the value of remnant ATF under rule 10(2) of the 2007 Rules for determining the transaction value under section 14(1) of the Customs Act.

Final Conclusion: The reference is answered: remnant ATF carried in aircraft tanks is not subject to addition of transport cost as part of transaction value; where there is no transport for delivery to India and no liability to pay transport, no notional freight under rule 10(2) may be added.

Confiscation - mis-declaration - redemption fine - penalty - payment of differential duty - knowledge of the importer regarding description of goods - reduction of penalty and fine in exercise of appellate power

Confiscation - mis-declaration - knowledge of the importer regarding description of goods - redemption fine - penalty - Whether the redemption fine and penalty imposed for import of goods declared as heavy melting scrap but found to be re-rollable scrap are excessive in absence of evidence that the importer had prior knowledge of mis-declaration. - HELD THAT: - The Tribunal found that although the goods were rightly liable to confiscation because they were not as declared, the Revenue failed to produce evidence that, prior to physical examination, the appellant had knowledge that the consignment was not heavy melting scrap but re-rollable scrap. In the absence of proof of the importer's knowledge or intentional mis-declaration, the Tribunal exercised its appellate power to moderate the punitive consequences. Applying this reasoning, the Tribunal held the originally imposed redemption fine and penalty to be excessive and reduced the redemption fine and penalty to amounts proportionate to the circumstances, while leaving the finding of liability for confiscation intact. [Paras 6]

Redemption fine reduced to Rs. 40,000 and penalty reduced to Rs. 10,000; liability for confiscation upheld but punitive amounts moderated for lack of evidence of prior knowledge.

Final Conclusion: The appeal is allowed in part: confiscation of the goods stands, but the redemption fine and penalty are substantially reduced for want of evidence that the importer had prior knowledge of the mis-description; the appeal is disposed of on these terms.

Adjustment under Section 18(2) - Provisional release and Section 28(5) settlement - Demand of differential duty and applicability of Section 28(1) - Interest under Section 28AA - Redemption fine and penalties under Section 112 and Section 114AA - Obligation to follow due process of assessment

Provisional release and Section 28(5) settlement - Redemption fine and penalties under Section 112 and Section 114AA - Whether payment of differential duty with interest and 15% penalty at the time of provisional release under Section 28(5) concludes proceedings and precludes imposition of redemption fine and further penalties. - HELD THAT: - The Tribunal found on the undisputed facts that the appellant, when goods were provisionally released, paid the differential duty along with interest and 15% penalty pursuant to the proviso under Section 28(5). The adjudicating authority thereafter sought to treat the matter as requiring further demand and imposed redemption fine and penalties under Sections 112 and 114AA. The Tribunal held that acceptance of payment under Section 28(5) is intended to bring finality to the proceedings in such circumstances and that the Revenue could not permissibly go beyond that settlement to impose additional fines and penalties. The officers were required to follow the statutory procedure and could not avoid the effect of the Section 28(5) settlement by resort to subsequent proceedings which would nullify the concluded payment. Consequently, the impugned imposition of redemption fine and penalties was held unsustainable. [Paras 6, 7, 8]

The payment made under Section 28(5) was held sufficient and the redemption fine and penalties were set aside.

Adjustment under Section 18(2) - Demand of differential duty and applicability of Section 28(1) - Interest under Section 28AA - Obligation to follow due process of assessment - Whether the adjustment of duty under Section 18(2) and the demand of interest under Section 28AA were competent where no final assessment under Section 28(1) had been made. - HELD THAT: - The Tribunal observed that Section 18(2) contemplates adjustment when the duty leviable is finally assessed or reassessed; yet no final assessment order was placed on record. The revenue treated the provisional payment as adjusted under Section 18(2) and sought interest under Section 28AA and penalties, despite not having initiated or concluded demand proceedings under Section 28(1). The Tribunal noted that demand of differential duty ordinarily requires invoking Section 28(1) and that interest under Section 28AA could not properly be foisted where the formal demand process was not followed. By not following the due process of assessment and demand, the authorities could not lawfully convert the provisional payment into a basis for additional interest or penalties beyond the settlement under Section 28(5). [Paras 6, 7]

Adjustment and consequent demand for interest and penalties without formal demand/assessment under Section 28(1) was held impermissible; interest under Section 28AA could not be sustained in the circumstances.

Final Conclusion: The appeal is allowed: the payment made under Section 28(5) concluded the matter and the redemption fine and penalties imposed thereafter are set aside; demands predicated on adjustment under Section 18(2) and interest under Section 28AA without proper assessment/demand under Section 28(1) were held unsustainable.

Scheme of Amalgamation - Sanction of Scheme of Amalgamation under Section 230(6) read with Section 232(3) of the Companies Act, 2013 - Dispensing with meetings under Section 230(1) - Service on statutory/sectoral authorities under Section 230(5) - Advertisement of hearing notice as per Rule 16(1) of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 - Form No. CAA3 and further service requirements

Sanction of Scheme of Amalgamation under Section 230(6) read with Section 232(3) of the Companies Act, 2013 - Scheme of Amalgamation - Admission of the petition for sanction of the Scheme of Amalgamation and listing for further hearing - HELD THAT: - Having perused the record and the submissions, the Tribunal admitted the petition filed for sanction of the Scheme of Amalgamation between the Transferor Company and the Transferee Company with the appointed date of 1 April 2020 and fixed the next date of hearing. The admission was recorded after noting prior directions made in Company Application No. C.A.(CAA) No. 992/(KB)/2020 and the filed affidavits; no representations have been received from the statutory authorities to date. [Paras 2, 5]

The petition is admitted and the next date of hearing is fixed for 21st May, 2021.

Dispensing with meetings under Section 230(1) - Validation of earlier direction dispensing with meetings of equity shareholders and unsecured creditors, and noting absence of secured creditors - HELD THAT: - The Tribunal recorded that, by its earlier order dated 6th January, 2021, meetings of the equity shareholders and unsecured creditors were dispensed with on account of consent by all shareholders and by over 90% in value of such creditors respectively, and that there were no secured creditors as verified by the auditor's certificate. Those directions are incorporated in the proceedings of this petition. [Paras 3]

Meetings of equity shareholders and unsecured creditors were dispensed with; there are no secured creditors.

