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1. Whether the impugned show cause notices and orders issued under the GST Act for the financial years 2017-2018 and 2018-2019 are valid and legally enforceable, particularly focusing on whether these documents were duly signed as required under the relevant GST rules.
2. Whether the petitioner's challenge on the ground of the orders being unsigned, and therefore nullity, is tenable in light of the procedural and substantive provisions of the GST Act and Rules.
3. Whether the petitioner's plea for condonation of delay in filing appeals against the impugned orders is justified given the circumstances of the case.
4. Whether the principles of natural justice were violated by the respondent authority by not providing the petitioner with requisite material and information to effectively respond to the show cause notices.
5. Whether the petitioner's claim regarding inability to access the GST portal after cancellation of registration and consequent ignorance of the orders and notices is a valid ground for relief.
Issue-wise Detailed Analysis:
1. Validity and Authentication of Impugned Orders and Notices
The relevant legal framework here is Rule 26(3) of the Central/State Goods and Services Tax Rules, 2017, which mandates that all notices, certificates, and orders under the GST provisions must be issued electronically by the proper officer through digital signature certificate, e-signature, or any other mode of signature or verification as notified by the Board.
The petitioner contended that the impugned orders and show cause notices were unsigned and thus nullities, relying heavily on various High Court decisions from Telangana, Andhra Pradesh, Delhi, and Bombay High Courts, which held that unsigned orders lack efficacy and must be quashed. The petitioner emphasized that mere uploading on the GST portal does not cure the defect of lack of signature.
The respondent countered that the impugned orders and notices bear the name of the issuing officer, are uploaded on the GST portal, and cannot be uploaded without digital signature authentication. Reference was made to an advisory dated 25.09.2024 by the CBDT, which clarified that documents generated on the GST common portal through the login of officers using digital signatures are valid even if the downloaded PDF does not display a visible digital signature. The respondent also relied on a recent decision of this Court in a similar matter where it was held that uploading on the GST portal after digital signature login constitutes valid authentication.
The Court examined the submissions and the relevant Rule 26(3), noting that there is no material on record to suggest that the impugned notices or orders were not signed digitally or physically as required. The Court relied on the precedent from the Vishwa Enterprise case, which held that documents uploaded on the GST portal after officer login via digital signature are deemed authenticated and valid. The Court distinguished the petitioner's reliance on other decisions by noting that those cases involved clear absence of any signature or digital authentication, whereas in the present case, the orders were uploaded on the GST portal, which itself requires digital signature login.
Consequently, the Court concluded that the impugned orders and notices cannot be considered unsigned or nullities.
2. Principles of Natural Justice and Provision of Material
The petitioner argued that the respondent failed to provide the material sought by the petitioner, including outward supply details necessary for reconciliation, thereby violating principles of natural justice and prejudicing the petitioner's ability to respond to the show cause notices.
The petitioner also submitted that since the GST registration was cancelled in 2019, the petitioner was unable to access the GST portal and was unaware of the notices and orders until much later, which hampered effective participation in the proceedings.
The respondent denied these contentions, stating the petitioner did not place any material on record to substantiate the claim of cancellation or inability to access the portal. The Court observed that the petitioner failed to produce documentary evidence of cancellation of registration or proof of communication regarding the notices and orders.
The Court noted that the petitioner's ignorance and alleged inability to access the portal amounted to negligence, especially since the petitioner admitted to shifting business operations to other states and appointing consultants to handle GST matters. The Court found no sufficient ground to hold that principles of natural justice were violated to an extent warranting interference.
3. Delay in Filing Appeal and Condonation of Delay
The petitioner contended that the delay in filing appeals against the impugned orders should be condoned due to the reasons stated above, including lack of awareness of the orders and cancellation of registration.
The petitioner submitted that the delay for the financial year 2017-2018 was approximately eight months and twenty-three days, and for 2018-2019 about five months and twenty-two days, beyond the statutory three-month period for filing appeals under Section 107 of the GST Act.
The Court noted that the petitioner had filed a Special Civil Application earlier which was withdrawn and now sought relief under Article 227. However, the Court found that the petitioner's negligence and failure to diligently monitor the GST portal or maintain proper records did not justify condonation of delay. The Court also observed that the petitioner's submissions were technical in nature and an attempt to circumvent statutory timelines.
Accordingly, the Court declined to condone the delay.
4. Effect of Cancellation of Registration and Business Closure
The petitioner asserted that cancellation of GST registration on 28.02.2019 and closure of business operations in Gujarat prevented access to GST portal and awareness of the impugned orders.
The Court noted that no documentary evidence was placed on record to prove cancellation of registration or closure of business in Gujarat. The petitioner's reliance on verbal or unsubstantiated claims was insufficient. Moreover, the petitioner continued to hold GST registrations in other states and appointed professionals to handle GST matters, which undermined the claim of ignorance or inability to act.
The Court found that these factors did not excuse the petitioner's failure to respond or file timely appeals.
5. Treatment of Competing Arguments and Precedents
The petitioner relied on multiple judgments from various High Courts holding that unsigned orders are nullities and cannot be acted upon, including cases where remand was ordered for fresh adjudication after proper signing.
The respondent and the Court distinguished these precedents by emphasizing the technological and procedural context of GST portal operations. The Court highlighted that the GST system's digital authentication process differs from traditional modes of signing, and the advisory from CBDT clarified that documents generated through officer login with digital signature are valid even if the downloaded document does not visibly display a signature.
The Court also noted that the petitioner failed to demonstrate any absence of digital signature or authentication on the GST portal, which is a precondition for uploading orders and notices.
The Court rejected the petitioner's submissions that the absence of a visible digital signature or "green tick mark" on the downloaded order invalidated the order, stating that the technical format (JSON) containing the digital signature is not accessible to taxpayers and that the validation mechanism is through the GST portal verification process.
Conclusions:
The Court concluded that the impugned show cause notices and orders were duly authenticated and validly issued under Rule 26(3) of the CGST Rules. The petitioner's challenge on the ground of unsigned orders was rejected as unsustainable in the facts of the case.
The Court found no violation of principles of natural justice as the petitioner failed to establish denial of material or opportunity to respond.
The petitioner's claim of inability to access the GST portal due to cancellation of registration and business closure was not supported by evidence and did not justify relief.
The Court declined to condone the delay in filing appeals, viewing the petitioner's conduct as negligent and technical in nature.
Accordingly, the petition was dismissed summarily for lack of merit.
Significant Holdings:
"There is nothing on record to suggest that the impugned show cause notices or orders have not been signed either digitally or physically as is otherwise required under Rule 26 of the Rules and therefore, the same cannot be said to be unsigned document as the orders and show cause notices are duly uploaded on the GST Portal."
"The contention raised on behalf of the petitioner that the impugned orders are unsigned is not tenable in view of the fact that the same were uploaded on the GSTN Portal which can be done only after the verification by the concerned State Tax Officer through its portal after logging into the portal using the digital signature."
"Documents being computer generated on the command of the officer, may not require physical signatures of the officer as these documents can be issued by the officer only after logging into the common portal using Digital Signature. Thus, all these documents in JSON format containing the order details along with the issuing officer details are stored in the GST system with the digital signature of the issuing officer."
"The petitioner's ignorance and alleged inability to access the portal amounted to negligence, especially since the petitioner admitted to shifting business operations to other states and appointing consultants to handle GST matters."
"The petitioner's contention for condonation of delay in filing appeal cannot be accepted as the petitioner has remained negligent for his business transactions carried out for the period under consideration."
"Unsigned order is no order in the eyes of law. Merely uploading of the unsigned order, may be by the Authority competent to pass the order, would not cure the defect which goes to the very root of the matter i.e. validity of the order." (Distinguished on facts)
"In the facts of the present case, the impugned orders are uploaded and it is not in dispute that without signing the orders, same cannot be uploaded and therefore, the petitioner has failed to make out a case for remand."
Levy of penalty u/r 26 of the Central/State Goods and Services Tax Rules, 2017 - documents were duly signed as required under the relevant GST rules or not - unsigned order - respondent did not provide material sought for by the petitioner and therefore, the petitioner could not respond to the SCN - HELD THAT:- There is nothing on record to suggest that the impugned show cause notices or orders have not been signed either digitally or physically as is otherwise required under Rule 26 of the Rules and therefore, the same cannot be said to be unsigned document as the orders and show cause notices are duly uploaded on the GST Portal.
It is also pertinent to note that the learned advocate for the petitioner has failed to make out any case for remand on the ground of unsigned order because if we come to the conclusion that the order is unsigned, the same would be liable to be quashed and set aside whereas in the facts of the case, the petitioner is not able to demonstrate that the impugned orders are not electronically signed. Without there being any digital signature, no order can be uploaded as per Advisory dated 25.09.2024. Even otherwise, the petitioner has remained totally negligent for the business carried out by the petitioner during the period 2017-2018 and 2018-2019 in the State of Gujarat. It is also required to be noted that though the petitioner has submitted that registration of the petitioner is cancelled on 28.02.2019, no material is placed on record to demonstrate such fact.
It appears that in facts of each of the respective cases, it was found that the order was not signed either digitally or physically as required under Rule 26 of the Rules. However, in the facts of the present case, the impugned orders are uploaded on the GSTN Portal and without signatures, the orders cannot be uploaded. Therefore, the contention raised on behalf of the petitioner that the impugned orders are unsigned is not acceptable as there is nothing on record to show that unsigned orders are uploaded on the Portal.
Considering the facts of the case it appears that the petitioner has remained negligent after cancellation of registration in the year 2019 and has not even bothered as to what happened to the returns filed by the petitioner as it is admitted by the petitioner that he has shifted to Hyderabad on closure of business in Gujarat and is having the registration under the GST Act in States of Andhra Pradesh and Telangana. Thus, the petitioner is now raising technical grounds so as to challenge the impugned orders by making alternative submissions which cannot be accepted in facts of the present case.
Petition dismissed.
Levy of penalty u/r 26 of the Central/State Goods and Services Tax Rules, 2017 - documents were duly signed as required under the relevant GST rules or not - unsigned order - respondent did not provide material sought for by the petitioner and therefore, the petitioner could not respond to the SCN - HELD THAT:- There is nothing on record to suggest that the impugned show cause notices or orders have not been signed either digitally or physically as is otherwise required under Rule 26 of the Rules and therefore, the same cannot be said to be unsigned document as the orders and show cause notices are duly uploaded on the GST Portal.
It is also pertinent to note that the learned advocate for the petitioner has failed to make out any case for remand on the ground of unsigned order because if we come to the conclusion that the order is unsigned, the same would be liable to be quashed and set aside whereas in the facts of the case, the petitioner is not able to demonstrate that the impugned orders are not electronically signed. Without there being any digital signature, no order can be uploaded as per Advisory dated 25.09.2024. Even otherwise, the petitioner has remained totally negligent for the business carried out by the petitioner during the period 2017-2018 and 2018-2019 in the State of Gujarat. It is also required to be noted that though the petitioner has submitted that registration of the petitioner is cancelled on 28.02.2019, no material is placed on record to demonstrate such fact.
It appears that in facts of each of the respective cases, it was found that the order was not signed either digitally or physically as required under Rule 26 of the Rules. However, in the facts of the present case, the impugned orders are uploaded on the GSTN Portal and without signatures, the orders cannot be uploaded. Therefore, the contention raised on behalf of the petitioner that the impugned orders are unsigned is not acceptable as there is nothing on record to show that unsigned orders are uploaded on the Portal.
Considering the facts of the case it appears that the petitioner has remained negligent after cancellation of registration in the year 2019 and has not even bothered as to what happened to the returns filed by the petitioner as it is admitted by the petitioner that he has shifted to Hyderabad on closure of business in Gujarat and is having the registration under the GST Act in States of Andhra Pradesh and Telangana. Thus, the petitioner is now raising technical grounds so as to challenge the impugned orders by making alternative submissions which cannot be accepted in facts of the present case.
Petition dismissed.
1. Whether the order passed under Section 129(3) of the Central Goods and Services Tax Act, 2017 (CGST Act) detaining goods and imposing tax liability and penalty was valid and lawful.
2. Whether the Petitioner was justified in bypassing the statutory appellate remedy under Section 107 of the CGST Act and approaching the High Court by way of writ petition under Article 226 of the Constitution.
3. Whether the weighment procedure and the evidence relied upon by the Respondent authorities to determine excess quantity of goods were in accordance with statutory requirements and principles of natural justice.
4. Whether the valuation of goods adopted by the Respondent authorities, which led to enhanced tax liability and penalty, was justified and sustainable.
5. Whether the Petitioner's contentions regarding procedural irregularities, lack of jurisdiction, and imposition of penalty without establishing intention to evade tax were valid.
Issue-wise Detailed Analysis
1. Validity and Lawfulness of the Order under Section 129(3) of the CGST Act
The relevant legal framework is Section 129(3) of the CGST Act, which empowers authorities to detain goods in transit if they suspect evasion of tax, and to impose tax and penalty accordingly. The Court examined the weighment report prepared by the Respondent authorities, which recorded the gross weight of the vehicle with goods as 48,550 kg and the unladen weight as 13,450 kg, resulting in net goods weight of 35,100 kg. This exceeded the declared net weight of 35,003 kg by 590 kg.
The Court noted that the Petitioner failed to provide any reliable material to dispute these weighment figures. The absence of supplementary documents such as purchase invoices, weighment certificates at loading, or bank transaction proofs further undermined the Petitioner's case. The driver's statement indicating ignorance of consignor and consignee, and discrepancy in transporter details, reinforced the Respondent's suspicion of evasion.
The Court found that the authorities acted within their powers and followed due procedure, recording reasons and considering the Petitioner's reply before passing the final order. No procedural irregularity or violation of natural justice principles was established. The Court observed that the valuation and factual determinations made by the authorities were based on reasonable appreciation of evidence and were not amenable to interference in writ jurisdiction.
2. Maintainability of the Writ Petition and Bypass of Statutory Appeal
The Court highlighted that the impugned order is appealable under Section 107 of the CGST Act. The Respondent raised a preliminary objection regarding maintainability, asserting that the Petitioner should have availed the statutory appeal remedy. The Petitioner contended that the order suffered from lack of jurisdiction and that requiring a pre-deposit for appeal would cause grave injustice.
The Court emphasized that judicial review under Article 226 does not extend to reappreciation of evidence or substitution of factual findings, especially when an efficacious alternative remedy exists. The Court therefore dismissed the writ petition on maintainability grounds but granted liberty to the Petitioner to file a statutory appeal within the prescribed time. The appellate authority was directed to dispose of the appeal expeditiously and strictly in accordance with law, without being influenced by the observations made in the writ proceedings.
3. Weighment Procedure and Evidence Reliance
The Petitioner challenged the weighment slip's validity, arguing it was not prepared in accordance with any statutory procedure under the CGST Act or Rules and that the goods should have been weighed in the presence of the driver. The Respondent countered that the weighment was conducted in the presence of the driver and two independent witnesses, following usual administrative practice.
The Court found no merit in the Petitioner's contention. The weighment slip was accepted as reliable evidence, especially since the Petitioner did not place any contradictory material on record. The Court also noted that the Petitioner failed to produce documents that could rebut the inference of excess quantity, such as approximate weight per bag or loading weighment certificates. The driver's statement further corroborated the Respondent's position.
4. Valuation of Goods and Imposition of Penalty
The Petitioner argued that the tax liability was calculated based on an unsubstantiated market value rather than the declared transaction value, and that penalty imposition was excessive and unwarranted without proof of intention to evade tax. Reliance was placed on various precedents holding that penalty cannot be imposed without establishing mens rea and that valuation cannot be enhanced arbitrarily.
The Court observed that valuation and penalty issues involved factual determinations and were not suitable for adjudication in writ jurisdiction. The Court reiterated that such matters should be examined in appeal. The Court also noted that the impugned order did not demonstrate any manifest illegality or procedural infirmity warranting interference.
5. Procedural Irregularities and Natural Justice
The Petitioner contended that the Respondent authorities relied on grounds not mentioned in the show cause notice and thereby violated principles of natural justice. The Court reviewed the impugned order and found that the authorities had recorded the factual matrix, considered the Petitioner's submissions, and provided cogent reasons for rejecting them. No procedural impropriety or violation of natural justice was found.
Significant Holdings
"The impugned order reflects due application of mind to the facts and submissions presented. The order sets out the factual matrix, records the reply submitted by the Petitioner, and provides cogent reasons for rejecting the same. No procedural impropriety, manifest illegality, or violation of the principles of natural justice has been demonstrated by the Petitioner."
"The power of judicial review under Article 226 of the Constitution does not extend to reappreciation of evidence or substitution of factual findings, particularly when an efficacious alternative remedy is available under the statute."
"The valuation adopted by the Respondent, although disputed by the Petitioner, cannot be adjudicated upon by this Court in the present writ jurisdiction as it involves factual determinations that are more appropriately examined in the appellate proceedings under the statutory framework."
"Accordingly, the present writ petition stands dismissed. However, the Petitioner is granted liberty to pursue the remedy of statutory appeal under Section 107 of the CGST Act, 2017, if so advised. In the event the Petitioner prefers such an appeal within the time prescribed under law, the appellate authority shall consider and dispose of the same expeditiously and strictly in accordance with law, without being influenced by any observations made in the present order."
Maintainability of petition - availability of alternative remedy - lack of jurisdiction - Detention of goods - levy of tax and penalty - reliance placed upon reasons which were not part of the show cause notice - power of judicial review - HELD THAT:- This Court has carefully examined the impugned order dated 03.06.2025 in the context of the material available on record, the statutory provisions under the CGST Act, and the principles of natural justice. The impugned order reflects due application of mind to the facts and submissions presented. The order sets out the factual matrix, records the reply submitted by the Petitioner, and provides cogent reasons for rejecting the same. No procedural impropriety, manifest illegality, or violation of the principles of natural justice has been demonstrated by the Petitioner. The authorities have acted within the scope of their powers under Section 129(3) of the CGST Act, and their conclusions are based on a reasonable appreciation of the available evidence.
The power of judicial review under Article 226 of the Constitution does not extend to reappreciation of evidence or substitution of factual findings, particularly when an efficacious alternative remedy is available under the statute.
This Court is of the considered view that the writ petition is devoid of merit and does not warrant interference under Article 226 of the Constitution. Accordingly, the present writ petition stands dismissed. However, the Petitioner is granted liberty to pursue the remedy of statutory appeal under Section 107 of the CGST Act, 2017, if so advised.
Maintainability of petition - availability of alternative remedy - lack of jurisdiction - Detention of goods - levy of tax and penalty - reliance placed upon reasons which were not part of the show cause notice - power of judicial review - HELD THAT:- This Court has carefully examined the impugned order dated 03.06.2025 in the context of the material available on record, the statutory provisions under the CGST Act, and the principles of natural justice. The impugned order reflects due application of mind to the facts and submissions presented. The order sets out the factual matrix, records the reply submitted by the Petitioner, and provides cogent reasons for rejecting the same. No procedural impropriety, manifest illegality, or violation of the principles of natural justice has been demonstrated by the Petitioner. The authorities have acted within the scope of their powers under Section 129(3) of the CGST Act, and their conclusions are based on a reasonable appreciation of the available evidence.
The power of judicial review under Article 226 of the Constitution does not extend to reappreciation of evidence or substitution of factual findings, particularly when an efficacious alternative remedy is available under the statute.
This Court is of the considered view that the writ petition is devoid of merit and does not warrant interference under Article 226 of the Constitution. Accordingly, the present writ petition stands dismissed. However, the Petitioner is granted liberty to pursue the remedy of statutory appeal under Section 107 of the CGST Act, 2017, if so advised.
The core legal questions considered by the Court include:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Validity of the order under Section 129(3) CGST Act imposing tax liability and penalty
Relevant legal framework and precedents: Section 129(3) of the CGST Act provides for detention, seizure, and release of goods and conveyances in transit along with imposition of tax and penalty if goods are transported in contravention of the Act. Precedents emphasize the need for cogent evidence and adherence to procedural safeguards before imposing penalties.
Court's interpretation and reasoning: The Court examined the factual matrix wherein the petitioner dispatched 350 bags of Assam dried areca nuts with declared net weight of 24,500 kg, accompanied by requisite documents including e-way bill and invoice. The authorities intercepted the vehicle, conducted weighment, and found excess quantity of 420 kg. The Court noted the absence of any reliable material from the petitioner to dispute weighment figures or establish genuineness of the transaction.
Key evidence and findings: The weighment slip showed gross weight of 36.310 MT and tare weight of 11.390 MT, yielding net weight of 26.920 MT, exceeding declared weight by 420 kg. The petitioner failed to produce supplementary documents such as original purchase invoice, weighment certificate at loading, or bank transaction proof. The driver's statement revealed discrepancies regarding the transporter and loading point.
Application of law to facts: The Court found that the authorities had sufficient material to raise legitimate doubts about the authenticity of the goods movement and transaction. The order under Section 129(3) was passed after due consideration of the petitioner's reply and was not procedurally flawed.
Treatment of competing arguments: The petitioner contended that the weighment was not conducted per statutory procedure and valuation was arbitrarily enhanced. The Court rejected these contentions noting absence of any statutory mandate for weighment procedure beyond administrative practice and held that valuation disputes are better suited for appellate adjudication.
Conclusion: The order under Section 129(3) imposing tax liability and penalty was valid and sustainable.
Issue 2: Admissibility and statutory compliance of weighment report
Relevant legal framework and precedents: The CGST Rules do not prescribe a rigid procedure for weighment at the point of interception, but the authorities must adhere to principles of natural justice and maintain evidentiary standards.
Court's interpretation and reasoning: The weighment was conducted in presence of the driver and two independent witnesses, following usual administrative practice. The petitioner failed to show any statutory or procedural irregularity in the weighment process or that the weighment slip was unauthenticated or inaccurate.
Key evidence and findings: The weighment slip was undisputed and the petitioner did not produce any contrary weighment certificate or evidence.
Application of law to facts: The Court held that the weighment report was admissible evidence and the administrative practice followed was reasonable and lawful.
Treatment of competing arguments: The petitioner's argument that weighment should have been conducted in presence of the driver was met by the respondent's evidence that the driver was present and the weighment was conducted properly.
Conclusion: The weighment report was admissible and complied with statutory requirements.
Issue 3: Justification and legality of valuation enhancement from Rs. 145/- to Rs. 240/- per kg
Relevant legal framework and precedents: Section 15 of the CGST Act defines "transaction value" as the price actually paid or payable for goods, subject to certain conditions. Valuation can be enhanced if the declared value is found to be not the true transaction value. Precedents establish that valuation enhancement must be supported by cogent evidence.
Court's interpretation and reasoning: The Court observed that the valuation adopted by the respondent was based on prior similar consignments and prevailing market rates. However, the Court noted that valuation disputes involve factual determinations and are more appropriately examined in appellate proceedings.
Key evidence and findings: The petitioner submitted tax invoices declaring Rs. 145/- per kg, supported by e-way bills and consignment notes. The respondent relied on market rates and weighment findings to enhance valuation.
Application of law to facts: The Court declined to interfere with the valuation in writ jurisdiction, emphasizing that the petitioner has an efficacious remedy by way of appeal under Section 107 of the CGST Act.
Treatment of competing arguments: The petitioner argued the valuation enhancement was arbitrary and lacked legal basis. The Court acknowledged the dispute but held that the appropriate forum for such challenge is the appellate authority.
Conclusion: Valuation enhancement was not adjudicated upon by the Court in writ jurisdiction; petitioner may raise this issue in appeal.
Issue 4: Alleged denial of natural justice due to reliance on grounds not in show cause notice
Relevant legal framework and precedents: Principles of natural justice require that the party be given an opportunity to know and meet the case against them. Reliance on grounds not disclosed in the notice may vitiate the order.
Court's interpretation and reasoning: The Court found that the impugned order set out factual matrix and reasons for rejecting the petitioner's submissions. It did not rely on any new grounds beyond those indicated in the notice.
Key evidence and findings: The petitioner failed to demonstrate any procedural irregularity or that the authorities considered extraneous grounds without opportunity to respond.
Application of law to facts: The Court held that there was no violation of natural justice.
Treatment of competing arguments: The petitioner's contention was rejected as unsubstantiated.
Conclusion: No denial of natural justice was established.
Issue 5: Maintainability of writ petition bypassing statutory appeal remedy
Relevant legal framework and precedents: The CGST Act provides a statutory appeal mechanism under Section 107. Courts generally discourage writ petitions challenging orders where efficacious statutory remedies exist. Exceptions arise only in cases of lack of jurisdiction or grave injustice.
Court's interpretation and reasoning: The Court noted the petitioner's submission that the order suffers from lack of jurisdiction and that pre-deposit requirement for appeal would cause grave injustice. However, the Court found no jurisdictional defect in the order and held that the petitioner must avail the statutory appeal remedy.
Key evidence and findings: The Court observed that the order is appealable and that the petitioner was granted liberty to file appeal. The Court emphasized that judicial review under Article 226 does not extend to re-appreciation of evidence when alternative remedy is available.
Application of law to facts: The Court dismissed the writ petition on maintainability grounds.
Treatment of competing arguments: The petitioner relied on a Supreme Court precedent to argue that appeal was not appropriate remedy; the Court distinguished the facts and upheld the statutory remedy.
Conclusion: Writ petition was not maintainable; statutory appeal remedy must be pursued.
Issue 6: Imposition of penalty without establishing intention to evade tax and by enhancing valuation
Relevant legal framework and precedents: Penalty under GST law requires proof of tax evasion or willful default. Enhancement of valuation for penalty purposes must be legally justified. Various precedents cited by petitioner hold that penalty cannot be imposed merely by enhancing valuation or without establishing intent to evade tax.
Court's interpretation and reasoning: The Court noted the petitioner's reliance on precedents but observed that the issue of penalty quantum and justification involves factual and evidentiary examination. Such issues are better suited for appellate adjudication.
Key evidence and findings: The impugned order imposed penalty based on excess quantity and valuation enhancement. The petitioner did not demonstrate absence of intent or procedural infirmity in penalty imposition.
Application of law to facts: The Court refrained from interfering with penalty imposition in writ jurisdiction.
Treatment of competing arguments: The petitioner's reliance on precedents was acknowledged but the Court held that these issues can be ventilated in appeal.
Conclusion: Penalty imposition issue not adjudicated in writ; appeal is appropriate forum.
3. SIGNIFICANT HOLDINGS
"The impugned order reflects due application of mind to the facts and submissions presented. The order sets out the factual matrix, records the reply submitted by the Petitioner, and provides cogent reasons for rejecting the same. No procedural impropriety, manifest illegality, or violation of the principles of natural justice has been demonstrated by the Petitioner."
"The power of judicial review under Article 226 of the Constitution does not extend to reappreciation of evidence or substitution of factual findings, particularly when an efficacious alternative remedy is available under the statute."
"The valuation adopted by the Respondent, although disputed by the Petitioner, cannot be adjudicated upon by this Court in the present writ jurisdiction, as it involves factual determinations that are more appropriately examined in the appellate proceedings under the statutory framework."
"Accordingly, the present writ petition stands dismissed. However, the Petitioner is granted liberty to pursue the remedy of statutory appeal under Section 107 of the CGST Act, 2017, if so advised."
The Court established the core principles that orders passed under Section 129(3) CGST Act must be supported by cogent evidence and procedural fairness, valuation disputes are to be resolved through statutory appeal, and writ jurisdiction is not a substitute for appellate remedy where facts are in dispute. The Court confirmed that weighment reports prepared in administrative practice are admissible and that natural justice was not violated. The Court emphasized that penalty imposition requires factual scrutiny and is not amenable to writ interference when appeal is available.
Final determinations on each issue were that the impugned order was valid and sustainable, the weighment report was admissible, valuation enhancement and penalty imposition issues are to be examined in appeal, no natural justice violation occurred, and the writ petition was not maintainable due to availability of statutory appeal remedy.
Maintainability of petition - availability of alternative remedy - lack of jurisdiction - Detention of goods - levy of tax and penalty - reliance placed upon reasons which were not part of the show cause notice - power of judicial review - HELD THAT:- This Court has carefully examined the impugned order dated 02.06.2025 in the context of the material available on record, the statutory provisions under the CGST Act, and the principles of natural justice. The impugned order reflects due application of mind to the facts and submissions presented. The order sets out the factual matrix, records the reply submitted by the Petitioner, and provides cogent reasons for rejecting the same. No procedural impropriety, manifest illegality, or violation of the principles of natural justice has been demonstrated by the Petitioner. The authorities have acted within the scope of their powers under Section 129(3) of the CGST Act, and their conclusions are based on a reasonable appreciation of the available evidence.
The power of judicial review under Article 226 of the Constitution does not extend to reappreciation of evidence or substitution of factual findings, particularly when an efficacious alternative remedy is available under the statute.
This Court is of the considered view that the writ petition is devoid of merit and does not warrant interference under Article 226 of the Constitution. Accordingly, the present writ petition stands dismissed. However, the Petitioner is granted liberty to pursue the remedy of statutory appeal under Section 107 of the CGST Act, 2017, if so advised.
Maintainability of petition - availability of alternative remedy - lack of jurisdiction - Detention of goods - levy of tax and penalty - reliance placed upon reasons which were not part of the show cause notice - power of judicial review - HELD THAT:- This Court has carefully examined the impugned order dated 02.06.2025 in the context of the material available on record, the statutory provisions under the CGST Act, and the principles of natural justice. The impugned order reflects due application of mind to the facts and submissions presented. The order sets out the factual matrix, records the reply submitted by the Petitioner, and provides cogent reasons for rejecting the same. No procedural impropriety, manifest illegality, or violation of the principles of natural justice has been demonstrated by the Petitioner. The authorities have acted within the scope of their powers under Section 129(3) of the CGST Act, and their conclusions are based on a reasonable appreciation of the available evidence.
The power of judicial review under Article 226 of the Constitution does not extend to reappreciation of evidence or substitution of factual findings, particularly when an efficacious alternative remedy is available under the statute.
This Court is of the considered view that the writ petition is devoid of merit and does not warrant interference under Article 226 of the Constitution. Accordingly, the present writ petition stands dismissed. However, the Petitioner is granted liberty to pursue the remedy of statutory appeal under Section 107 of the CGST Act, 2017, if so advised.
- Whether the cancellation of the petitioner's GST registration under Section 29(2)(c) of the CGST Act, 2017 for non-filing of returns for a continuous period of six months is valid and sustainable.
- Whether the petitioner, having failed to respond to the show cause notice within the stipulated time and having subsequently filed all pending returns along with payment of dues, can seek restoration of GST registration despite the lapse of the prescribed time limit for revocation of cancellation.
- The scope and applicability of the proviso to sub-rule (4) of Rule 22 of the CGST Rules, 2017, which allows dropping of cancellation proceedings upon submission of pending returns and full payment of dues.
- The authority and jurisdiction of the proper officer to restore GST registration after cancellation where the taxpayer complies with the conditions laid down in the proviso to sub-rule (4) of Rule 22.