Service on statutory/sectoral authorities under Section 230(5) - Form No. CAA3 and further service requirements - Advertisement of hearing notice as per Rule 16(1) of the CAA Rules - Directions for further service, advertisement and time-limits for representations and compliance affidavits - HELD THAT: - The Tribunal directed compliance with service and publication requirements: (a) at least ten clear days before the next hearing the petitioners must cause notice of hearing to be advertised in the FINANCIAL EXPRESS and Bengali translation in DAINIK STATESMAN in accordance with Rule 16(1) of the CAA Rules; (b) the petitioners must re-serve the notice under Section 230(5) together with accompanying documents on specified statutory authorities by hand, post or email within one week, using Form No. CAA3 with necessary variations and specifying the next hearing date; (c) any representation from those authorities must be filed no later than seven days before the next hearing and a copy sent to the authorised representative of the petitioners; and (d) in the absence of such representation it shall be presumed the authorities have no representation to make. [Paras 4, 6, 7]

Petitioners to publish the hearing notice as directed and re-serve statutory authorities in Form No. CAA3; representations, if any, to be filed seven days before the next hearing.

Affidavit of compliance and rejoinder filings - Filing of compliance affidavit and rejoinder affidavit by the petitioners - HELD THAT: - The Tribunal directed that the petitioners file an affidavit confirming compliance with the directions three days before the next hearing and that they may file rejoinder affidavits addressing any objections or observations of the authorities two days before the next hearing. This imposes time-bound interlocutory filing obligations to facilitate the next hearing. [Paras 8, 9]

Petitioners to file a compliance affidavit three days before the hearing and any rejoinder affidavit two days before the hearing.

Final Conclusion: The Tribunal admitted the petition for sanction of the Scheme of Amalgamation, recorded prior dispensation of meetings, and directed re-service on statutory authorities, publication of the hearing notice, and time-bound filing of compliance and rejoinder affidavits, listing the matter for hearing on 21st May, 2021.

Moratorium under the Insolvency and Bankruptcy Code - Prohibition on recovery or appropriation of corporate debtor's assets during moratorium - Obligation of financial institutions to act on instructions of the Resolution Professional - Preferential treatment and unjust enrichment during the Corporate Insolvency Resolution Process - Claims crystallised on filing and not to be independently appropriated during CIRP - Binding effect and implementation of an approved resolution plan - Release of title deeds for effective implementation of the resolution plan

Moratorium under the Insolvency and Bankruptcy Code - Prohibition on recovery or appropriation of corporate debtor's assets during moratorium - Obligation of financial institutions to act on instructions of the Resolution Professional - Preferential treatment and unjust enrichment during the Corporate Insolvency Resolution Process - Claims crystallised on filing and not to be independently appropriated during CIRP - Whether amounts appropriated by the appellant banks from the corporate debtor's accounts during the moratorium/CIRP were contrary to the Code and liable to be reversed. - HELD THAT: - The Tribunal held that once moratorium is declared the moratorium prohibits recovery or appropriation of the corporate debtor's assets by any person, including financial creditors, and financial institutions maintaining the debtor's accounts must act on the instructions of the (I)RP. Payments credited to fund-based and non-fund-based accounts during CIRP that were adjusted by the banks towards their outstanding dues amounted to recovery/appropriation in breach of the moratorium and resulted in preferential treatment and unjust enrichment of those banks. The court rejected the appellants' contention that such adjustments were permissible as commercial decisions of the erstwhile IRP or as normal course of business, noting that the banks had already filed and crystallised claims before the RP and therefore were not entitled to independently appropriate receivables available in the debtor's accounts during moratorium. The Tribunal also found the decision in Andhra Bank distinguishable on facts because the banks here had included non-fund based liabilities in their claims and nonetheless adjusted amounts during CIRP. For these reasons the Adjudicating Authority's directions for reversal of the amounts received by the banks were held to be lawful and free of infirmity. [Paras 13, 14, 15, 16, 17]

The Adjudicating Authority's order directing the appellant banks to reverse the amounts appropriated during the moratorium/CIRP is upheld; the appeal is dismissed.

Binding effect and implementation of an approved resolution plan - Release of title deeds for effective implementation of the resolution plan - Whether the non-applicant banks must release the title deeds of the corporate debtor to give effect to the implemented resolution plan. - HELD THAT: - An approved resolution plan is binding on the corporate debtor and all stakeholders and, upon approval and its implementation, the moratorium ceases to have effect. Clauses of the approved plan contemplated creation of security for issuance of non-convertible debentures and immediate release of title deeds on distribution under the plan. The Tribunal found that the plan has been implemented and the debt thereby extinguished; withholding title deeds by a lender, when such withholding impedes performance of the plan and is not supported by the plan's terms, is unjustifiable. In view of implementation of the resolution plan and the plan's provisions regarding release of securities, the non-applicant banks were directed to release the title deeds to enable effective implementation of the plan. [Paras 21, 22, 23, 24, 25]

I.A. for release of title deeds is allowed and the non-applicant banks are directed to release the title deeds to effectuate the implemented resolution plan.

Final Conclusion: The appeal is dismissed; the Adjudicating Authority's directions to the banks to reverse amounts appropriated during the moratorium are upheld, and the application for release of title deeds is allowed so as to enable effective implementation of the approved and implemented resolution plan.

Moratorium - Essential supplies - Insolvency resolution process costs - Supply of goods or services critical to protect and preserve the value of the corporate debtor - Distinction between supply as direct input to output and non-direct input - Scope of jurisdiction to review orders under NCLT Rules

Essential supplies - Insolvency resolution process costs - Distinction between supply as direct input to output and non-direct input - Characterisation and recoverability of electricity charges incurred during the corporate insolvency resolution process (CIRP). - HELD THAT: - The Tribunal held that electricity supplied during the moratorium falls within the concept of "essential supplies" and, depending on the purpose of consumption, will be treated differently. Where electricity is consumed as a direct input to the output produced by the corporate debtor (for example, for manufacturing the debtor's products), dues arising from such supply during the moratorium would have to be paid during the moratorium. Conversely, where consumption relates to office running, security, drinking or sanitation-i.e., not a direct input to production-such supply is an essential service under Section 14(2)/(2A) read with Regulation 32 and the related charges form part of the insolvency resolution process costs. Those costs may be considered at the stage of approval of a resolution plan or, if liquidation has commenced, in the liquidation distribution under the statutory scheme. Applying this principle to the material facts, the Tribunal accepted the Liquidator's (and RP's) account that the electricity consumption was for office/security purposes and therefore constitutes CIRP costs recoverable in the resolution or liquidation process.

Electricity charges incurred for non-production purposes during CIRP are part of CIRP costs and recoverable in the resolution or liquidation process; charges that are direct inputs to production attract payment obligations during moratorium.

Moratorium - Scope of jurisdiction to review orders under NCLT Rules - Validity of the Adjudicating Authority's orders disposing applications seeking recovery or review and whether those orders were erroneous. - HELD THAT: - The Tribunal examined the Adjudicating Authority's disposals: (a) the application for recovery of electricity charges during CIRP was disposed as not maintainable at that stage because such charges form part of CIRP costs to be considered with the resolution plan or in liquidation; and (b) the application seeking review was correctly held not maintainable before the Authority under Rule 11 of the NCLT Rules, with liberty to prefer an appeal. The Tribunal found no error in these conclusions and agreed with the legal characterisation and procedural direction given by the Adjudicating Authority.