- The procedural safeguards and timelines involved in cancellation, revocation, and restoration of GST registration under the CGST Act and Rules.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Validity of Cancellation of GST Registration under Section 29(2)(c) of the CGST Act, 2017
The legal framework governing cancellation of GST registration is primarily Section 29(2)(c) of the CGST Act, 2017, which empowers the proper officer to cancel registration where a registered person has not furnished returns for a continuous period of six months. Rule 22 of the CGST Rules, 2017 prescribes the procedural safeguards for such cancellation, including issuance of a show cause notice (Form GST REG-17), opportunity to reply (Form GST REG-18), and passing of cancellation order (Form GST REG-19).
The Court noted that the petitioner's registration was cancelled by the Assistant Commissioner of State Tax for non-filing of returns for over six months, following issuance of the requisite show cause notice. The petitioner failed to reply within the stipulated 30 days and did not appear for personal hearing, resulting in an ex-parte order of cancellation.
The Court observed that the cancellation was in accordance with the statutory provisions and procedural requirements, and hence validly passed. The petitioner's inability to respond timely was attributed to unfamiliarity with the online portal, which does not constitute a legally sufficient ground to invalidate the cancellation.
Issue 2: Effect of Subsequent Compliance by the Petitioner and the Time Bar on Revocation of Cancellation
After cancellation, the petitioner updated all pending returns and discharged the tax dues with interest and late fees. However, the petitioner was unable to file an application for revocation of cancellation as the prescribed time limit of 270 days from the date of cancellation order had expired, and an appeal preferred against the cancellation was dismissed.
The Court examined the provisions relating to revocation and restoration of registration post cancellation. While the statutory time limit for filing revocation application had elapsed, the Court considered whether the petitioner's subsequent compliance could nonetheless be entertained under the proviso to sub-rule (4) of Rule 22 of the CGST Rules, 2017.
Issue 3: Interpretation and Applicability of the Proviso to Sub-rule (4) of Rule 22 of the CGST Rules, 2017
The proviso to sub-rule (4) of Rule 22 stipulates that if a person served with a show cause notice under Section 29(2)(c) furnishes all pending returns and makes full payment of tax dues along with interest and late fees, the proper officer shall drop the cancellation proceedings and pass an order in Form GST REG-20.
The Court interpreted this proviso as a substantive safeguard designed to protect taxpayers from harsh consequences of cancellation where they are willing to comply with statutory obligations. The proviso confers discretion on the proper officer to drop proceedings and restore registration upon fulfillment of conditions, even if initial procedural lapses occurred.
The Court found that this provision was directly applicable to the petitioner's case, given her subsequent compliance with all pending returns and dues.
Issue 4: Authority and Jurisdiction of the Proper Officer to Restore GST Registration
The Court held that the proper officer, being duly empowered under the CGST Act and Rules, has the authority and jurisdiction to consider an application for restoration of GST registration upon compliance with the proviso to sub-rule (4) of Rule 22. The officer is mandated to drop cancellation proceedings and pass an order in Form GST REG-20 if all pending returns and dues are submitted.
The Court emphasized that cancellation entails serious civil consequences, and the law provides a remedial mechanism to enable restoration upon compliance, which must be given effect to.
Issue 5: Procedural Directions and Timelines for Restoration
Recognizing the petitioner's predicament, the Court directed that the petitioner shall approach the concerned authority within two months from the date of the order, submitting an application for restoration of GST registration along with all pending returns and full payment of dues including interest and late fees.
The authority was directed to consider the application expeditiously and pass necessary orders preferably within 60 days of receipt of the certified copy of the Court's order.
The Court clarified that the period for computation of tax liability under Section 73(10) of the CGST Act shall commence from the date of the instant order, except for the financial year 2024-25 where Section 44 shall apply.
The petitioner remains liable to pay arrears of tax, penalty, interest, and late fees as applicable.
3. SIGNIFICANT HOLDINGS
"It is discernible from a reading of the proviso to sub-rule (4) of Rule 22 of the CGST Rules 2017 that if a person, who has been served with a show cause notice under Section 29 (2) (c) of the CGST Act, 2017, is ready and willing to furnish all the pending returns and to make full payment of the tax itself along with applicable interest and late fee, the officer, duly empowered, can drop the proceedings and pass an order in the prescribed Form i.e. Form GST REG-20."
"Having regard to the fact that the GST registration of the petitioner has been cancelled under Section 29 (2) (c) of the CGST Act, 2017 for the reason that the petitioner did not submit returns for a period of 6 (six) months or more and the provisions contained in the proviso to sub-rule (4) of Rule 22 of the CGST Rules, 2017 and cancellation of registration entails serious civil consequences, this Court is of the considered view that in the event the petitioner approaches the officer, duly empowered, by furnishing all the pending returns and make full payment of the tax dues, along with applicable interest and late fee, the officer duly empowered, has the authority and jurisdiction to drop the proceedings and pass an order in the prescribed Form."
Core principles established include:
- The statutory scheme under the CGST Act and Rules provides for cancellation of GST registration for continuous non-filing of returns for six months, subject to procedural safeguards.
- The proviso to sub-rule (4) of Rule 22 serves as a protective provision allowing restoration of registration upon compliance by the taxpayer with pending returns and dues.
- The proper officer has the jurisdiction and obligation to drop cancellation proceedings and restore registration upon fulfillment of the conditions specified.
- Time limits for revocation applications are subject to the overriding principle of compliance and restoration under the proviso, which can operate even after initial cancellation and dismissal of appeals.
- Courts can direct restoration of registration where the taxpayer demonstrates willingness and ability to comply with statutory obligations, balancing procedural rigor with substantive justice.
The final determination was that the petitioner's GST registration cancellation was validly effected but she is entitled to seek restoration by complying with the conditions in the proviso to sub-rule (4) of Rule 22 within the stipulated time frame directed by the Court, and the proper officer is obliged to consider and decide the application accordingly.
Cancellation of the petitioner's GST registration - non-filing of returns for a continuous period of six months - HELD THAT:- As per Section 29 (2) (c), an officer, duly empowered, may cancel the GST registration of a person from such date, including any retrospective date, as he deems fit, where any registered person, has not furnished returns for a continuous period of 6 (six) months. Rule 22 of the CGST Rules, 2017 has laid down the procedure for cancellation of the registration.
Having regard to the fact that the GST registration of the petitioner has been cancelled under Section 29 (2) (c) of the CGST Act, 2017 for the reason that the petitioner did not submit returns for a period of 6 (six) months or more and the provisions contained in the proviso to sub-rule (4) of Rule 22 of the CGST Rules, 2017 and cancellation of registration entails serious civil consequences, this Court is of the considered view that in the event the petitioner approaches the officer, duly empowered, by furnishing all the pending returns and make full payment of the tax dues, along with applicable interest and late fee, the officer duly empowered, has the authority and jurisdiction to drop the proceedings and pass an order in the prescribed Form.
This writ petition is disposed of by providing that the petitioner shall approach the concerned authority within a period of 2 (two) months from today seeking restoration of her GST registration. If the petitioner submits such an application and complies with all the requirements as provided in the proviso to sub-rule (4) of Rule 22 of the CGST Rules, 2017, the concerned authority shall consider the application of the petitioner for restoration of the GST registration and passed necessary orders in accordance with law.
Petition disposed off.
Cancellation of the petitioner's GST registration - non-filing of returns for a continuous period of six months - HELD THAT:- As per Section 29 (2) (c), an officer, duly empowered, may cancel the GST registration of a person from such date, including any retrospective date, as he deems fit, where any registered person, has not furnished returns for a continuous period of 6 (six) months. Rule 22 of the CGST Rules, 2017 has laid down the procedure for cancellation of the registration.
Having regard to the fact that the GST registration of the petitioner has been cancelled under Section 29 (2) (c) of the CGST Act, 2017 for the reason that the petitioner did not submit returns for a period of 6 (six) months or more and the provisions contained in the proviso to sub-rule (4) of Rule 22 of the CGST Rules, 2017 and cancellation of registration entails serious civil consequences, this Court is of the considered view that in the event the petitioner approaches the officer, duly empowered, by furnishing all the pending returns and make full payment of the tax dues, along with applicable interest and late fee, the officer duly empowered, has the authority and jurisdiction to drop the proceedings and pass an order in the prescribed Form.
This writ petition is disposed of by providing that the petitioner shall approach the concerned authority within a period of 2 (two) months from today seeking restoration of her GST registration. If the petitioner submits such an application and complies with all the requirements as provided in the proviso to sub-rule (4) of Rule 22 of the CGST Rules, 2017, the concerned authority shall consider the application of the petitioner for restoration of the GST registration and passed necessary orders in accordance with law.
Petition disposed off.
The core legal questions considered by the Court in this matter include:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Authority and Procedure for Seizure under Section 67 of the said Act
Legal Framework and Precedents: Section 67 of the WBGST/CGST Act, 2017 empowers the proper officer to seize goods, documents, or books during inspection if the officer has recorded reasons to believe that such goods are liable for confiscation or that the documents are relevant to any proceeding under the Act. The requirement to record satisfaction is a safeguard against arbitrary seizure.
Court's Interpretation and Reasoning: The Court noted the petitioner's submission that the proper officer failed to record any satisfaction or reasons in the seizure memo/report. This procedural lapse was highlighted as a significant defect because the statutory mandate under Section 67 requires such recording to justify the seizure.
Key Evidence and Findings: The report prepared by the Deputy Commissioner of Revenue, State Tax, West Bengal, Park Street Charge, was scrutinized. It was found that the proper officer did not record the requisite satisfaction or reasons for seizure.
Application of Law to Facts: The Court observed that the absence of recorded reasons undermines the legality of the seizure. The statutory framework mandates that seizure must be backed by recorded satisfaction to prevent misuse of power.
Treatment of Competing Arguments: The respondents contended that the goods and secreted books of accounts were relevant and hence rightly seized. However, the Court emphasized that relevance alone does not dispense with the requirement of recording satisfaction.
Conclusion: The Court implicitly found procedural irregularity in the seizure process due to the non-recording of satisfaction, thereby questioning the validity of the seizure.
Issue 2: Validity of Show Cause Notice Issued under Section 122 read with Section 35(6)
Legal Framework and Precedents: Section 122 of the said Act deals with penalties for certain offences, while Section 35(6) mandates that proceedings following search and seizure should be under Sections 73 or 74, which relate to determination of tax not paid or wrongly claimed input tax credit. The interplay between these provisions governs the procedural correctness of issuing show cause notices post search and seizure.
Court's Interpretation and Reasoning: The Court considered the petitioner's argument that the show cause notice under Section 122 was not authorized in the context of search and seizure, given the procedural direction in Section 35(6). The Court observed that while the hearing on the show cause notice may continue, the final decision on the penalty demand under Section 122 should not be communicated without Court's leave, reflecting judicial caution in procedural compliance.
Key Evidence and Findings: The show cause notice dated 27th May, 2025 was scrutinized, and it was noted that it was issued under Section 122 in conjunction with Section 35(6), which the petitioner challenged as impermissible.
Application of Law to Facts: The Court held that the respondents were obliged to proceed under Sections 73 or 74 as per Section 35(6) following search and seizure, and the issuance of a Section 122 notice at this stage was premature or procedurally flawed.
Treatment of Competing Arguments: The respondents maintained that the goods were liable for confiscation under Section 130 and thus the Section 122 notice was justified. The Court, however, distinguished the procedural route mandated by Section 35(6) from the confiscation proceedings under Section 130, suggesting that the penalty proceedings under Section 122 should await the outcome of Sections 73 or 74 proceedings.
Conclusion: The Court restrained the final communication of the show cause notice under Section 122 without its leave, thereby upholding procedural safeguards and emphasizing adherence to statutory procedure.
Issue 3: Liability of Goods for Confiscation and Release Conditions
Legal Framework and Precedents: Section 130 of the said Act provides for confiscation of goods and conveyances used in offences under the Act. The proper officer's authority to seize and confiscate is subject to procedural safeguards and judicial oversight.
Court's Interpretation and Reasoning: The Court acknowledged the respondents' submission that the goods were liable for confiscation. Nonetheless, considering the petitioner's involvement in supplying goods to the Ministry of Defence and the existence of subsisting work orders, the Court exercised discretion to permit release of goods subject to security.
Key Evidence and Findings: The petitioner's representation regarding the critical nature of the goods for defence supplies was taken into account, highlighting the public interest and operational necessity.
Application of Law to Facts: The Court directed that the petitioner may seek release of goods by furnishing a bank guarantee amounting to 20% of the penalty proposed in the show cause notice. Upon such application and guarantee, the proper officer was mandated to release the goods within three working days.
Treatment of Competing Arguments: While the respondents argued for retention of goods due to confiscation liability, the Court balanced this against the petitioner's operational requirements and the need for prompt resolution.
Conclusion: The Court granted conditional relief for release of goods subject to bank guarantee security, ensuring protection of revenue interests while
Challenge to SCN issued u/s 122 (1)(xviii) read with Section 35(6) of the WBGST/CGST Act, 2017 - authority of proper officer under the WBGST/CGST Act, 2017 to seize goods and documents during inspection without recording satisfaction or reasons as required under Section 67 of the said Act - HELD THAT:- Noting that the petitioner no.1 is exclusively involved in the supply of goods to the Ministry of Defence which are required by the Indian Army and further taking into consideration that there are subsisting work order by the Ministry of Defence for supply of diverse items, having regard to the suggestion made by the petitioners, the petitioner no.1 shall be at liberty to seek release of the goods subject to the petitioner no.1 securing 20 per cent of the penalty amount as proposed in the show cause notice dated 27th May, 2025 by way of a bank guarantee.
In the event, the petitioner no.1 approaches the proper officer with a written application enclosing therewith a bank guarantee aggregating 20 per cent of the proposed demand in terms of the show cause dated 27th May, 2025 issued under Section 122 of the said Act, the proper officer shall forthwith take steps for release of the goods and shall release the same as expeditiously as possible but not later than three (3) working days from the date of filing of such application.
Since, prima facie, it appears that the aforesaid show cause has been issued under Section 122 read with Section 35(6) of the said Act, and noting that as per Section 35(6) of the said Act, the respondents were obliged to proceed under Section 73 or 74 of the said Act, though hearing of the show cause may proceed further but the final decision in this regard shall not be communicated to the petitioner without leave of this Court - List this matter for further consideration under the same heading in the Combined Monthly List of July, 2025.
Challenge to SCN issued u/s 122 (1)(xviii) read with Section 35(6) of the WBGST/CGST Act, 2017 - authority of proper officer under the WBGST/CGST Act, 2017 to seize goods and documents during inspection without recording satisfaction or reasons as required under Section 67 of the said Act - HELD THAT:- Noting that the petitioner no.1 is exclusively involved in the supply of goods to the Ministry of Defence which are required by the Indian Army and further taking into consideration that there are subsisting work order by the Ministry of Defence for supply of diverse items, having regard to the suggestion made by the petitioners, the petitioner no.1 shall be at liberty to seek release of the goods subject to the petitioner no.1 securing 20 per cent of the penalty amount as proposed in the show cause notice dated 27th May, 2025 by way of a bank guarantee.
In the event, the petitioner no.1 approaches the proper officer with a written application enclosing therewith a bank guarantee aggregating 20 per cent of the proposed demand in terms of the show cause dated 27th May, 2025 issued under Section 122 of the said Act, the proper officer shall forthwith take steps for release of the goods and shall release the same as expeditiously as possible but not later than three (3) working days from the date of filing of such application.
Since, prima facie, it appears that the aforesaid show cause has been issued under Section 122 read with Section 35(6) of the said Act, and noting that as per Section 35(6) of the said Act, the respondents were obliged to proceed under Section 73 or 74 of the said Act, though hearing of the show cause may proceed further but the final decision in this regard shall not be communicated to the petitioner without leave of this Court - List this matter for further consideration under the same heading in the Combined Monthly List of July, 2025.
Challenge to assessment order - petition filed beyond the statutory period prescribed under Section 117 of the TNGST Act - mismatching between the reported turnover in GSTR 1 and GSTR 3B - HELD THAT:- The petitioner has no case to challenge the impugned order even if the writ petition is filed at an earlier point of time. This writ petition, therefore, is dismissed not only on the ground of laches but also because the petitioner has admitted to the tax liability in a reply dated 06.02.2023.
Petition dismissed.
Challenge to assessment order - petition filed beyond the statutory period prescribed under Section 117 of the TNGST Act - mismatching between the reported turnover in GSTR 1 and GSTR 3B - HELD THAT:- The petitioner has no case to challenge the impugned order even if the writ petition is filed at an earlier point of time. This writ petition, therefore, is dismissed not only on the ground of laches but also because the petitioner has admitted to the tax liability in a reply dated 06.02.2023.
Petition dismissed.
Appropriate forum - appellate authority or not - discrepancy and mismatch that crept in GSTR-3B and GSTR-2A - HELD THAT:- Prima facie, the issue arising out of the discount also is an issue that is interconnected with the mismatch of the credit availed by the petitioner in terms of the return in GSTR3B and GSTR2A. Therefore, there is no merit in the writ petition to challenge the impugned order under Article 226 of the Constitution of India. The issue has to be decided only by the appellate authority under the hierarchy prescribed under the provisions of the TNGST Act 2017/CGST Act 2017. Therefore, this writ petition cannot be entertained, and has to be dismissed with liberty to file a statutory appeal.
Petition disposed off.
Appropriate forum - appellate authority or not - discrepancy and mismatch that crept in GSTR-3B and GSTR-2A - HELD THAT:- Prima facie, the issue arising out of the discount also is an issue that is interconnected with the mismatch of the credit availed by the petitioner in terms of the return in GSTR3B and GSTR2A. Therefore, there is no merit in the writ petition to challenge the impugned order under Article 226 of the Constitution of India. The issue has to be decided only by the appellate authority under the hierarchy prescribed under the provisions of the TNGST Act 2017/CGST Act 2017. Therefore, this writ petition cannot be entertained, and has to be dismissed with liberty to file a statutory appeal.
Petition disposed off.
Rejection of application filed u/s 161 of the TNGST Act, 2017 for rectification of the assessment order - typographical errors - violation of principles of natural justice - HELD THAT:- This court finds that there is a violation of principles of natural justice. Considering the same, the second mentioned impugned order dated 05.06.2025 is set aside, and it is remitted back to the respondent to pass a fresh order under Section 161 of the TNGST Act, 2017. The respondent is directed to pass a fresh order as expeditiously as possible, after affording an opportunity of hearing to the petitioner.
Petition allowed by way of remand.
Rejection of application filed u/s 161 of the TNGST Act, 2017 for rectification of the assessment order - typographical errors - violation of principles of natural justice - HELD THAT:- This court finds that there is a violation of principles of natural justice. Considering the same, the second mentioned impugned order dated 05.06.2025 is set aside, and it is remitted back to the respondent to pass a fresh order under Section 161 of the TNGST Act, 2017. The respondent is directed to pass a fresh order as expeditiously as possible, after affording an opportunity of hearing to the petitioner.
Petition allowed by way of remand.
The core legal questions considered by the Court in this matter are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Legitimacy of Interest Demand under Section 50(1) CGST Act, 2017
Legal Framework and Precedents: Section 50(1) of the CGST Act, 2017 mandates the payment of interest on delayed payment of tax. Rule 88B of the CGST Rules, 2017 provides the procedural mechanism for calculation and levy of such interest. The law is settled that interest is a mandatory charge for delayed tax payments, regardless of whether the tax is ultimately paid.
Court's Interpretation and Reasoning: The Court observed that the petitioner admittedly paid the disputed tax amount but belatedly. The levy of interest under Section 50(1) is automatic and mandatory in such circumstances. The Court found no scope for interference with the interest demand of Rs. 11,82,520/- (CGST and SGST combined) imposed on the petitioner for delayed payment.
Application of Law to Facts: Since the petitioner delayed payment of tax amounting to Rs. 57,20,514/-, the interest demand was rightly imposed. The Court upheld the interest demand as lawful and consistent with the statutory provisions.
Treatment of Competing Arguments: The petitioner's contention that tax was paid and therefore interest should not be levied was rejected, as the statute clearly mandates interest for delayed payment. The Court found no merit in this argument.
Conclusion: The interest demand under Section 50(1) CGST Act, 2017 read with Rule 88B was confirmed and upheld.
Issue 2: Validity of Penalty Imposed under Section 73(9) and Section 122(2)(a) CGST Act, 2017
Legal Framework and Precedents: Section 73 of the CGST Act deals with determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized for any reason other than fraud or willful misstatement or suppression of facts. Section 73(9) authorizes imposition of penalty. Section 122(2)(a) prescribes penalty for certain offences under the Act. The petitioner is liable to pay penalty if found liable under these provisions.
Court's Interpretation and Reasoning: The Court noted that the penalty of Rs. 5,72,052/- was imposed for the delayed payment of tax. However, the Court expressed inclination to entertain the petitioner's challenge to the penalty, recognizing that the petitioner may have a case for interference on penalty imposition despite the tax being paid belatedly.
Key Evidence and Findings: The impugned order confirmed penalty demand after considering the facts of delayed tax payment. The petitioner argued that the penalty was unjustified as the tax was paid, though late, and that their reply was not considered.
Application of Law to Facts: While interest is mandatory for delayed payment, penalty imposition depends on the circumstances and is subject to procedural safeguards. The Court found it appropriate to allow the petitioner to challenge the penalty via appeal rather than interfere in writ jurisdiction.
Treatment of Competing Arguments: The petitioner's grievance regarding non-consideration of their reply was acknowledged, but the Court emphasized that the proper forum to address such grievances is the Appellate Authority.
Conclusion: The penalty demand was not interfered with at the writ stage; however, the petitioner was granted liberty to challenge the penalty through statutory appeal, subject to pre-deposit conditions.
Issue 3: Consideration of Petitioner's Reply and Procedural Fairness
Legal Framework and Precedents: Principles of natural justice require that a party's submissions be considered before passing adverse orders. The GST law and rules mandate issuance of show cause notices and opportunity to be heard.
Court's Interpretation and Reasoning: The petitioner contended that their reply was not considered, amounting to a palpable error. The Court noted this contention but did not find sufficient grounds to interfere in writ jurisdiction, as the petitioner has remedy of appeal.
Application of Law to Facts: The Court directed that the petitioner may raise these issues before the Appellate Authority, which is empowered to examine procedural compliance and consider the petitioner's submissions afresh.
Treatment of Competing Arguments: The respondents maintained that the order was passed after due consideration and that the petitioner's remedy lies in appeal.
Conclusion: The Court declined to interfere on grounds of non-consideration of reply in writ jurisdiction, leaving the issue open for appellate adjudication.
Issue 4: Availability and Appropriateness of Writ Jurisdiction under Article 226
Legal Framework and Precedents: Article 226 of the Constitution of India empowers High Courts to issue writs for enforcement of fundamental rights and for any other purpose. However, where an efficacious alternate remedy exists, writ jurisdiction is generally not exercised.
Court's Interpretation and Reasoning: The Court emphasized that the petitioner has an alternate remedy of appeal before the Appellate Authority under the GST law. Hence, the writ petition was disposed of at admission stage, directing the petitioner to avail the appellate remedy.
Application of Law to Facts: The Court found no exceptional circumstances warranting exercise of writ jurisdiction, especially since the petitioner was directed
Levy of interest and penalty - tax paid though belatedly - petitioner's reply has not been considered - violation of principles of natural justice - HELD THAT:- There is a dispute that the petitioner has paid disputed tax belatedly and therefore, the interest has been levied under Section 50(1) of CGST/TNGST Act, 2017 r/w Rule 88B of the CGST Rule, 2017. Therefore, there cannot be any scope for any interference.
Demand of interest - HELD THAT:- The petitioner may have a case for interference that the penalty imposed for a sum of Rs. 5,72,052/- under Section 73(9) of the CGST/TNGST Act, 2017 r/w Section 122(2) (a) of the respective Act, 2017. Therefore, the Court is inclined to dispose of this Writ Petition at the time of admission by directing the petitioner to pay the interest levied vide the impugned order and giving liberty to the petitioner to challenge the impugned order insofar as the imposition of penalty is concerned.
Demand of penalty - HELD THAT:- The petitioner has to comply with the other mandatory requirements under Section 107 of respective GST enactments including pre-deposit of 10% of the disputed penalty. If such appeal is filed within a period of 30 days from the date of receipt of a copy of this order, together with the above deposit, the Appellate Commissioner is directed to consider the appeal and dispose of the same without reference to limitation, if any that he may rise.
Conclusion - i) The interest demand under Section 50(1) CGST Act, 2017 read with Rule 88B was confirmed and upheld. ii) The penalty demand was not interfered with at the writ stage; however, the petitioner was granted liberty to challenge the penalty through statutory appeal, subject to pre-deposit conditions. iii) The Court declined to interfere on grounds of non-consideration of reply in writ jurisdiction, leaving the issue open for appellate adjudication.
Petition disposed off.
Levy of interest and penalty - tax paid though belatedly - petitioner's reply has not been considered - violation of principles of natural justice - HELD THAT:- There is a dispute that the petitioner has paid disputed tax belatedly and therefore, the interest has been levied under Section 50(1) of CGST/TNGST Act, 2017 r/w Rule 88B of the CGST Rule, 2017. Therefore, there cannot be any scope for any interference.
Demand of interest - HELD THAT:- The petitioner may have a case for interference that the penalty imposed for a sum of Rs. 5,72,052/- under Section 73(9) of the CGST/TNGST Act, 2017 r/w Section 122(2) (a) of the respective Act, 2017. Therefore, the Court is inclined to dispose of this Writ Petition at the time of admission by directing the petitioner to pay the interest levied vide the impugned order and giving liberty to the petitioner to challenge the impugned order insofar as the imposition of penalty is concerned.
Demand of penalty - HELD THAT:- The petitioner has to comply with the other mandatory requirements under Section 107 of respective GST enactments including pre-deposit of 10% of the disputed penalty. If such appeal is filed within a period of 30 days from the date of receipt of a copy of this order, together with the above deposit, the Appellate Commissioner is directed to consider the appeal and dispose of the same without reference to limitation, if any that he may rise.
Conclusion - i) The interest demand under Section 50(1) CGST Act, 2017 read with Rule 88B was confirmed and upheld. ii) The penalty demand was not interfered with at the writ stage; however, the petitioner was granted liberty to challenge the penalty through statutory appeal, subject to pre-deposit conditions. iii) The Court declined to interfere on grounds of non-consideration of reply in writ jurisdiction, leaving the issue open for appellate adjudication.
Petition disposed off.
Cancellation of GST registration in Form GST REG-19 which precedes the SCN - failure of the petitioner to file returns for the continues period of 6 months - HELD THAT:- The issue is now covered partly in favour of the petitioner by balancing the interest of the Revenue in terms of the decision of this Court in Tvl.Suguna Cutpiece Centre Vs. The Appellate Deputy Commissioner (ST) (GST) and another [2022 (2) TMI 933 - MADRAS HIGH COURT], which has also been followed recently by this Court in Tvl.Blue Diamond Engineers, rep. by its Proprietor, V.Rajan, Kanyakumari District Vs. The Commissioner of Commercial Taxes, Chennai and other) [2024 (4) TMI 1167 - MADRAS HIGH COURT].
Considering the same, the petitioner is directed to comply with the directions stipulated in Tvl.Suguna Cutpiece Centre Vs. The Appellate Deputy Commissioner (ST) (GST) and another. Subject to the petitioner complying with the conditions stipulated therein, the impugned order shall stand quashed.
The Writ Petition stands allowed at the time of admission.
Cancellation of GST registration in Form GST REG-19 which precedes the SCN - failure of the petitioner to file returns for the continues period of 6 months - HELD THAT:- The issue is now covered partly in favour of the petitioner by balancing the interest of the Revenue in terms of the decision of this Court in Tvl.Suguna Cutpiece Centre Vs. The Appellate Deputy Commissioner (ST) (GST) and another [2022 (2) TMI 933 - MADRAS HIGH COURT], which has also been followed recently by this Court in Tvl.Blue Diamond Engineers, rep. by its Proprietor, V.Rajan, Kanyakumari District Vs. The Commissioner of Commercial Taxes, Chennai and other) [2024 (4) TMI 1167 - MADRAS HIGH COURT].
Considering the same, the petitioner is directed to comply with the directions stipulated in Tvl.Suguna Cutpiece Centre Vs. The Appellate Deputy Commissioner (ST) (GST) and another. Subject to the petitioner complying with the conditions stipulated therein, the impugned order shall stand quashed.
The Writ Petition stands allowed at the time of admission.
The core legal questions considered by the Court in this writ petition are:
(a) Whether the cancellation of the petitioner's GST registration on the ground of non-filing of GSTR-3B returns for more than six consecutive months and non-response to GSTR-3A notice was legally sustainable.
(b) Whether the petitioner's inability to file returns due to loss of login credentials, caused by circumstances beyond his control, constitutes sufficient cause to revoke the cancellation of GST registration.
(c) Whether the petitioner, having subsequently filed all defaulted returns along with applicable penalties, is entitled to restoration of GST registration.
(d) Whether the precedents established by this Court in similar writ petitions (WP(C) 7057/2024 and WP(C) 70/2025) apply to the facts of the present case, thereby entitling the petitioner to similar relief.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (a): Legality of Cancellation of GST Registration for Non-Filing of Returns
The Goods and Services Tax Act, 2017, mandates regular filing of returns such as GSTR-3B and GSTR-3A. Non-filing for a continuous period of six months authorizes the tax authorities to cancel the GST registration of the assessee. This is a statutory provision aimed at ensuring compliance and preventing tax evasion.
The Superintendent of CGST Pasighat Range passed the cancellation order dated 26.12.2019 on the ground that the petitioner had not filed returns for more than six consecutive months and had not responded to the GSTR-3A notice.
The Court recognized the statutory basis for such cancellation but examined whether the facts justified strict application of the provision in this case.
Issue (b): Effect of Loss of Login Credentials and Inability to Access GST Portal
The petitioner contended that the inability to file returns was due to loss of login credentials, caused by the closure of the cyber cafe through which the petitioner had initially registered and accessed the GST portal. The petitioner claimed ignorance of the cancellation notice due to lack of access to e-mails and GST portal.
The Court considered this as a significant factual circumstance. The petitioner had no direct control or fault in losing access credentials, which prevented compliance. The petitioner's subsequent application on 05.04.2025 to change login credentials and the assistance provided by the Superintendent of CGST to reset credentials on 06.05.2025 were relevant facts.
The Court interpreted this as a sufficient cause to excuse the initial non-filing and non-response, emphasizing that procedural non-compliance caused by factors beyond the petitioner's control warranted leniency.
Issue (c): Filing of Defaulted Returns and Payment of Penalties
After regaining access, the petitioner filed all defaulted returns up to April 2020, including late fines and penalties as prescribed under the GST law. The petitioner also expressed willingness to file returns and pay penalties for any remaining outstanding periods upon revocation of cancellation.
The Court found that acceptance of defaulted returns by the GST authorities demonstrated the petitioner's bona fide intention to comply with statutory obligations. This fact weighed in favor of restoring the registration.
Issue (d): Applicability of Precedents
The petitioner relied on two prior orders of this Court in WP(C) 7057/2024 and WP(C) 70/2025, where similar relief was granted under comparable facts. The respondents conceded that those precedents were applicable.