No interference with the impugned orders; the Adjudicating Authority's disposals were legally sustainable.

Final Conclusion: The appeal is dismissed. The impugned orders are upheld: electricity charges incurred during CIRP were correctly characterised as CIRP costs (unless consumed as a direct input to production) and the Adjudicating Authority correctly disposed of the applications; no interference is warranted.

Admission of claim as financial debt - obligation of guarantee constituting financial debt - verification of claims by the resolution professional versus adjudication - applicability of CIRP over SARFAESI possession

Applicability of CIRP over SARFAESI possession - Direction to hand over possession of Tower B held by the creditor under SARFAESI to the resolution professional. - HELD THAT: - The creditor (IIFL) conceded that insolvency proceedings under the Code prevail over SARFAESI proceedings and did not press a substantive challenge to retaining possession. The Tribunal therefore limited its consideration to giving effect to that concession and ordered relinquishment of possession of the asset of the corporate debtor that remained with IIFL. The surrender of possession was treated as a ministerial compliance with the primacy of the CIRP regime where assets of the corporate debtor are concerned. [Paras 10]

IIFL directed to hand over possession of the specified asset to the corporate debtor within 15 days.

Admission of claim as financial debt - obligation of guarantee constituting financial debt - verification of claims by the resolution professional versus adjudication - Whether the resolution professional's rejection of IIFL's claim was lawful and whether the claim should be admitted as a financial debt and the claimant treated as a member of the Committee of Creditors. - HELD THAT: - The Tribunal examined the material placed by IIFL showing (a) execution of credit facility and guarantee deed by the suspended director and the corporate debtor, (b) disbursal of funds from IIFL into the corporate debtor's escrow account by RTGS, and (c) appropriation of those funds to the corporate debtor's three earlier term loan accounts and subsequent receipt of sale proceeds that further adjusted liabilities. The RP relied on the corporate debtor's records and an FIR lodged by the suspended director to contend non verification and alleged temporal inconsistencies; however the Tribunal held that the RP should not have rejected the claim by treating the matter as purely contentious or by relying solely on the FIR without considering the transactional records produced by the claimant. The Tribunal emphasised that where a guarantee is given for monies borrowed and supported by documentary evidence of disbursal and security, the obligation falls within the definition of financial debt and may be admitted on the basis of the claimant's records as contemplated by the regulations; verification does not mean the RP is confined to the corporate debtor's records only nor that the RP must adjudicate disputed questions of fact at the claims admission stage. Applying these principles to the record before it, the Tribunal concluded that the claim met the requirements of a financial debt and directed admission and treatment of IIFL as a CoC member according to its voting share. [Paras 11, 21, 28, 29, 30]

The RP directed to admit IIFL's claim as a financial debt and treat IIFL as a member of the Committee of Creditors according to its voting share, admitting the claim within 15 days.

Final Conclusion: IA 2205/2020 disposed by directing surrender of possession of the specified asset to the corporate debtor within 15 days; CA 1261/2020 and IA 3125/2020 disposed by directing the resolution professional to admit IIFL's claim as a financial debt and treat IIFL as a member of the Committee of Creditors, admitting the claim within 15 days.

Exclusion of period from CIRP time-limit - stay by appellate tribunal not ipso facto exclusion - power of NCLT under its rules to extend time vis-a -vis statutory time under the IBC - Section 12 proviso mandatorily 330 days for completion of CIRP - containment zone as ground for exclusion of period - burden of proof for exclusion based on employee infection or unavailability

Exclusion of period from CIRP time-limit - Whether the period of 154 days (25.09.2019 to 26.02.2020) during which functioning of the CoC was stayed should be excluded from the CIRP time-limit. - HELD THAT: - The Bench recorded that an identical prayer for exclusion of the 154-day period was earlier considered and allowed by this Bench in IA No. 1926/2020 by order dated 11.02.2021. Consequently, the present prayer to exclude the same 154 days has become infructuous in view of that earlier order and need not be adjudicated afresh. [Paras 6, 16]

The prayer to exclude the 154 days is rendered infructuous as that exclusion was earlier allowed by the Bench vide order dated 11.02.2021.

Stay by appellate tribunal not ipso facto exclusion - Whether the period 27.07.2020 to 04.09.2020 (39 days) should be excluded on the ground that the NCLAT stayed the CIRP or approval/voting on the resolution plan. - HELD THAT: - The Bench examined the NCLAT order dated 27.07.2020 and found that it directed that any action regarding approval of the resolution plan shall be subject to the outcome of the appeal, but did not stay the CIRP or the voting/approval process. Since there was no stay of proceedings by the NCLAT, the basis for excluding the 39-day period is absent and the contention to treat that period as excluded is unsustainable. [Paras 7, 8, 9]

Prayer to exclude 27.07.2020 to 04.09.2020 is rejected as the NCLAT did not stay the CIRP or approval process.

Power of NCLT under its rules to extend time vis-a -vis statutory time under the IBC - Section 12 proviso mandatorily 330 days for completion of CIRP - Whether the Adjudicating Authority can extend or exclude time for completion of CIRP under Rule 15 and Rule 153 of the NCLT Rules, 2016. - HELD THAT: - A plain reading of Rules 15 and 153 shows those rules permit extension of time appointed by the NCLT Rules themselves. However, the time-limit for completion of CIRP is prescribed by Section 12 of the IBC and, as per the second proviso to Section 12(3), the process must be completed within 330 days from the insolvency commencement date. Consequently, the Adjudicating Authority cannot invoke NCLT Rules to alter or exclude the statutory period fixed under the IBC. [Paras 11, 12]

The contention that the Adjudicating Authority may extend or exclude the CIRP period under Rule 15 and Rule 153 is not accepted; the statutory timeline under Section 12 governs.

Containment zone as ground for exclusion of period - Whether the period 17.07.2020 to 27.07.2020 (11 days), during which the RP's registered office was within a containment zone, should be excluded from the CIRP time-limit. - HELD THAT: - The applicant placed on record the district administration notification declaring the RP's registered office locality a containment zone for the specified period. Having considered the material, the Bench found it proper to exclude that 11-day period on the ground that the registered office of the Resolution Professional was situated within the containment zone and accordingly no work could be carried out from that office during that time. [Paras 10, 13, 16]

The period 17.07.2020 to 27.07.2020 (11 days) is excluded from computation of the CIRP time-limit.