The Court examined those precedents and found that they squarely covered the present case, particularly regarding the principle that cancellation of GST registration can be revoked if the assessee files all pending returns and pays outstanding dues, especially when non-filing was due to circumstances beyond the assessee's control.
The Court emphasized consistency and fairness in applying these principles.
3. SIGNIFICANT HOLDINGS
The Court held that:
"The orders dated 03.01.2025 and 24.02.2025 passed in Krishanu Borthakur and Ms Yassung Yangfo would cover the case of the petitioner and accordingly, the petitioner would be entitled to be provided with the similar relief as granted in the above two cases."
The Court directed the Superintendent of CGST and CX Pasighat Range to revoke the cancellation of the petitioner's GST registration and to intimate the petitioner about any outstanding statutory dues.
Upon payment of such dues, the respondent authority was directed to pass appropriate orders restoring the GST registration.
The Court's reasoning established the following core principles:
Final determination was that the writ petition was to be disposed of by directing revocation of cancellation and restoration of GST registration upon compliance with outstanding statutory dues.
Cancellation of GST registration of the petitioner - petitioner assessee has stopped filing GSTR-3B returns for more than six consecutive months and also not responded to the GSTR-3A notice - HELD THAT:- Having perused of the decision in Krishanu Borthakur [2025 (1) TMI 721 - GAUHATI HIGH COURT] would cover the case of the petitioner and accordingly, the petitioner would be entitled to be provided with the similar relief as granted in the above case - it was held in the above case that 'If the petitioner is not included within the GST regime, then any statutory dues that may be required to be deposited by the petitioner will not be deposited and which will not be in the interest of the revenue. Therefore, in order that the petitioner is required to comply with his statutory obligations of payment of taxes under the GST regime, it would be necessary for the departmental authorities to re-consider the prayer of the petitioner for revocation of his cancellation of GST registration.'
This present writ petition stands disposed of with a direction to the Superintendent of CGST and CX Pasighat Range, Arunachal Pradesh, shall revoke the cancellation of GST registration of the petitioner and shall intimate the petitioner the total outstanding statutory dues, standing in the name of the petitioner, if any. Upon payment of outstanding statutory dues, if any, under GST by the petitioner, the respondent authority shall pass appropriate order and restore the GST registration of the petitioner.
Petition disposed off.
Cancellation of GST registration of the petitioner - petitioner assessee has stopped filing GSTR-3B returns for more than six consecutive months and also not responded to the GSTR-3A notice - HELD THAT:- Having perused of the decision in Krishanu Borthakur [2025 (1) TMI 721 - GAUHATI HIGH COURT] would cover the case of the petitioner and accordingly, the petitioner would be entitled to be provided with the similar relief as granted in the above case - it was held in the above case that 'If the petitioner is not included within the GST regime, then any statutory dues that may be required to be deposited by the petitioner will not be deposited and which will not be in the interest of the revenue. Therefore, in order that the petitioner is required to comply with his statutory obligations of payment of taxes under the GST regime, it would be necessary for the departmental authorities to re-consider the prayer of the petitioner for revocation of his cancellation of GST registration.'
This present writ petition stands disposed of with a direction to the Superintendent of CGST and CX Pasighat Range, Arunachal Pradesh, shall revoke the cancellation of GST registration of the petitioner and shall intimate the petitioner the total outstanding statutory dues, standing in the name of the petitioner, if any. Upon payment of outstanding statutory dues, if any, under GST by the petitioner, the respondent authority shall pass appropriate order and restore the GST registration of the petitioner.
Petition disposed off.
Wrongful availment of IGST - territorial jurisdiction - it is the case of the petitioner that IGST which was to be availed in Tamil Nadu Unit was wrongly availed in Telegana and was also reversed in Telegana - HELD THAT:- Prima facie, the petitioner has made out a case for the relief for which the petitioner seeks for before the respondents.
Considering the same, there shall be a direction to the respondent to consider the representation of the petitioner, dated 06.01.2025 and pass appropriate orders on merits and in accordance with law within a period of two months from the date of receipt of a copy of this order. It is needless to state that the petitioner shall be heard before any adverse orders are proposed to be passed.
Petition disposed off.
Wrongful availment of IGST - territorial jurisdiction - it is the case of the petitioner that IGST which was to be availed in Tamil Nadu Unit was wrongly availed in Telegana and was also reversed in Telegana - HELD THAT:- Prima facie, the petitioner has made out a case for the relief for which the petitioner seeks for before the respondents.
Considering the same, there shall be a direction to the respondent to consider the representation of the petitioner, dated 06.01.2025 and pass appropriate orders on merits and in accordance with law within a period of two months from the date of receipt of a copy of this order. It is needless to state that the petitioner shall be heard before any adverse orders are proposed to be passed.
Petition disposed off.
The core legal questions considered by the Court in this matter include:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Validity and sustainability of the impugned order under Section 74 of the TNGST Act, 2017
Relevant legal framework and precedents: Section 74 of the TNGST Act, 2017, deals with cases of tax evasion where a show cause notice is issued and an opportunity of personal hearing is provided before confirming the tax demand along with interest and penalty. The adjudicating authority is required to consider the reply of the assessee and pass a reasoned order.
Court's interpretation and reasoning: The Court observed that the impugned order was passed without proper application of mind to the petitioner's reply. The order stated that the petitioner had not submitted original invoices or certificates as required under Section 16(2) of the Act and Circular No. 183-2022, but did not engage with the petitioner's submissions in detail. The order was found to be non-speaking and mechanical, merely confirming the proposal due to non-appearance at personal hearings.
Key evidence and findings: The impugned order itself recorded that the petitioner did not appear for three personal hearings despite reminders and did not file original documents or certificates. However, the petitioner had submitted replies to the notices, which were not adequately considered. The Court noted this procedural deficiency.
Application of law to facts: The Court held that an order under Section 74 must be reasoned and based on proper consideration of the assessee's reply. The failure to consider the reply renders the order liable to be quashed. The absence of personal hearing attendance alone does not justify a non-speaking confirmation of the tax demand.
Treatment of competing arguments: While the revenue argued that the petitioner failed to comply with procedural requirements and did not appear for hearings, the petitioner contended that their replies were filed and ought to have been considered. The Court sided with the petitioner on the ground of non-application of mind by the adjudicating authority.
Conclusions: The impugned order was quashed and the matter remitted for fresh adjudication on merits, with directions to consider the petitioner's detailed reply and pass a speaking order.
Issue 2: Compliance with limitation period for filing appeal under Section 107 of the TNGST Act, 2017
Relevant legal framework and precedents: Section 107 of the TNGST Act provides the right of appeal against orders passed under the Act, subject to prescribed limitation periods.
Court's interpretation and reasoning: The petitioner filed the writ petition two days after the expiry of the limitation period for filing an appeal before the Commissioner. The Court noted this delay but, in view of the procedural infirmities in the impugned order, proceeded to entertain the writ petition.
Key evidence and findings: The writ petition was filed on 05.06.2025, two days beyond the limitation period. No explanation for the delay was recorded in the judgment.
Application of law to facts: The Court exercised its discretionary jurisdiction to entertain the writ petition notwithstanding the delay, given the non-speaking nature of the impugned order and the need to ensure fair adjudication.
Treatment of competing arguments: The respondent relied on the limitation period to oppose the writ petition, but the Court prioritized the substantive issue of non-application of mind.
Conclusions: The limitation issue did not bar the Court from exercising its jurisdiction to quash the impugned order.
Issue 3: Correctness of the tax demand, interest, and penalty imposed
Relevant legal framework and precedents: Under the GST law, tax demands, interest, and penalties can be imposed where tax evasion is established. Section 74 provides the procedural framework for such adjudication.
Court's interpretation and reasoning: The Court did not delve into the correctness of the quantum of tax, interest, or penalty, as the impugned order was quashed for non-application of mind. The Court directed fresh adjudication on merits.
Key evidence and findings: The impugned order quantified the total liability as Rs. 6,45,580, including tax, interest, and penalty. Interest was calculated up to the date of the order, with a direction to compute further interest till payment.
Application of law to facts: Since the order was quashed, the correctness of the demand is to be examined afresh after proper consideration of the petitioner's submissions and documents.
Treatment of competing arguments: The petitioner challenged the order on grounds of procedural impropriety; the respondent upheld the demand based on non-compliance and non-appearance.
Conclusions: The issue remains open for fresh adjudication.
Issue 4: Procedural propriety in issuance of notices and conduct of personal hearings
Relevant legal framework and precedents: The GST law mandates issuance of notices and opportunity for personal hearing before confirming tax demands. Proper communication and recording of proceedings are essential.
Court's interpretation and reasoning: The impugned order recorded issuance of three personal hearing reminders, none of which were attended by the petitioner. However, the petitioner had submitted replies to the notices. The Court found that despite non-appearance, the replies ought to have been considered.
Key evidence and findings: Notices in Forms GST DRC-01A and GST DRC-01 were issued under Sections 73(5) and 74 respectively. Personal hearing notices were issued but no appearance was made by the petitioner.
Application of law to facts: The Court emphasized that non-appearance does not relieve the authority from the obligation to consider written submissions. The absence of a speaking order addressing the replies was fatal.
Treatment of competing arguments: The respondent contended that repeated non-appearance justified confirmation of the proposal. The Court held that this alone cannot substitute for reasoned adjudication.
Conclusions: The procedural requirements were not fully complied with in spirit, necessitating fresh adjudication.
3. SIGNIFICANT HOLDINGS
The Court held that:
"A reading of the impugned order indicates that it is a nonspeaking order and reflects non-application of mind to the reply filed by the petitioner."
"Hence, this Court has no option except to quash the impugned order and remit the matter back to the respondent to pass a fresh order on merits, as expeditiously as possible, preferably within a period of three months."
"The petitioner shall file a detailed reply within a period of 30 days from the date of receipt of a copy of this order."
Core principles established include:
Final determinations:
Maintainability of petition - time limitation - petitioner has filed this writ petition two days after the expiry of the limitation period for filing an appeal under Section 107 of the TNGST Act, 2017 - ex-parte impugned order - Non-speaking order - violation of principles of natural justice - HELD THAT:- A reading of the impugned order indicates that it is a nonspeaking order and reflects non-application of mind to the reply filed by the petitioner. Therefore, this Court has no option except to quash the impugned order and remit the matter back to the respondent to pass a fresh order on merits, as expeditiously as possible, preferably within a period of three months from the date of receipt of a copy of this order. The petitioner shall file a detailed reply within a period of 30 days from the date of receipt of a copy of this order.
Petition disposed off.
Maintainability of petition - time limitation - petitioner has filed this writ petition two days after the expiry of the limitation period for filing an appeal under Section 107 of the TNGST Act, 2017 - ex-parte impugned order - Non-speaking order - violation of principles of natural justice - HELD THAT:- A reading of the impugned order indicates that it is a nonspeaking order and reflects non-application of mind to the reply filed by the petitioner. Therefore, this Court has no option except to quash the impugned order and remit the matter back to the respondent to pass a fresh order on merits, as expeditiously as possible, preferably within a period of three months from the date of receipt of a copy of this order. The petitioner shall file a detailed reply within a period of 30 days from the date of receipt of a copy of this order.
Petition disposed off.
The core legal questions considered by the Court in these Writ Petitions are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Entitlement to Personal Hearing Before Passing Adverse Orders
Relevant legal framework and precedents: Section 75(4) of the TNGST Act mandates that before passing any order imposing tax or penalty or confirming demand, the authority shall provide the person concerned an opportunity of being heard. This provision embodies the principle of audi alteram partem, a cornerstone of natural justice, requiring that no one should be condemned unheard.
Court's interpretation and reasoning: The Court noted that the petitioner had filed a detailed reply to the show cause notice but was not afforded an opportunity of personal hearing before the impugned orders were passed. The respondent admitted that no personal hearing was provided after the reply was filed. The Court emphasized that where an adverse decision is contemplated, Section 75(4) requires the authority to grant an opportunity of personal hearing.
Key evidence and findings: The petitioner had issued a communication dated 12.08.2024 requesting an extension of time to file a detailed reply and an opportunity for personal hearing, citing multiple GST assessments pending at the PAN India level. The respondent did not accede to this request and proceeded to confirm the proposals without hearing the petitioner.
Application of law to facts: The Court found that the failure to provide personal hearing before confirming the proposals was a breach of the statutory mandate under Section 75(4) and a violation of natural justice principles. The petitioner's request for personal hearing was neither considered nor granted, rendering the impugned orders procedurally defective.
Treatment of competing arguments: The respondent contended that the demand had already been quantified in the show cause notice and implied that personal hearing was not necessary before passing the impugned order. However, the Court rejected this argument, holding that the statutory scheme requires personal hearing before confirming any adverse demand.
Conclusions: The Court concluded that the petitioner was entitled to personal hearing before passing the impugned orders and that the failure to provide such opportunity vitiated the orders.
Issue 2: Violation of Principles of Natural Justice
Relevant legal framework and precedents: The principles of natural justice, particularly audi alteram partem, require that a party affected by an adverse order must be given a fair opportunity to present their case. The TNGST Act's Section 75(4) codifies this principle in the GST context.
Court's interpretation and reasoning: The Court observed that the impugned orders were passed without hearing the petitioner despite their specific request. This omission was held to be a clear violation of natural justice.
Key evidence and findings: The petitioner's communication requesting extension and personal hearing was on record. The respondent's failure to respond substantively to this request and the absence of any personal hearing before passing the orders were established facts.
Application of law to facts: The Court applied the principle that natural justice is a fundamental requirement in quasi-judicial proceedings such as GST assessments and found the impugned orders unsustainable.
Treatment of competing arguments: The respondent's admission that no personal hearing was provided was significant. The Court noted that the respondent's procedural lapse could not be condoned merely because the demand was quantified earlier.
Conclusions: The Court held that the impugned orders suffer from violation of natural justice and are liable to be set aside on this ground.
Issue 3: Remedy and Directions for Fresh Consideration
Relevant legal framework and precedents: When procedural irregularities are established, the appropriate remedy is often to set aside the impugned order and remand the matter for fresh consideration in accordance with law, ensuring compliance with statutory provisions and principles of natural justice.
Court's interpretation and reasoning: The respondent suggested that the impugned orders be treated as show cause notices afresh, allowing the petitioner to file additional replies and documents, and thereafter affording personal hearing before passing any final order. The petitioner agreed to this course.
Key evidence and findings: The Court considered the submissions of both parties and the record, including the petitioner's difficulties due to multiple GST notices and the respondent's willingness to reconsider the matter.
Application of law to facts: The Court found this approach just and equitable, ensuring that the petitioner's rights are protected and the statutory mandate is fulfilled.
Treatment of competing arguments: No serious objection was raised by either party to the proposed remedy. The Court accepted the joint submission as a fair resolution.
Conclusions: The Court set aside the impugned orders dated 12.03.2025, remanded the matters to the respondent for fresh consideration treating the impugned orders as show cause notices, directed the petitioner to file additional replies within six weeks, and mandated the respondent to provide a personal hearing opportunity before passing fresh orders.
3. SIGNIFICANT HOLDINGS
The Court held:
"In terms of Section 75(4) of the TNGST Act, an opportunity of hearing has to be granted, where any adverse decision is contemplated against taxpayer."
"The impugned orders suffer not only from violation of principles of natural justice but also against the provisions contemplated under Section 75(4) of the CGST Act."
"The impugned orders dated 12.03.2025 are set aside and the matters are remanded to the respondent for fresh consideration."
"The petitioner is directed to treat the impugned orders as show cause notices and shall file additional replies along with supportive documents within six weeks."
"The respondent shall issue a 7 clear days notice affording an opportunity of personal hearing to the petitioner and decide the matters in accordance with law."
Core principles established include the mandatory requirement of personal hearing before confirming any adverse demand under GST law, the inviolability of natural justice principles in quasi-judicial proceedings, and the procedural safeguards embodied in Section 75(4) of the TNGST Act.
The final determination was that the impugned orders were legally unsustainable due to procedural infirmities and were set aside with directions for fresh adjudication in compliance with statutory and natural justice requirements.
Violation of principles of natural justice - impugned order has been passed on the ground that the reply is not acceptable and the defect is confirmed - HELD THAT:- As rightly pointed out by the learned Senior Counsel for the petitioner, the impugned orders suffer from violation of principles of natural justice. Further, the impugned orders has been passed against the provisions contemplated under Section 75 (4) of the TNGST Act, inasmuch as, in terms of Section 75 (4) of the TNGST Act, an opportunity of hearing has to be granted, where any adverse decision is contemplated against taxpayer (petitioner in this case).
The impugned orders passed by the respondent dated 12.03.2025 are set aside - the matters are remanded to the respondent for fresh consideration - Petition allowed by way of remand.
Violation of principles of natural justice - impugned order has been passed on the ground that the reply is not acceptable and the defect is confirmed - HELD THAT:- As rightly pointed out by the learned Senior Counsel for the petitioner, the impugned orders suffer from violation of principles of natural justice. Further, the impugned orders has been passed against the provisions contemplated under Section 75 (4) of the TNGST Act, inasmuch as, in terms of Section 75 (4) of the TNGST Act, an opportunity of hearing has to be granted, where any adverse decision is contemplated against taxpayer (petitioner in this case).
The impugned orders passed by the respondent dated 12.03.2025 are set aside - the matters are remanded to the respondent for fresh consideration - Petition allowed by way of remand.
Cancellation of GST registration - petitioner has already paid the amount to the respondent Nos. 1 and 2 - HELD THAT:- Considering the facts and circumstances on the record, this Court is inclined to allow this petition by setting aside the impugned cancellation order dated 04.12.2023. The respondent authorities are directed to verify whether any further amount is due from the petitioner and if any amount is found to be due, then the petitioner be notified and on payment of the same, the respondent authorities shall restore the GST registration of the petitioner.
Petition disposed off.
Cancellation of GST registration - petitioner has already paid the amount to the respondent Nos. 1 and 2 - HELD THAT:- Considering the facts and circumstances on the record, this Court is inclined to allow this petition by setting aside the impugned cancellation order dated 04.12.2023. The respondent authorities are directed to verify whether any further amount is due from the petitioner and if any amount is found to be due, then the petitioner be notified and on payment of the same, the respondent authorities shall restore the GST registration of the petitioner.
Petition disposed off.
- Whether the delay of 72 days in filing the appeal against the ex-parte assessment order can be condoned despite being beyond the statutory condonable period.
- Whether the petitioner's claim of unawareness of the ex-parte assessment order due to non-notification, despite uploading on the GST common portal, constitutes sufficient cause for condonation of delay.
- Whether the petitioner's offer to pay an additional pre-deposit of 15% of the disputed tax amount, over and above the initial 10% pre-deposit, is sufficient and appropriate as a condition for condoning the delay.
- Whether the rejection order passed by the respondent on the ground of limitation should be set aside and the appeal be admitted for adjudication on merits.
2. ISSUE-WISE DETAILED ANALYSIS
Delay in Filing Appeal and Condonation
The legal framework governing appeals against GST assessment orders mandates strict adherence to limitation periods. The respondent rejected the appeal due to a delay of 72 days, which exceeded the condonable period prescribed under the relevant GST appellate provisions.
The petitioner contended that the delay arose from unawareness of the ex-parte assessment order, which was uploaded on the GST common portal but went unnoticed. This lack of actual notice prevented timely filing of the appeal. The Court examined whether such a circumstance qualifies as sufficient cause for condonation.
The Court acknowledged that while procedural requirements demand notice and timely filing, the petitioner's inability to notice the uploaded order was a genuine reason. The Court recognized that ex-parte orders may not come to the attention of the affected party unless actively monitored on the portal. This reasoning aligns with principles that delay caused by non-receipt of notice or unawareness, especially in electronic communication systems, can constitute sufficient cause for condonation if bona fide.
The Court balanced the competing arguments: the respondent's insistence on strict limitation compliance versus the petitioner's genuine unawareness. The Court found the petitioner's explanation credible and sufficient to justify condonation of delay subject to conditions.
Pre-deposit Condition for Condonation
Statutory provisions require a pre-deposit of a percentage of the disputed tax amount as a condition precedent for entertaining appeals. The petitioner had already deposited 10% at the time of filing the appeal. Given the delay of 72 days, the Court considered the petitioner's willingness to pay an additional 15% pre-deposit as a factor mitigating the delay and ensuring compliance with statutory safeguards.
The Court's direction to pay the additional 15% pre-deposit serves as a balancing measure: it protects the revenue interest while permitting the petitioner to pursue the appeal on merits. This approach is consistent with precedents that allow condonation of delay with enhanced pre-deposit as a condition.
Setting Aside the Rejection Order and Admission of Appeal
On condoning the delay and subject to the payment of the additional pre-deposit, the Court set aside the impugned rejection order dated 27.12.2024. The Court directed the respondent to admit the appeal and proceed to decide it on merits after affording the petitioner sufficient opportunity.
This ensures that procedural technicalities do not bar substantive adjudication where the petitioner has demonstrated bona fide reasons and complied with conditions imposed by the Court.
3. SIGNIFICANT HOLDINGS
"The above reason assigned by the petitioner, for the delay in filing the appeal against the assessment order, appears to be genuine. In such view of the matter, this Court is inclined to condone the delay, in filing the appeal against the impugned assessment order, on terms."
"Accordingly, the rejection order dated 27.12.2024 passed by the 1st respondent is set aside and the delay of 72 days in filing the appeal before the 1st respondent is hereby condoned, subject to the payment of additional 15% of the disputed tax amount by the petitioner to the 1st respondent."
"Upon payment of the said amount, the 1st respondent is directed to take the appeal on record and pass appropriate orders on merits and in accordance with law, after providing sufficient opportunity to the petitioner, as expeditiously as possible."
Core principles established include:
Final determinations on each issue are:
Rejection of appeal on the ground of time limitation - petitioner had already paid 10% towards statutory pre-deposit while filing the appeal and now, he is willing to pay additional pre-deposit of 15% of disputed tax amount - HELD THAT:- In the case on hand, the ex-parte assessment order came to be passed on 31.08.2023. Aggrieved over the same, an appeal was belatedly preferred by the petitioner on 09.02.2024, i.e., with a delay of 72 days. Since the delay was beyond the condonable period, the said appeal was rejected by the respondent vide impugned order dated 27.12.2024. According to the petitioner, since the assessment order was passed in ex-parte, they remained unaware of the said order and hence, they were unable to file the appeal within time - The above reason assigned by the petitioner, for the delay in filing the appeal against the assessment order, appears to be genuine. In such view of the matter, this Court is inclined to condone the delay, in filing the appeal against the impugned assessment order, on terms.
Though the petitioner had already paid 10% of the disputed tax amount as statutory pre-deposit while filing the appeal, considering the delay of 72 days, this Court directs the petitioner to pay additional 15% of the disputed tax amount to the respondents, as agreed by the petitioner.
Conclusion - The 72-day delay in filing the appeal is condoned on the ground of genuine unawareness of the ex-parte order.
Petition disposed off.
Rejection of appeal on the ground of time limitation - petitioner had already paid 10% towards statutory pre-deposit while filing the appeal and now, he is willing to pay additional pre-deposit of 15% of disputed tax amount - HELD THAT:- In the case on hand, the ex-parte assessment order came to be passed on 31.08.2023. Aggrieved over the same, an appeal was belatedly preferred by the petitioner on 09.02.2024, i.e., with a delay of 72 days. Since the delay was beyond the condonable period, the said appeal was rejected by the respondent vide impugned order dated 27.12.2024. According to the petitioner, since the assessment order was passed in ex-parte, they remained unaware of the said order and hence, they were unable to file the appeal within time - The above reason assigned by the petitioner, for the delay in filing the appeal against the assessment order, appears to be genuine. In such view of the matter, this Court is inclined to condone the delay, in filing the appeal against the impugned assessment order, on terms.
Though the petitioner had already paid 10% of the disputed tax amount as statutory pre-deposit while filing the appeal, considering the delay of 72 days, this Court directs the petitioner to pay additional 15% of the disputed tax amount to the respondents, as agreed by the petitioner.
Conclusion - The 72-day delay in filing the appeal is condoned on the ground of genuine unawareness of the ex-parte order.
Petition disposed off.
The core legal questions considered by the Court are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Duplication of Demand in Respect of Pancham Trading Co. and Applicability of Section 6(2)(b) of the CGST Act
Relevant Legal Framework and Precedents: Section 6(2)(b) of the CGST Act prohibits the issuance of multiple demands for the same tax liability on the same transaction or occurrence. The principle of non-duplication of tax demand is well-established to prevent double recovery and ensure fairness in tax administration.
Court's Interpretation and Reasoning: The Court noted that the Petitioner had already received a show cause notice from the Delhi GST authorities for the same period (July 2017 to March 2018) and for the same amount concerning Pancham Trading Co. The impugned order dated 27th January 2025 raises a demand for the same amount again, which prima facie amounts to duplication of demand.
Key Evidence and Findings: The Petitioner placed on record the order dated 14th December 2023 passed by the State GST authorities, which raised a demand of Rs. 22,03,320/- for the same period and entity. The existence of this prior adjudication was undisputed.
Application of Law to Facts: The Court held that subjecting the Petitioner to demand twice over for the same tax liability would violate Section 6(2)(b) of the CGST Act. Thus, the demand relating to Pancham Trading Co. in the impugned order cannot be enforced.
Treatment of Competing Arguments: The Respondent contended that the demand under Section 74 of the CGST Act was valid and the Petitioner should proceed by way of appeal. However, the Court distinguished the two demands by their subject entities and periods, finding that the duplication related specifically to Pancham Trading Co.
Conclusions: The Court concluded that the Petitioner cannot be subjected to a second demand for Pancham Trading Co. for the same period and amount, thereby protecting the Petitioner from double recovery.
Issue 2: Validity of the Impugned Order and the Petitioner's Right to Appeal
Relevant Legal Framework and Precedents: Section 74 of the CGST Act deals with determination of tax not paid or short paid or ITC wrongly availed or utilized by reason of fraud, willful misstatement or suppression of facts. Section 107 provides the right to appeal against orders passed under the CGST Act. Pre-deposit requirements are mandated under Section 107(6).
Court's Interpretation and Reasoning: The Court acknowledged that the impugned order dated 27th January 2025 was passed under Section 74 of the CGST Act against the Petitioner for fraudulent availment of ITC involving six firms. The Court emphasized the Petitioner's right to file an appeal against the impugned order before the Appellate Authority under Section 107.
Key Evidence and Findings: The impugned order raised a demand of Rs. 16,91,800/-, with detailed penalties and interest, particularly focusing on Keshav International and Pancham Trading Co. The Petitioner sought interim relief and challenged the order on grounds of duplication and procedural fairness.
Application of Law to Facts: The Court allowed the Petitioner to file an appeal within thirty days and directed that the pre-deposit requirement would apply only to the amount relating to Keshav International, excluding the amount related to Pancham Trading Co. This was to ensure that the appeal is entertained on merits without being rejected for non-compliance of pre-deposit for the disputed Pancham Trading Co. demand.
Treatment of Competing Arguments: The Respondent urged enforcement of the entire demand and pre-deposit. The Court balanced the interests by allowing partial pre-deposit and permitting appeal on merits, thus safeguarding the Petitioner's right to be heard and preventing undue hardship.
Conclusions: The Petitioner is entitled to appeal against the impugned order with a reduced pre-deposit obligation limited to Keshav International's demand. The appeal shall be adjudicated on merits without rejection on limitation or pre-deposit grounds relating to Pancham Trading Co.
Issue 3: Treatment of Demands Relating to Other Firms and Penalties
Relevant Legal Framework and Precedents: Section 74(1) and Section 50 of the CGST Act govern the determination of tax demand and interest on delayed payment. Penalties under Sections 74(1), 122(1)(ii), 122(1)(vii), (x), (xvi), and 122(2)(b) are imposed for tax evasion, fraudulent ITC claims, and other contraventions.
Court's Interpretation and Reasoning: The impugned order detailed demands and penalties against six firms for fraudulent ITC. The Court did not find any challenge to the demands relating to the other four firms besides Keshav International and Pancham Trading Co., and therefore did not interfere with those demands.
Key Evidence and Findings: The table in the order showed specific amounts of penalties passed on for each firm. The Petitioner's challenge was limited to duplication of demand for Pancham Trading Co. and procedural fairness.
Application of Law to Facts: The Court's directions focused on the disputed entities, leaving the other demands and penalties intact, subject to appeal and adjudication before the Appellate Authority.
Treatment of Competing Arguments: No specific competing arguments were raised regarding other firms; the Court's silence indicates acceptance of the demands as valid for the purpose of this petition.
Conclusions: The demands and penalties relating to other firms remain effective and are subject to adjudication in appeal if the Petitioner so chooses.
3. SIGNIFICANT HOLDINGS
"Since the issue is of duplication, the Petitioner is permitted to file an appeal against the impugned order dated 27th January, 2025 and the pre-deposit would be made only in respect of the amount relating to Keshav International."
"If the said pre-deposit is made by the Petitioner, the appeal shall be entertained on merits and shall not be rejected for want of pre-deposit qua Pancham Trading Co. or on the issue of limitation."
"The Petitioner cannot be subjected to a demand qua the same amount twice over. This would be violative of Section 6(2)(b) of the Central Goods and Service Tax Act, 2017."
Core principles established include:
Availment of fraudulent Input Tax Credit - violation of Section 6(2)(b) of the Central Goods and Service Tax Act, 2017 - duplication of demand - HELD THAT:- The order dated 14th December 2023 passed by the State GST has been placed on record, which shows that it is for the same period i.e., July 17 to March 18 and a demand of Rs. 22,03,320/- has been raised - Since the issue is of duplication, the Petitioner is permitted to file an appeal against the impugned order dated 27th January, 2025 and the pre- deposit would be made only in respect of the amount relating to Keshav International.
The Petitioner is permitted to approach the Appellate Authority under Section 107 of the CGST Act within thirty days and would make a pre-deposit of 10% qua the amount demanded against Keshav International only and not for Pancham Trading Co. - petition disposed off.
Availment of fraudulent Input Tax Credit - violation of Section 6(2)(b) of the Central Goods and Service Tax Act, 2017 - duplication of demand - HELD THAT:- The order dated 14th December 2023 passed by the State GST has been placed on record, which shows that it is for the same period i.e., July 17 to March 18 and a demand of Rs. 22,03,320/- has been raised - Since the issue is of duplication, the Petitioner is permitted to file an appeal against the impugned order dated 27th January, 2025 and the pre- deposit would be made only in respect of the amount relating to Keshav International.
The Petitioner is permitted to approach the Appellate Authority under Section 107 of the CGST Act within thirty days and would make a pre-deposit of 10% qua the amount demanded against Keshav International only and not for Pancham Trading Co. - petition disposed off.
- Whether the impugned order of determination passed under Section 73 of the Central Goods and Services Tax Act, 2017 (CGST Act) is valid, considering the petitioner's request for cross-examination of a departmental officer and the grant of opportunity of hearing.
- Whether the principles of natural justice were violated by passing the order without granting a fresh opportunity of hearing after the interim stay granted by the Court expired.
- Whether the petitioner was entitled to cross-examine the 4th respondent, an officer of the Public Works Department, whose statements and information were relied upon in the show cause notice.