Burden of proof for exclusion based on employee infection or unavailability - Whether an additional 60 days should be excluded on the ground of intermittent employee infections during the lockdown. - HELD THAT: - The applicant relied on two COVID-19 test reports but failed to demonstrate that those individuals were employees of the Resolution Professional, that they were essential to the CIRP, or that their unavailability made continuation of the process impossible. The application did not specify the exact period sought to be excluded on lockdown grounds. In absence of such proof and particularisation, the Bench could not accept exclusion of a 60-day period for employee infection or lockdown. [Paras 10, 14]

Prayer to exclude an additional 60 days on account of employee infection/lockdown is rejected for want of admissible proof and specificity.

Final Conclusion: The application is disposed of: the previously allowed exclusion of 154 days stands (rendering that prayer infructuous for present proceedings); an additional 11 days from 17.07.2020 to 27.07.2020 are excluded; all other prayers for exclusion including the 39-day NCLAT period and 60 days for employee infection are rejected.

Two-stage inquiry under Rule 4 of the Adjudication Rules - Requirement to record reasons and application of mind for opinion under Rule 4(3) - Principles of natural justice at preliminary stage lighter than final adjudication - Recording of reasons as safeguard against arbitrariness - Discretion to refrain from quashing proceedings in peculiar facts

Two-stage inquiry under Rule 4 of the Adjudication Rules - Requirement to record reasons and application of mind for opinion under Rule 4(3) - Principles of natural justice at preliminary stage lighter than final adjudication - Whether the Adjudicating Authority was required to record reasons reflecting application of mind when forming an opinion under Rule 4(3) of the Adjudication Rules and whether that requirement was complied with in the impugned opinion. - HELD THAT: - Rule 4 contemplates a two-stage adjudication: (i) issuance of a show-cause notice and consideration of the cause shown to decide whether an inquiry should be held, and (ii) if so, a personal hearing and full inquiry. The opinion formed under Rule 4(3) is the threshold which commences the 'real and substantial' inquiry and must be informed and show due application of mind. While the rigour of natural justice at this preliminary stage is lighter than at final adjudication, the opinion must nonetheless contain reasons, however brief, that link the material considered to the conclusion to proceed. This principle is supported by Natwar Singh and the decisions emphasising that reasons guard against arbitrariness and ensure fairness. Applying these principles, the Court found that the impugned office file noting dated 05.06.2020 recorded the material considered (complaint, Supreme Court judgment, replies) and concluded that further inquiry was necessary, but it did not set out reasons explaining why the objection premised in the reply did not prevent further inquiry. Thus the formal requirement of recording reasons showing application of mind was not satisfied by the impugned notation. [Paras 28, 33, 34, 35, 36]

The Adjudicating Authority was required to record reasons demonstrating application of mind under Rule 4(3); the impugned opinion did not adequately set out such reasons and therefore did not satisfy the recording requirement.

Discretion to refrain from quashing proceedings in peculiar facts - Recording of reasons as safeguard against arbitrariness - Whether the proceedings and the impugned opinion ought to be quashed for failure to record reasons. - HELD THAT: - Although the impugned opinion did not contain the requisite reasons, the Court examined the factual matrix, including the Supreme Court's findings in the Amrapali matter which indicated prima facie FEMA violations by JP Morgan group entities and the nature of allegations requiring detailed inquiry. Considering that the Rule 4(3) opinion operates at a preliminary stage and that the deficiencies in recording reasons did not render the inquiry impermissible in the peculiar facts of this case, the Court exercised its discretionary supervisory power under Article 226 to decline to quash the opinion. The Court emphasised that this sustenance is limited to the present facts and is not an endorsement of the manner in which such opinions ought to be recorded in general; the requirement to record adequate reasons remains imperative. [Paras 37, 40, 41]

Despite the absence of adequate recorded reasons, the Court declined to quash the impugned opinion and allowed the inquiry to continue in the peculiar facts of the case, while clarifying that this does not approve of the deficient mode of recording reasons.

Final Conclusion: The petitions are dismissed. The Court held that Rule 4(3) requires an informed opinion with reasons reflecting application of mind; the impugned opinion did not adequately record such reasons, but having regard to the Supreme Court's findings and the factual backdrop the Court exercised its discretion not to quash the proceedings in the present peculiar facts. The obligation to record adequate reasons under Rule 4(3) remains obligatory for future cases.

Pre-deposit adjudication under Sabka Vishwas (Legacy Dispute Resolution) Scheme - reconsideration of SVLDRS-2 and SVLDRS-3 estimates - verification of appropriation of deposits - opportunity of personal hearing - claim of CENVAT credit vis-a -vis pre-deposit - interpretation in light of the object and spirit of the Scheme

Pre-deposit adjudication under Sabka Vishwas (Legacy Dispute Resolution) Scheme - reconsideration of SVLDRS-2 and SVLDRS-3 estimates - Validity of the estimate in Form SVLDRS-2 dated 14.11.2019 and the statement in Form SVLDRS-3 dated 06.05.2020 and the appropriate remedy. - HELD THAT: - The court examined the respondent's estimate and final statement rejecting much of the petitioner's claimed pre-deposit and reiterating earlier findings. Having regard to legal principles discussed in the court's earlier order in W.P.No.11485/2020 (not reproduced here), the High Court found that the estimates in Form SVLDRS-2 and Form SVLDRS-3 required fresh consideration. The petitioner's explanations filed in SVLDRS-2A and submissions at Annexure-'E' were to be revisited by the authorities. The court directed that reconsideration be undertaken in consonance with the observations in W.P.No.11485/2020 and bearing in mind the Scheme's letter and spirit and its objective of allowing all permissible lawful claims. The court did not adjudicate merits of appropriation itself but set aside the impugned forms and remitted the matter for fresh determination.

Estimates in SVLDRS-2 and SVLDRS-3 set aside; matter remitted to the first respondent for fresh consideration and re-working of SVLDRS-3 in accordance with the court's observations and the earlier W.P.No.11485/2020.

Verification of appropriation of deposits - opportunity of personal hearing - claim of CENVAT credit vis-a -vis pre-deposit - interpretation in light of the object and spirit of the Scheme - Scope and manner of verification to be undertaken by the authorities when reconsidering the petitioner's claim for appropriation of deposits above the amount already recognised. - HELD THAT: - The court required the authorities to verify whether the amounts claimed as pre-deposit relate to the dispute in the show-cause notice, whether such deposits were appropriated for other demands, and to examine supporting challans and returns where relevant. The respondent may consider the objections already raised (including the need for ST-3 returns) but must do so after affording the petitioner an opportunity of personal hearing for clarification. Verification and determination must be conducted mindful of both the formal objections and the Scheme's underlying objective to allow legitimate claims; if the authorities accept the appropriation claimed, they are to issue the appropriate discharge certificate under SVLDRS-4.

Authorities to verify claimed deposits (including any CENVAT-related contentions) after personal hearing and in accordance with the Scheme; if appropriation is accepted, issue SVLDRS-4 discharge certificate.