- The proper procedural compliance under Section 75(4) of the CGST Act regarding the issuance of opportunity of hearing before passing any adverse order.
- The adequacy and legality of the procedure followed by the tax authorities in concluding the proceedings despite the pendency of the writ petition and the interim stay granted by the Court.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Validity of the impugned order passed under Section 73 of the CGST Act
The CGST Act, 2017, under Section 73, empowers tax authorities to determine tax not paid or short paid, along with interest and penalty. The petitioner challenged Ext.P11 order determining liability of Rs.30,76,070/- imposed under Section 73. The petitioner contended that the order was passed without granting a proper opportunity of hearing and without allowing cross-examination of relevant departmental officers.
The Court noted that the petitioner had initially sought an opportunity to cross-examine the 4th respondent and requested copies of documents relied upon in the show cause notice. The petitioner's request was made in the reply to the show cause notice (Ext.P10). The respondents denied the necessity for cross-examination and claimed that an opportunity of personal hearing was granted on 06.06.2024, which the petitioner did not avail. However, the Court found no evidence that such a hearing notice was served on the petitioner.
The Court observed that the writ petition was admitted and interim stay granted on 21.06.2024, which was extended multiple times but expired on 30.08.2024. Despite the stay, the impugned order was passed on 31.08.2024. The Court held that the tax authorities should have awaited disposal of the writ petition or at least granted a fresh opportunity of hearing after the stay expired. The failure to do so violated the mandatory procedural safeguards under the CGST Act and principles of natural justice.
Issue 2: Violation of principles of natural justice and procedural safeguards under Section 75(4) of the CGST Act
Section 75(4) mandates that before passing any adverse order, the taxpayer must be granted an opportunity of hearing. The Court emphasized that even if the interim stay granted by the Court expired, the authorities were under a legal obligation to issue a fresh notice granting an opportunity of hearing before passing the order.
The Court found no material to show that the petitioner was served with any such fresh notice after the stay expired. Consequently, the passing of Ext.P11 order without such notice was held to be in violation of natural justice. The Court reiterated that the grant of hearing is a fundamental procedural requirement and cannot be bypassed.
Issue 3: Necessity and entitlement to cross-examination of the 4th respondent
The petitioner contended that the information collected by the tax authorities from the 4th respondent, an officer of the Public Works Department, was prejudicial and that the petitioner should be allowed to cross-examine him to test the veracity and correctness of such information. The Court analyzed the nature of the contentions raised by the petitioner, which were intricately connected with the information provided by the 4th respondent.
The Court held that considering the complexity and nature of the allegations, an opportunity for cross-examination was necessary to ensure a fair and just adjudication. The Court observed that denying such an opportunity would prejudice the petitioner's right to a fair hearing.
Issue 4: Adequacy and legality of procedure followed by tax authorities in concluding proceedings
The Court scrutinized the conduct of the tax authorities in proceeding with the final order immediately after the interim stay expired, without awaiting the writ petition's disposal or granting a fresh hearing opportunity. The Court found this approach to be procedurally flawed and contrary to the principles of natural justice and statutory mandate.
The Court noted that the petitioner was entitled to copies of documents relied upon, and if requested, the authorities must provide them as per law. It also directed that the petitioner must participate in the proceedings without seeking further adjournments to avoid undue delay.
3. SIGNIFICANT HOLDINGS
- "Section 75(4) of the CGST Act mandates that an opportunity of hearing must be granted to the tax payer, if any adverse orders are issued."
- "The first respondent ought to have issued a fresh notice granting an opportunity of hearing to the petitioner before passing Ext.P11 order and that having not been done, I am of the view that the impugned order Ext.P11 is issued in violation of the principles of natural justice."
- "Considering the nature of contentions raised in the reply notice to the intimation of discrepancy as well as to the show cause notice under Section 73, I am of the view that the opportunity of cross-examination of the 4th respondent was necessary."
- The Court set aside the impugned order and directed the tax authorities to pass fresh orders after granting a proper opportunity of hearing and allowing cross-examination of the 4th respondent.
- The Court excluded the period during which the writ petition was stayed from the limitation period for passing fresh orders and mandated that the petitioner must participate without seeking further adjournments.
Challenge to order of determination under Section 73 of the Central Goods and Services Tax Act, 2017 - petitioner was entitled to cross-examine the officer or not - principles of natural justice - HELD THAT:- Though respondents pleaded that an opportunity of hearing was granted to the petitioner on 06.06.2024, there is nothing to indicate that the petitioner was served with any notice indicating the grant of such an opportunity. Notwithstanding the above, as on the date petitioner filed the writ petition, no final orders were passed and this Court had granted an interim stay. However, the day after the stay expired as the case had not come up in Court despite direction to post the case on a particular date, final orders were issued as Ext.P11, imposing liability on the petitioner.
When this Court was in seizin of the matter and had even granted an interim order, it would have been only appropriate for the first respondent to have waited till the writ petition was disposed of, especially since the grant of an opportunity of cross- examination was being considered by the court. Section 75(4) of the CGST Act mandates that an opportunity of hearing must be granted to the tax payer, if any adverse orders are issued. Therefore, even if the stay had expired, petitioner ought to have granted an opportunity of hearing.
Conclusion - There is nothing to indicate that petitioner was issued with a notice granting an opportunity of hearing atleast after the stay expired. The first respondent ought to have issued a fresh notice granting an opportunity of hearing to the petitioner before passing Ext.P11 order and that having not been done, the impugned order Ext.P11 is issued in violation of the principles of natural justice.
Ext.P11 order is set aside and the first respondent is directed to pass fresh orders after granting an opportunity of hearing to the petitioner with sufficient notice - petition allowed.
Challenge to order of determination under Section 73 of the Central Goods and Services Tax Act, 2017 - petitioner was entitled to cross-examine the officer or not - principles of natural justice - HELD THAT:- Though respondents pleaded that an opportunity of hearing was granted to the petitioner on 06.06.2024, there is nothing to indicate that the petitioner was served with any notice indicating the grant of such an opportunity. Notwithstanding the above, as on the date petitioner filed the writ petition, no final orders were passed and this Court had granted an interim stay. However, the day after the stay expired as the case had not come up in Court despite direction to post the case on a particular date, final orders were issued as Ext.P11, imposing liability on the petitioner.
When this Court was in seizin of the matter and had even granted an interim order, it would have been only appropriate for the first respondent to have waited till the writ petition was disposed of, especially since the grant of an opportunity of cross- examination was being considered by the court. Section 75(4) of the CGST Act mandates that an opportunity of hearing must be granted to the tax payer, if any adverse orders are issued. Therefore, even if the stay had expired, petitioner ought to have granted an opportunity of hearing.
Conclusion - There is nothing to indicate that petitioner was issued with a notice granting an opportunity of hearing atleast after the stay expired. The first respondent ought to have issued a fresh notice granting an opportunity of hearing to the petitioner before passing Ext.P11 order and that having not been done, the impugned order Ext.P11 is issued in violation of the principles of natural justice.
Ext.P11 order is set aside and the first respondent is directed to pass fresh orders after granting an opportunity of hearing to the petitioner with sufficient notice - petition allowed.
Validity of notice issued u/s 148 - period of limitation - dispatch and service of notices issued on or after 01.04.2021 - As decided by HC [2024 (7) TMI 1186 - TELANGANA HIGH COURT] for any notice of re-assessment on or after 01.04.2021 it would be the new amended law which would be governing the field, as the un-amended provisions were valid only till 31.03.2021 - impugned notices in all these batch of writ petitions are barred by limitation u/s 148 and 149 since the said notices have left the I.T.B.A. portal on or after 01.04.2021. WP allowed - HELD THAT:- No case for interference is made out in exercise of our jurisdiction under Article 136 of the Constitution of India. The Special Leave Petition is accordingly dismissed.
Validity of notice issued u/s 148 - period of limitation - dispatch and service of notices issued on or after 01.04.2021 - As decided by HC [2024 (7) TMI 1186 - TELANGANA HIGH COURT] for any notice of re-assessment on or after 01.04.2021 it would be the new amended law which would be governing the field, as the un-amended provisions were valid only till 31.03.2021 - impugned notices in all these batch of writ petitions are barred by limitation u/s 148 and 149 since the said notices have left the I.T.B.A. portal on or after 01.04.2021. WP allowed - HELD THAT:- No case for interference is made out in exercise of our jurisdiction under Article 136 of the Constitution of India. The Special Leave Petition is accordingly dismissed.
Income deemed to accrue or arise in India - Royalty receipts - consideration received by the assessee from various customers on account of licensing of Customer Relationship Management CRM software - India-Singapore DTAA - assessee is a tax resident of Singapore income in question as derived from the subscription fee which the assessee receives from customers in India for providing CRM related services - As decided by HC [2024 (2) TMI 1396 - DELHI HIGH COURT] Explanation 4 in essence introduces a deeming fiction and includes transfer of all or any rights “for use” or “to use” a computer software including by way of a license irrespective of the medium through which such right is transferred. Significantly, the DTAA does not bring within its sweep a right for use or a right of use of a computer software.
ITAT correctly held that the consideration received by the assessee from various customers on account of licensing of Customer Relationship Management CRM software is not royalty income within the meaning of Article 12(3) of the IndiaSingapore Double Taxation Avoidance Agreements DTAA. Appeal decided in favour of assessee.
HELD THAT:- After having heard the learned counsel appearing for the petitioner, we find no error in the impugned judgment of the High Court. The Special Leave Petition is accordingly dismissed.
Income deemed to accrue or arise in India - Royalty receipts - consideration received by the assessee from various customers on account of licensing of Customer Relationship Management CRM software - India-Singapore DTAA - assessee is a tax resident of Singapore income in question as derived from the subscription fee which the assessee receives from customers in India for providing CRM related services - As decided by HC [2024 (2) TMI 1396 - DELHI HIGH COURT] Explanation 4 in essence introduces a deeming fiction and includes transfer of all or any rights “for use” or “to use” a computer software including by way of a license irrespective of the medium through which such right is transferred. Significantly, the DTAA does not bring within its sweep a right for use or a right of use of a computer software.
ITAT correctly held that the consideration received by the assessee from various customers on account of licensing of Customer Relationship Management CRM software is not royalty income within the meaning of Article 12(3) of the IndiaSingapore Double Taxation Avoidance Agreements DTAA. Appeal decided in favour of assessee.
HELD THAT:- After having heard the learned counsel appearing for the petitioner, we find no error in the impugned judgment of the High Court. The Special Leave Petition is accordingly dismissed.
The core legal question considered by the Court was whether the Income Tax Appellate Tribunal (ITAT) was correct in law in reversing the order of the Commissioner of Income Tax (Appeals) [CIT(A)] and upholding the Assessing Officer's imposition of penalty under Section 271(1)(c) of the Income Tax Act, 1961 (I.T. Act) on the Assessee. More specifically, the issue was whether the Assessee had concealed particulars of income or furnished inaccurate particulars of income by claiming a deduction for an ad-hoc bonus that was not actually paid in the relevant accounting year but claimed as a liability crystallized during that year, thereby attracting penalty under Section 271(1)(c) of the I.T. Act.
2. ISSUE-WISE DETAILED ANALYSIS
Issue: Whether the Assessee's claim for deduction of ad-hoc bonus, which was not actually paid in the relevant accounting year but claimed on the basis of crystallized liability, amounted to concealment or furnishing of inaccurate particulars of income under Section 271(1)(c) of the I.T. Act.
Relevant Legal Framework and Precedents:
The penalty under Section 271(1)(c) is attracted if the Assessing Officer is satisfied that the Assessee has either concealed particulars of income or furnished inaccurate particulars of income. The provision reads:
"271(1)(c) has concealed the particulars of his income or furnished inaccurate particulars of such income."
The Court referred extensively to the Apex Court's interpretation in Commissioner of Income Tax v. Reliance Petroproducts Pvt. Ltd., which clarified that mere making of an incorrect claim in law does not amount to furnishing inaccurate particulars. The particulars mean the details of the claim made by the Assessee in the return. The penalty can be imposed only if the particulars furnished are factually incorrect or inaccurate, not merely because a claim is disallowed on legal grounds.
Further, the Apex Court in Dilip N. Shroff v. CIT and subsequent cases clarified that the element of mens rea (intention or knowledge) is essential to impose penalty under Section 271(1)(c), although this was later nuanced by the Court in Union of India v. Dharamendra Textile Processors, which held that penalty under Section 271(1)(c) is a civil liability and does not require wilful concealment as in criminal prosecution.
Section 43B of the I.T. Act was also central, which mandates that certain deductions, including employer's contributions and bonuses, are allowable only on actual payment, irrespective of the accounting method employed.
Court's Interpretation and Reasoning:
The Court analyzed the facts that the Assessee claimed deduction of Rs. 22,21,123/- as additional bonus liability crystallized during the accounting year 1982-83, although actual payment was made only in the subsequent year. The Assessing Officer disallowed this claim relying on Section 43B, which permits deduction only on actual payment, and imposed penalty under Section 271(1)(c) on the ground that the Assessee furnished inaccurate particulars by claiming a deduction not permissible under law.
The CIT(A) had allowed the Assessee's appeal, holding the explanation plausible and the claim bona fide, and thus no penalty under Section 271(1)(c) was warranted.
The ITAT reversed the CIT(A), holding that the claim was baseless and constituted furnishing inaccurate particulars, thereby justifying penalty.
The High Court examined the precedents and held that the Tribunal erred in equating an incorrect legal claim with furnishing inaccurate particulars. The Court emphasized that the Assessee did not make any false statement or conceal any particulars of income; the claim was a bona fide interpretation of the law regarding the timing of liability recognition under mercantile accounting principles.
The Court distinguished the Delhi High Court judgment in CIT v. Zoom Communication P. Ltd., which upheld penalty where the claim was wholly untenable and mala fide, noting that the facts there involved deliberate concealment and inaccurate particulars with mala fide intent, unlike the present case.
The Punjab and Haryana High Court's decision in The Principal Commissioner of Income Tax I, Chandigarh v. M/s. Torque Pharmaceuticals Pvt. Ltd. was also relied upon, which held that a bona fide claim, even if disallowed, does not attract penalty absent concealment or furnishing inaccurate particulars with mala fide intention.
Key Evidence and Findings:
- The Assessee's original return declared a loss; subsequently, an amnesty return declared income by adding back unpaid sales tax and gratuity but did not add back the ad-hoc bonus.
- The Assessing Officer found that the Assessee did not furnish necessary particulars regarding the nature and date of accrual of the bonus liability and that the claim was discovered only after enquiry.
- The Assessing Officer concluded that the Assessee furnished inaccurate particulars and imposed penalty.
- CIT(A) found the explanation plausible and the claim bona fide.
- ITAT found the claim baseless and upheld penalty.
- The High Court found no evidence of concealment or mala fide and held the claim was a bona fide legal interpretation.
Application of Law to Facts:
The Court applied the legal principles from Reliance Petroproducts and other precedents to the facts, concluding that the Assessee's claim was not a false or inaccurate statement of particulars but a bona fide claim on the timing of liability recognition. The disallowance of the claim was a legal issue, not a factual inaccuracy or concealment. Therefore, penalty under Section 271(1)(c) was not warranted.
Treatment of Competing Arguments:
The Revenue argued that the bonus was not actually paid in the relevant year and thus deduction was not allowable under Section 43B, and that the claim was inaccurate and concealed income, justifying penalty.
The Court acknowledged this legal position but distinguished it from the question of penalty, emphasizing that an incorrect legal claim does not automatically translate into furnishing inaccurate particulars or concealment. The Court rejected the Tribunal's finding that the claim was baseless for the purpose of penalty, holding that mere disallowance of a claim does not imply mala fide concealment or furnishing inaccurate particulars.