Final Conclusion: The writ petition succeeds to the extent that Forms SVLDRS-2 and SVLDRS-3 are set aside and the matter is remitted to the first respondent for fresh consideration: the respondent must re-work SVLDRS-3 after verifying the petitioner's claimed deposits (and related contentions) and after affording personal hearing, applying the Scheme's object and the observations in W.P.No.11485/2020; if appropriation is accepted, an SVLDRS-4 discharge certificate shall be issued.

Fixation of special rate - disposal of representations within specified time - stay of coercive proceedings - installment repayment subject to decision

Fixation of special rate - disposal of representations within specified time - stay of coercive proceedings - Respondent authority directed to consider and dispose of the petitioner's representations for fixation of special rate within four weeks and, until such decision, refrain from taking coercive action pursuant to the demand notice dated 01.01.2021. - HELD THAT: - The Court recorded that the petitioner seeks fixation of a special rate which, if allowed, bears upon the validity of the demand raised by the respondent. Having regard to earlier orders in similar matters and the pendency of the petitioner's representation(s), the Court directed the Commissioner, Central GST, Guwahati to dispose of the representations, including the one dated 27.01.2021, within four weeks from receipt of a certified copy of the order. As an interim protective measure linked to the outcome of that statutory exercise, the Court restrained the authorities from resorting to coercive measures pursuant to the demand notice dated 01.01.2021 until the representations are decided. [Paras 8, 10]

Respondent No.2 to decide the representations for fixation of special rate within four weeks and no coercive action to be taken pursuant to the impugned demand notice until that decision is taken.

Installment repayment subject to decision - stay of coercive proceedings - Any proposal by the petitioner to repay the alleged dues in installments is permissible only after disposal of the petitioner's representations; if repayment is made, refund, if any, shall be effected in equal instalments as indicated in the authority's letter. - HELD THAT: - The Standing Counsel placed before the Court a prior communication indicating an option for repayment in 14 equal instalments. The Court clarified that such repayment in instalments may be undertaken only after the authorities have disposed of the petitioner's representation as directed. In the event repayment gives rise to any amount to be refunded, that refund is to be made in equal instalments in accordance with the letter relied upon by the respondent. This direction ties the availability of instalment repayment and the manner of any refund to the outcome of the statutory consideration ordered by the Court. [Paras 11]

Repayment in instalments may be effected only after disposal of the representations; any refund arising therefrom shall be made in equal instalments as indicated by the authorities.

Final Conclusion: Notice issued; respondents to be served through learned Standing Counsel; respondent No.2 directed to decide the petitioner's representations for fixation of special rate within four weeks from receipt of a certified copy of this order, no coercive action to be taken on the demand notice challenged herein until such decision, and instalment repayment/refund to operate as directed after disposal.

Fixation of special rate - disposal of representations within a time-bound period - interim relief restraining coercive measures pursuant to a demand notice - challenge to recovery of previously refunded excise duty

Fixation of special rate - disposal of representations within a time-bound period - Direction to the Commissioner to adjudicate the petitioner's representations for fixation of special rate within a specified time-frame. - HELD THAT: - The Court directed respondent No.2, the Commissioner, Central Goods and Service Tax, Guwahati, to dispose of the representations submitted by the petitioner, including the application dated 05.02.2021 for fixation of special rate, within four weeks from the date of receipt of certified copy of the order. The direction is interlocutory and mandates a prompt, time-bound decision on the pending claim for special rates which, according to the petitioner, is the mechanism by which the claimed exemption/benefit is to be determined. The Court recorded that similar interim directions had been issued in related petitions and adopted that course here to secure an expeditious administrative determination of the petitioner's entitlement to special rates. [Paras 10]

Respondent No.2 is directed to dispose of the petitioner's representations for fixation of special rate within four weeks from receipt of certified copy of the order.

Interim relief restraining coercive measures pursuant to a demand notice - challenge to recovery of previously refunded excise duty - Interim protection granted against coercive action on the demand notice challenged in the petition until the authorities decide the representations. - HELD THAT: - The Court granted interim protection by restraining the authorities from taking any coercive action against the petitioner pursuant to the demand notice dated 01.01.2021, until the Commissioner has taken a decision on the petitioner's representations for fixation of special rate. The restraint is expressly limited to coercive measures and is conditional upon the time-bound disposal of the pending representations, thereby preserving the petitioner's position pending administrative determination of entitlement to special rates which is directly relevant to the demand. [Paras 10]

No coercive action shall be taken against the petitioner pursuant to the demand notice dated 01.01.2021 until the authorities decide the petitioner's representations.

Final Conclusion: The writ petition is admitted; the Commissioner is directed to decide the petitioner's representations for fixation of special rate within four weeks of receipt of the certified copy of this order, and until such decision is taken the authorities are restrained from taking coercive action pursuant to the impugned demand notice.

Interest on delayed payment of duty on supplementary invoices - Limitation bar to demand of interest - Extended period of limitation - Divergent judicial views and reference to larger Bench - Penalty under Rule 25 of the Central Excise Rules, 2002

Interest on delayed payment of duty on supplementary invoices - Limitation bar to demand of interest - Demand of interest for the intervening period on account of supplementary invoices is barred by limitation because the show cause notice was issued after the audit objection and after the period permitted for issuance. - HELD THAT: - The Tribunal found on the record that an audit in January-February 2012 recorded an objection directing the assessee to pay interest for the intervening period, but no show cause notice was issued within one year of that audit. Revenue issued a show cause notice only on 03.09.2015 after sleeping on the matter for more than three years despite knowledge of non-payment. Applying the limitation principle that a demand must ordinarily be initiated within the prescribed period from the date when the cause of action is discovered, the Tribunal held that the belated issuance of the notice made the demand time barred and unsustainable. [Paras 6]

Demand of interest is barred by limitation and set aside.

Extended period of limitation - Divergent judicial views and reference to larger Bench - Extended period of limitation could not be invoked because during the relevant period there were divergent judicial views on the legal question, which had been referred to a larger Bench of the Apex Court. - HELD THAT: - The Tribunal noted that the question whether interest is payable for the intervening period on supplementary invoices had given rise to conflicting decisions and had been referred by the Supreme Court to a larger Bench (Steel Authority of India Ltd. reference). Given the existence of divergent views at the relevant time, the Tribunal treated the position as unsettled and held that invoking the extended period of limitation in such circumstances was inappropriate. Consequently, earlier case law relied upon by Revenue was held inapplicable to the facts at hand. [Paras 7, 8]

Extended period of limitation not invokable in the facts and circumstances of the case.

Penalty under Rule 25 of the Central Excise Rules, 2002 - Penalty imposed under Rule 25 could not be sustained once the demand of interest was held barred by limitation. - HELD THAT: - The imposition of penalty was consequential to the demand for interest. Having held the demand of interest time barred and unsustainable, the Tribunal concluded that the penalty imposed could not survive independently and must also be quashed. [Paras 8]

Penalty set aside as consequential relief.

Final Conclusion: The impugned order demanding interest and imposing penalty is set aside; appeal allowed with consequential relief.

Distribution of CENVAT credit by an Input Service Distributor to contract manufacturers/outsourced manufacturing units - effect of Registration Exemption Notification No.36/2001-CE(NT) on status of contract manufacturer - scope of 'its manufacturing units' in rule 7 of the CENVAT Credit Rules - beneficial purpose of CENVAT credit scheme and avoidance of cascading of taxes - retrospective effect of amendments to rule 2(m) and rule 7 of the CENVAT Rules

Distribution of CENVAT credit by an Input Service Distributor to contract manufacturers/outsourced manufacturing units - scope of 'its manufacturing units' in rule 7 of the CENVAT Credit Rules - effect of Registration Exemption Notification No.36/2001-CE(NT) on status of contract manufacturer - beneficial purpose of CENVAT credit scheme and avoidance of cascading of taxes - Legality of issuance of Input Service Distributor invoice by Parle to its contract manufacturing unit and entitlement of the contract manufacturer to CENVAT credit therefrom for the period in question. - HELD THAT: - The Tribunal found that where a principal manufacturer, exempted from registration under Notification No.36/2001-CE(NT), authorises a contract manufacturer to manufacture on its behalf and to perform all procedural formalities and discharge liabilities under the Excise Act, the contract manufacturer effectively steps into the shoes of the principal for purposes of those excise formalities. Rule 7 of the CENVAT Credit Rules requires distribution of credit to 'its manufacturing units' and does not restrict this to the principal's own factories; a narrow literal interpretation would frustrate the beneficial object of the CENVAT scheme to eliminate cascading of taxes. Having regard to the authorisation, the contractual terms, the practice of accounting and the policy behind the CENVAT rules (including press guidance allowing credit for services forming part of assessable value such as advertising and marketing), the Tribunal held that Parle was justified in distributing input service credit pro rata to its contract manufacturing units, including the appellant, for the period covered by the notice. The Tribunal also accepted the view that the 2016 amendments to rule 2(m) and rule 7 merely rectified a lacuna and did not preclude allowing credit in the earlier period in the factual matrix presented. [Paras 34, 35, 42, 43, 44]

Parle was justified in distributing credits on input services attributable to the final product on a pro-rata basis to its manufacturing plants and its contract manufacturing units, including the appellant, under rule 7(d) of the CENVAT Rules.

Entitlement to CENVAT credit where input service is attributed to goods on which excise duty is paid - scope of admissibility of input service credit irrespective of distribution mechanism - Whether, irrespective of the correctness of issuance of ISD invoice, the contract manufacturer is entitled to CENVAT credit when the input service is attributed to goods on which excise duty is paid. - HELD THAT: - The Tribunal declined to decide this referred question on merits after answering the primary question in favour of the appellant. The conclusion on the first issue made it unnecessary to adjudicate the second issue in the present proceedings and the Tribunal therefore left it undetermined. [Paras 45]

Not answered; left unnecessary to decide in view of the answer to the first issue.

Final Conclusion: The Tribunal held that, on the facts and authorisation produced, Parle validly distributed input service credit to its contract manufacturing unit (the appellant) for the period 26.06.2013 to 20.02.2015 under rule 7(d) of the CENVAT Rules; a consequential appeal may now be disposed of by the Division Bench, and a second referred question was left undecided as unnecessary to determine.

Interest on delayed refund - refund claim filing date as trigger for interest - adjustment against an un sustained demand does not defeat entitlement to interest - three months rule for commencement of interest - application of Ranbaxy Laboratories Ltd. precedent

Interest on delayed refund - application of Ranbaxy Laboratories Ltd. precedent - The appellant is entitled to interest on the delayed refund claim. - HELD THAT: - The Tribunal found on the undisputed facts that the appellant filed a refund claim on 14.09.2005 which the Revenue kept pending and later entertained only in the course of subsequent adjudication and litigation. Applying the principle laid down by the Hon'ble Apex Court in Ranbaxy Laboratories Ltd., the Tribunal held that a claimant whose refund has been withheld is entitled to interest on delayed refund despite ongoing litigation. The Tribunal rejected the Revenue's stance that adjustment of the sanctioned refund against a demand (which was ultimately not sustained) defeats the right to interest, observing that appropriation against a demand which is later set aside cannot extinguish the entitlement to interest on the withheld refund. [Paras 4]

Appeal allowed on this ground; appellant entitled to interest on the delayed refund.

Refund claim filing date as trigger for interest - three months rule for commencement of interest - adjustment against an un sustained demand does not defeat interest - Interest is payable from three months after the date of filing the refund claim until its realisation. - HELD THAT: - Relying on the Ranbaxy principle, the Tribunal held that interest commences three months after the date on which the refund claim was filed. The Tribunal therefore fixed the period of liability for interest as commencing three months after 14.09.2005 and continuing until the refund is realised, rejecting the submission that the date of sanction followed by appropriation against a subsequently set aside demand (31.10.2008 or later sanction on 19.01.2020) should be treated as terminating the period of interest entitlement prior to actual realisation. [Paras 4]

Interest to be computed from three months after 14.09.2005 until actual realisation of the refund.

Final Conclusion: The impugned order is set aside; the appeal is allowed and the appellant is entitled to interest on the delayed refund from three months after 14.09.2005 until realization, with consequential relief.

Similar goods - Paragraph 6.8 of the Foreign Trade Policy (FTP) - exemption under Notification No. 23/2003-CE - extended period (limitation) and invocation of extended period - commercially interchangeable / like characteristics

Similar goods - Paragraph 6.8 of the Foreign Trade Policy (FTP) - exemption under Notification No. 23/2003-CE - commercially interchangeable / like characteristics - Whether the ceramic colours cleared in DTA are similar to the goods exported and therefore eligible for the exemption under Notification No. 23/2003-CE read with Paragraph 6.8 of FTP. - HELD THAT: - Applying the established meaning of "similar" as not requiring identity but correspondence or general likeness, the Tribunal analysed authorities treating similarity broadly as goods of the same class or kind and commercially interchangeable. The appellants manufactured and cleared for export and for DTA goods described as "ceramic colours"; the manufacturing process was the same and the only material difference was concentration (concentrated v. diluted). The Commissioner's test reports for the subsequent period (Feb 2011 to Jan 2012) showed similar composition; no change in circumstances or quality was demonstrated by the department for the earlier periods. The Development Commissioner's permission for export and DTA clearance was not contested. Differences in physical characteristics or price were held to be inconsequential where goods fall within the same class and have like characteristics enabling them to perform the same function and be commercially interchangeable. On these determinative findings the Tribunal held the DTA clearances to be of goods similar to the exported goods and therefore eligible for the benefit of the notification and Paragraph 6.8 of FTP. [Paras 10]

Goods cleared in DTA are similar to the exported goods and the benefit of Notification No. 23/2003-CE and Paragraph 6.8 FTP applies.

Extended period (limitation) and invocation of extended period - ER-2 returns and permission from the Development Commissioner - Whether the extended period for recovery of duty could be invoked in view of permissions, ER-2 filings and the absence of established suppression or misdeclaration by the appellants. - HELD THAT: - The department alleged non-disclosure of correct name, grade, quality and composition despite ER-2 filings. The Tribunal found that the appellants had obtained permission from the Development Commissioner, filed ER-2 returns and that the description in export and DTA documents was "ceramic colours." The department did not seek clarification earlier from the Development Commissioner or the appellants, nor did it demonstrate suppression or intent to evade duty. Applying the authorities relied upon and the factual matrix, the Tribunal concluded invocation of the extended period was not sustainable. As the Tribunal had held on merits that no violation of Paragraph 6.8 or Notification No. 23/2003-CE occurred, the limitation issue became inconsequential to the final outcome. [Paras 11]

Extended period cannot be invoked; even if it were, the appeal succeeds on merits rendering limitation irrelevant.

Final Conclusion: The appeal is allowed: the Tribunal held the DTA clearances to be of goods similar to the exported goods within Paragraph 6.8 of FTP and eligible for the exemption under Notification No. 23/2003-CE, and held that the extended period could not be invoked; consequential relief to follow as per law.

Application for fixation of special rate - show-cause notice / demand-cum-show-cause notice - stay on coercive measures pending administrative decision - maintainability of writ petition

Application for fixation of special rate - stay on coercive measures pending administrative decision - show-cause notice / demand-cum-show-cause notice - Direction to respondent no.2 to decide the petitioner's application for fixation of special rate within a specified time and interim restraint on coercive action under the impugned demand notices until such decision is taken. - HELD THAT: - The Court, following the approach adopted in two coordinate-bench orders dated 24.03.2021 in WP(C) 1644/2021 and WP(C) 2089/2021, directed that the application dated 03.03.2021 for fixation of special rate, received on 04.03.2021, shall be disposed of by the Commissioner of CGST, Dibrugarh within four weeks from receipt of the certified copy of this order. As an ad-interim measure the Court restrained the respondents from taking any coercive steps pursuant to the demand notice dated 01.01.2021 and the demand-cum-show-cause notice dated 09.02.2021 until the said administrative decision is taken. The order is prospective and procedural: it mandates expeditious administrative disposal and preserves the petitioner's position against immediate recovery measures pending that disposal. The Court expressly left open the question of the maintainability of the writ petition and did not adjudicate the merits of the demand or of interest and penalty. [Paras 8]

Respondent no.2 to decide the application for fixation of special rate within four weeks; until that decision no coercive action to be taken pursuant to the impugned notices.

Final Conclusion: Notice issued; respondent no.2 directed to decide the petitioner's application for fixation of special rate within four weeks of receipt of certified copy; interim restraint ordered against coercive measures under the impugned demand notices until such decision; maintainability of the writ petition left open; matter listed for further hearing on 19.05.2021.

Classification of goods under statutory schedules - meaning of "manufacture" including ornamenting and processing - common parlance meaning of "textile" - "other textile made ups" read ejusdem generis - residuary entry applicability

Meaning of "manufacture" including ornamenting and processing - common parlance meaning of "textile" - classification of goods under statutory schedules - Whether the goods described as an "embroidered ladies suit" (sold as unstitched suit) fall within Entry 21 of Schedule I as a 'textile' and are therefore exempt. - HELD THAT: - The Court examined the statutory definition of "manufacture" which expressly includes altering, ornamenting and otherwise processing goods. The respondent purchased textile material in bulk, cut it to suit-lengths and performed embroidery and pico work but did not complete the stitching so as to produce a finished wearable garment. Having regard to common parlance and the material facts recorded, the activity carried out by the respondent transformed the purchased textile material into an article having a distinct character and description - an unstitched suit - and therefore it could not be treated as a 'textile' within Entry 21. The Tribunal's conclusion that the product fell within the exempt list of Schedule I ignores the effect of the processing and the ordinary meaning of 'textile' as used in Entry 21. [Paras 11, 12]

The product does not fall under Entry 21 of Schedule I and is not an exempt 'textile'.

"other textile made ups" read ejusdem generis - classification of goods under statutory schedules - residuary entry applicability - Whether the product is covered by Entry 16 of Schedule II as "other textile made ups" or, failing that, by the residuary Entry 1 of Schedule V. - HELD THAT: - Entry 16 lists bedsheets (other than unstitched bedsheets), pillow covers and "other textile made ups". The Court held that "other textile made ups" must be read ejusdem generis with the specifically listed articles and thus contemplate articles which are made up (i.e., manufactured or stitched). Since the respondent's product was unstitched and not a made-up article, it could not properly be classified under Entry 16. Consequently, no specific entry in Schedules I-IV applied to the product and the residuary Entry 1 of Schedule V - which covers all goods not described in Schedules I-IV - is attracted. [Paras 13, 14, 15]

The product is not liable under Entry 16 of Schedule II and is taxable under the residuary Entry 1 of Schedule V.

Classification of goods under statutory schedules - Whether the High Court correctly exercised its revisional jurisdiction in refusing to interfere with the Tribunal's factual conclusions. - HELD THAT: - The Court found that the High Court erred by deferring to the Tribunal's factual findings without giving effect to the plain meaning of the statutory entries and the correct legal characterisation of the product. The Court held that the Tribunal's and first appellate authority's orders were legally unsustainable and set them aside, restoring the order of the Assessing Authority. [Paras 16, 17]

The High Court's dismissal of the departmental revision was set aside; the Tribunal and first appellate authority orders were quashed and the Assessing Authority's order restored.

Final Conclusion: The appeals are allowed. The goods described as an "embroidered ladies suit" (sold unstitched) are not exempt under Entry 21 of Schedule I nor covered by Entry 16 of Schedule II; they fall under the residuary Entry 1 of Schedule V. The impugned High Court judgment and the orders of the Tribunal and first appellate authority are set aside and the Assessing Authority's order is restored. There shall be no order as to costs.

Reopening of assessment on change of opinion - reassessment/revision under Section 27 without discovery of new material - penalty under Section 27(3) must form part of the assessment order - penalty by separate order permissible only under Section 22(5) - prohibition of double levy where transaction treated as deemed sale and already taxed

Reassessment/revision under Section 27 without discovery of new material - reopening of assessment on change of opinion - Validity of revision/reassessment orders passed under Section 27 in the absence of any discovery of new or fresh facts and merely on change of opinion. - HELD THAT: - The Court accepted the precedent reasoning that reassessment or reopening of assessment cannot be undertaken merely on a subsequent change of opinion by the assessing authority. The impugned revision orders were held to have been passed not pursuant to any discovery of new material but on re-scrutiny/verification of records which amounted to change of opinion. Reliance was placed on earlier decisions treating reopening on change of opinion as impermissible, and the learned Single Judge's detailed discussion in W.P.(MD) Nos.16874-16878 of 2018 was held to be squarely applicable. For these reasons, the revision orders under Section 27 were set aside. [Paras 6, 7]

Revision/reassessment orders passed under Section 27 in these matters are invalid insofar as they were founded on mere change of opinion and not on discovery of new material; impugned orders set aside.

Penalty under Section 27(3) must form part of the assessment order - penalty by separate order permissible only under Section 22(5) - Whether penalty could be levied by a separate order when proceedings are under Section 27(3). - HELD THAT: - Following precedent, the Court reiterated that where penalty is leviable under Section 27(3) it must form part of the assessment order and cannot be levied by an independent separate order. Separate penalty orders were permissible only under the distinct provision enabling such procedure. The ratio in earlier Madras decisions was accepted and applied, leading to setting aside of penalty orders imposed in the batch of cases relied upon. [Paras 6]

Penalties that ought to form part of an assessment under Section 27(3) cannot be imposed by separate orders; such separate penalty orders are invalid.

Prohibition of double levy where transaction treated as deemed sale and already taxed - Whether purchase tax could be additionally levied on works contractors where the transaction had already been subjected to tax as a deemed sale. - HELD THAT: - The Court noted and followed authority holding that where goods used in construction are treated as deemed sales and have already attracted tax, the same transaction cannot be subjected to an additional purchase tax. Applying that principle to the facts of these petitions, the Court concluded that petitioners, being works contractors already visited with tax on that count, could not be saddled with levy of purchase tax as well. This formed part of the basis for setting aside the impugned orders. [Paras 6, 7]

Orders imposing purchase tax in addition to tax already levied as deemed sale are not sustainable; impugned orders set aside on this ground.

Final Conclusion: The writ petitions are allowed; the impugned revision/reassessment and related penalty/purchase tax orders were set aside because they were founded on change of opinion without discovery of new material, penalties under Section 27(3) must form part of the assessment order and separate penalty orders are impermissible in that context, and purchase tax could not be levied in addition to tax already imposed on the transaction as a deemed sale. No costs.

Host State rule making power under delegated legislation - Monitoring versus prohibition of outside State lotteries - Doctrine of occupied field - Doctrine of ultra vires - Severability of offending portion of a subordinate legislation - Presumption in favour of constitutionality of delegated legislation - Cooperative federalism

Host State rule making power under delegated legislation - Monitoring versus prohibition of outside State lotteries - Presumption in favour of constitutionality of delegated legislation - Host State entitled to make rules under section 12 of the Lotteries (Regulation) Act, 1998 to monitor conduct of lotteries of Organising States within its territory. - HELD THAT: - The Court held that section 12 confers a general rule making power upon the State Government which is not confined to the Organising State; a restrictive grammatical reading of 'The State' in section 12 would produce an anomalous result and must be avoided. The Central Rules (2010) impose obligations on Host States to ensure proper conduct and to report violations, but they do not preclude the Host State from making rules where the Act or Central Rules are silent as to procedure or methodology. Monitoring and ensuring compliance is distinct from prohibition; the Host State must have threshold mechanisms to ascertain whether an outside State's lottery complies with the Act. The doctrine of judicial restraint and presumption of constitutionality of delegated legislation inform this conclusion, and earlier decisions supporting State rule making competence (including Tashi Delek) remain operative. The Court therefore concluded that the Host State may, under section 12, frame rules to monitor and ensure compliance of outside State lotteries within its territory. [Paras 33, 40, 41, 45, 46]

Answered in favour of the appellants: the Host State may make rules under section 12 to monitor outside State lotteries.

Doctrine of ultra vires - Severability of offending portion of a subordinate legislation - Monitoring versus prohibition of outside State lotteries - Rule 9A validity - Validity of the Kerala Paper Lotteries (Regulation) Amendment Rules, 2018; all provisions upheld except the words in Rule 4(4) entrusting conduct of other State lotteries to Kerala authority, which are ultra vires and severed. - HELD THAT: - The Court examined challenged provisions (Rules 2(3A), 2(6A), 4(4), 4(5), and Rule 9A). Naming an authority and creating an enforcement agency (Rules 2(3A) and 2(6A)) were held to be regulatory and not an infringement of the Organising State's rights. Rule 4(5)'s power to monitor sales was treated as legitimate monitoring to ensure compliance with the Act. However, Rule 4(4)'s plain wording that the Kerala Secretary 'shall be the authority for the conduct of all or any particular lottery in the State including lotteries run/organized/promoted by other State' intruded upon the Organising State's vested right under section 4 of the Act and thus transcended rule making power and was ultra vires. Applying the doctrine of severability, the Court struck the offending phrase "including lotteries run/organized/promoted by other States" while preserving the remainder of Rule 4(4). Rule 9A, including the requirement that no lottery be marketed until appropriate orders under Rule 9A(3) are passed, was held to be a valid mechanism of monitoring and interim protection of the Host State's subjects; potential misuse is a justiciable matter but does not render the provision ultra vires. [Paras 49, 50, 52, 53, 60]

All Amended Rules of 2018 upheld except that the words "including lotteries run/organized/promoted by other States" in Rule 4(4) are ultra vires and are severed; remaining provisions valid.

Cooperative federalism - Monitoring versus prohibition of outside State lotteries - Amended Rules do not impermissibly infringe principles of federalism. - HELD THAT: - The Court observed that the Constitution envisages cooperative and pragmatic federalism. Where the central statute itself delegates rule making power to States, enactment of rules by a Host State to ensure compliance does not, per se, violate federal principles. Scrutiny and monitoring by a Host State of activities within its territory, to ensure compliance with the Act, is consistent with cooperative federalism and does not amount to unconstitutional intrusion upon another State's powers. [Paras 56, 57]

The contention that the Amended Rules infringe federalism is rejected.

Final Conclusion: The Single Judge's declaration striking down the Amended Rules is set aside. The Kerala Paper Lotteries (Regulation) Amendment Rules, 2018 are valid and within the State's competence under section 12 of the Act except that the words "including lotteries run/organized/promoted by other States" in Rule 4(4) are ultra vires and are severed; appeal allowed to that limited extent.