3. SIGNIFICANT HOLDINGS
"In order to expose the Assessee to the penalty unless the case is strictly covered by the provision, the penalty provision cannot be invoked. It is further held all the conditions under Section 271(1)(c) must exist before the penalty is imposed. It further held that the word 'particulars' used in Section 271(1)(c) would mean details of the claim made by the Assessee in the Return. The Apex Court held that in cases where a statement is made by the Assessee in the return is found to be incorrect, it can be held that the Assessee has furnished inaccurate particulars of the income. It is further held that making an incorrect claim in law cannot tantamount to furnishing inaccurate particulars. It is also held that the element of mens rea is essential."
"The claim made by the Assessee can, by no stretch of imagination, be treated as mala fide act of concealment of income so as to attract the provisions of Section 271(1)(c) of the I.T. Act."
"Mere raising of claim which has no basis, would not attract penalty provisions under Section 271(1)(c) of the I.T. Act."
"The essential ingredients of Section 271(1)(c) of the I.T. Act are not met with in the present case."
The Court finally answered the substantial question of law in the negative and in favor of the Assessee, setting aside the order of the Tribunal and confirming the order of the CIT(A) deleting the penalty. The Court held that the penalty imposed under Section 271(1)(c) was not sustainable as the Assessee's claim was bona fide and did not involve concealment or furnishing inaccurate particulars of income.
Penalty u/s. 271 (1) (c) - as per AO explanation of the Assessee in respect of the bonus amount not being found bona fide - whether the two ingredients of (i) concealment of particulars of income, or (ii) furnishing inaccurate particulars of income are made out for the purpose of attracting the provisions of Section 271(1)(c) ? - HELD THAT:- There is nothing on record to indicate that the Assessee made a wrongful claim of having actually paid any amount towards additional bonus to the employees in the relevant Accounting Year. On the contrary, the claim of the Assessee for deduction of amount towards additional bonus was premised on statement that it was a future liability crystalised in the relevant year.
Thus, the case does not involve making of any false statement by the Assessee. What is ultimately found to be incorrect is entitlement of the Assessee to claim deductions in respect of the amount which are yet to be actually paid in view of provisions of Section 43B of the I.T. Act. The claim for additional bonus is disallowed on the ground that the amount was actually paid in the subsequent Accounting Year. In our view, the case does not involve making of any false statement by the Assessee and therefore the ratio of Reliance Petroproducts Private Limited [2010 (3) TMI 80 - SUPREME COURT] would squarely apply to the present case.
As the case involves raising of a bona fide claim by the Assessee that the crystallised liability towards additional bonus could have been claimed as deduction during the relevant year. Whether such claim is tenable in law or not is an altogether different issue. However by no stretch of imagination it can be held that the claim was raised with mala fide intention of concealing the income.
What is however relevant to note is that the claim raised by the Assessee for claiming deduction in respect of the crystalised liability towards additional bonus was a plausible claim. Whether it could be sustained or not in the light of judgment of the Apex Court in Bharat Earth Movers [2000 (8) TMI 4 - SUPREME COURT] is an altogether different issue. What is relevant to note is the position that the claim made by the Assessee can, by no stretch of imagination, be treated as mala fide act of concealment of income so as to attract the provisions of Section 271(1)(c) of the I.T. Act.
Therefore the ingredients of Section 271(1)(c) of the I.T. Act are not satisfied in the present case. The Tribunal has grossly erred in setting aside order passed by the CIT(A) by recording an unsustainable finding that the claim made by the Assessee was ‘baseless’.
Assessee only raised the claim that the crystalized liability towards additional bonus could be claimed towards deduction, which is later found to be inadmissible in law. Thus, the case does not involve making of any false statement in the return and therefore the finding of the Tribunal that there is inaccurate furnishing of particulars cannot be sustained.
Assessee cannot be penalised for having raised a plausible claim. The essential ingredients of Section 271(1)(c) of the I.T. Act are not met with in the present case. Assessee appeal allowed.
Penalty u/s. 271 (1) (c) - as per AO explanation of the Assessee in respect of the bonus amount not being found bona fide - whether the two ingredients of (i) concealment of particulars of income, or (ii) furnishing inaccurate particulars of income are made out for the purpose of attracting the provisions of Section 271(1)(c) ? - HELD THAT:- There is nothing on record to indicate that the Assessee made a wrongful claim of having actually paid any amount towards additional bonus to the employees in the relevant Accounting Year. On the contrary, the claim of the Assessee for deduction of amount towards additional bonus was premised on statement that it was a future liability crystalised in the relevant year.
Thus, the case does not involve making of any false statement by the Assessee. What is ultimately found to be incorrect is entitlement of the Assessee to claim deductions in respect of the amount which are yet to be actually paid in view of provisions of Section 43B of the I.T. Act. The claim for additional bonus is disallowed on the ground that the amount was actually paid in the subsequent Accounting Year. In our view, the case does not involve making of any false statement by the Assessee and therefore the ratio of Reliance Petroproducts Private Limited [2010 (3) TMI 80 - SUPREME COURT] would squarely apply to the present case.
As the case involves raising of a bona fide claim by the Assessee that the crystallised liability towards additional bonus could have been claimed as deduction during the relevant year. Whether such claim is tenable in law or not is an altogether different issue. However by no stretch of imagination it can be held that the claim was raised with mala fide intention of concealing the income.
What is however relevant to note is that the claim raised by the Assessee for claiming deduction in respect of the crystalised liability towards additional bonus was a plausible claim. Whether it could be sustained or not in the light of judgment of the Apex Court in Bharat Earth Movers [2000 (8) TMI 4 - SUPREME COURT] is an altogether different issue. What is relevant to note is the position that the claim made by the Assessee can, by no stretch of imagination, be treated as mala fide act of concealment of income so as to attract the provisions of Section 271(1)(c) of the I.T. Act.
Therefore the ingredients of Section 271(1)(c) of the I.T. Act are not satisfied in the present case. The Tribunal has grossly erred in setting aside order passed by the CIT(A) by recording an unsustainable finding that the claim made by the Assessee was ‘baseless’.
Assessee only raised the claim that the crystalized liability towards additional bonus could be claimed towards deduction, which is later found to be inadmissible in law. Thus, the case does not involve making of any false statement in the return and therefore the finding of the Tribunal that there is inaccurate furnishing of particulars cannot be sustained.
Assessee cannot be penalised for having raised a plausible claim. The essential ingredients of Section 271(1)(c) of the I.T. Act are not met with in the present case. Assessee appeal allowed.
i) Whether Section 206AA, which begins with a non obstante clause and mandates higher TDS rates in absence of PAN, overrides the provisions of Section 90(2) that give precedence to Double Taxation Avoidance Agreements (DTAAs) when more beneficial to the assessee;
ii) Whether the Tribunal erred in disregarding legislative intent and official explanations (Finance Bill memorandum and CBDT press release) that Section 206AA applies to non-residents;
iii) Whether Section 206AA can be used to impose an obligation on non-residents to obtain PAN and thereby justify TDS at 20% in absence of PAN, despite beneficial DTAA rates.
Issue-wise Detailed Analysis:
1. Whether Section 206AA overrides Section 90(2) of the Income Tax Act:
The legal framework involves Section 206AA, inserted as a procedural provision mandating higher TDS rates (20%) where PAN is not furnished, and Section 90(2), which provides that provisions of DTAAs prevail over domestic law if more beneficial to the assessee. The dispute arises because Section 206AA contains a non obstante clause, typically indicating overriding effect.
The Court examined authoritative precedents, notably the Supreme Court's decision in Union of India v. Azadi Bachao Andolan, which firmly establishes that DTAA provisions override domestic tax law to the extent they are beneficial. Further, the Court relied on rulings in CIT v. Eli Lilly & Co. and GE India Technology Center Pvt. Ltd. v. CIT, which clarify that TDS provisions (including Section 195) are procedural and apply only to sums chargeable to tax under the Act or DTAA.
The Court reasoned that Section 206AA is a procedural provision dealing with tax collection and cannot override the charging provisions (Sections 4 and 5) or the overriding effect of Section 90(2). The charging provisions and DTAA principles govern the tax liability itself, while Section 206AA regulates the manner of collection. Therefore, Section 90(2) maintains primacy, and where DTAA rates are more beneficial, they prevail over the higher TDS rate mandated by Section 206AA.
The Tribunal's interpretation that Section 206AA does not override Section 90(2) was upheld as consistent with statutory scheme and judicial precedent. The non obstante clause in Section 206AA does not extend to overriding the overriding effect of Section 90(2) on charging provisions.
2. Consideration of legislative intent and official pronouncements regarding applicability of Section 206AA to non-residents:
The appellant Revenue contended that the Finance (No. 2) Bill, 2009 memorandum and CBDT Press Release explicitly state that Section 206AA applies to non-residents and mandates higher TDS rates in absence of PAN. The Court acknowledged these materials but held that legislative intent cannot override the clear statutory hierarchy established by Section 90(2) and judicial interpretation.
The Court observed that these explanatory notes and press releases cannot alter the fundamental principle that DTAA provisions prevail over domestic law when more beneficial. The procedural provisions in Section 206AA cannot impose a higher tax collection burden inconsistent with the beneficial rates under DTAA.
3. Whether Section 206AA imposes an obligation on non-residents to obtain PAN to avoid higher TDS:
The Revenue argued that non-residents must obtain PAN to avoid TDS at 20%. The Court rejected this, reasoning that since the tax liability itself is governed by DTAA and charging provisions, the procedural requirement of PAN cannot be used to override beneficial treaty rates. The obligation to deduct tax at source at the higher rate cannot be imposed if the DTAA prescribes a lower rate.
The Court relied on the principle that TDS provisions (including Section 195 and 206AA) apply only to sums chargeable to tax under the Act or DTAA. Thus, if the DTAA provides a lower rate, the TDS must be deducted accordingly, regardless of PAN furnishing status. This interpretation aligns with the objective of avoiding double taxation and respecting international treaties.
Application of Law to Facts and Treatment of Competing Arguments:
The facts revealed that the assessee deducted TDS on payments to non-residents (royalty and fees for technical services) at rates prescribed by relevant DTAAs, which were lower than the 20% rate mandated by Section 206AA in absence of PAN. The Revenue sought to impose TDS at 20% under Section 206AA, ignoring the DTAA rates.
The Court found no fault with the assessee's approach, as the DTAA rates were more beneficial and Section 90(2) mandates that such treaty provisions prevail over domestic law, including Section 206AA. The Court treated the Revenue's argument as inconsistent with statutory scheme and judicial precedents.
Precedents from various High Courts (Delhi, Bombay, Karnataka) and the ITAT were cited, uniformly supporting the proposition that Section 206AA cannot override Section 90(2) and DTAAs. The Court also noted that the Supreme Court dismissed special leave petitions challenging these decisions, reinforcing their binding nature.
Significant Holdings:
"Section 206AA of the Act does not override the provisions of section 90(2) of the Act and that in the impugned cases of payments made to non-residents, assessee correctly applied the rate of tax prescribed under the DTAAs and not as per section 206AA of the Act because the provisions of the DTAAs was more beneficial."
"Section 206AA is not a charging section but is a part of procedural provisions dealing with collection and deduction of tax at source and cannot be understood to override the charging sections 4 and 5 of the Act or the overriding effect of section 90(2)."
"Where section 90(2) of the Act provides that DTAAs override domestic law in cases where the provisions of DTAAs are more beneficial to the assessee, the provisions of section 206AA cannot be invoked by the Assessing Officer to insist on the tax deduction @ 20%, having regard to the overriding nature of the provisions of section 90(2) of the Act."
"The provisions of tax withholding under section 195 of the Act apply only to sums which are otherwise chargeable to tax under the Act or DTAA."
The Court conclusively held that the Revenue's appeals fail, affirming the deletion of tax demands raised on the difference between 20% and the lower DTAA rates at which TDS was actually deducted. The questions of law were answered in favor of the assessee and against the Revenue.
Short deduction of TDS - raising demand by invoking provisions of section 206AA - CIT (Appeals) held that the assessee is not liable to deduct the tax at a higher rate in view of the provisions of section 90(2) - HELD THAT:- As in case of Wipro Ltd. [2023 (1) TMI 173 - KARNATAKA HIGH COURT] has also followed the decision in case of Danisco India (P) Ltd [2018 (2) TMI 1289 - DELHI HIGH COURT] and held that that as per DTAA, maximum deduction shall not exceed 10% which the assessee has deducted and any other interpretation to permit the taxing authority to raise a demand beyond 10% would be incongruous.
Assessee has deducted the tax at source on payment made to non residents on account of royalty and/or fees for technical services at the rates prescribed in respective DTAAs between India and respective countries of non residents and such rate of tax being lower than rate of 20% as provided u/s 206AA CIT (Appeals) and the Tribunal have rightly arrived at concurrent findings to the effect that as per section 90(2) of the Act, the provisions of DTAA would override the provisions of the Domestic Act where the provisions of the DTAA are more beneficial to the assessee.
Tribunal therefore, has rightly affirmed the conclusion arrived at by CIT(Appeals) in deleting the tax demand relatable to difference between 20% and the actual tax rate on which tax was deducted by the respondent assessee in terms of the relevant DTAAS.
Questions of law are answered in favour of the assessee
Short deduction of TDS - raising demand by invoking provisions of section 206AA - CIT (Appeals) held that the assessee is not liable to deduct the tax at a higher rate in view of the provisions of section 90(2) - HELD THAT:- As in case of Wipro Ltd. [2023 (1) TMI 173 - KARNATAKA HIGH COURT] has also followed the decision in case of Danisco India (P) Ltd [2018 (2) TMI 1289 - DELHI HIGH COURT] and held that that as per DTAA, maximum deduction shall not exceed 10% which the assessee has deducted and any other interpretation to permit the taxing authority to raise a demand beyond 10% would be incongruous.
Assessee has deducted the tax at source on payment made to non residents on account of royalty and/or fees for technical services at the rates prescribed in respective DTAAs between India and respective countries of non residents and such rate of tax being lower than rate of 20% as provided u/s 206AA CIT (Appeals) and the Tribunal have rightly arrived at concurrent findings to the effect that as per section 90(2) of the Act, the provisions of DTAA would override the provisions of the Domestic Act where the provisions of the DTAA are more beneficial to the assessee.
Tribunal therefore, has rightly affirmed the conclusion arrived at by CIT(Appeals) in deleting the tax demand relatable to difference between 20% and the actual tax rate on which tax was deducted by the respondent assessee in terms of the relevant DTAAS.
Questions of law are answered in favour of the assessee
1. Whether the delay in filing Form No. 67, which is mandatory under Rule 128(1) of the Income Tax Rules, 1962 for claiming foreign tax credit under Section 19(1) of the Income Tax Act, 1961, can be condoned under Section 119(2)(b) of the Act.
2. What constitutes "genuine hardship" for the purpose of condoning delay under Section 119(2)(b) of the Act, particularly in the context of procedural non-compliance affecting substantive rights such as foreign tax credit under a Double Taxation Avoidance Agreement (DTAA).
3. The extent of discretion vested in the tax authorities to condone delay and the principles guiding such discretion, including the balance between technical compliance and substantial justice.
4. The procedural requirements and consequences of non-filing of Form No. 67 within the due date of filing the return of income under Section 139(1) of the Act.
5. The appropriate approach to be adopted by authorities when rejecting applications for condonation of delay, including the necessity of reasoned orders and consideration of all relevant factors.
Issue-wise Detailed Analysis
Issue 1: Condonation of Delay in Filing Form No. 67 under Section 119(2)(b) of the Act
The legal framework governing this issue includes Section 119(2)(b) of the Income Tax Act, which empowers the tax authorities to condone delay in certain cases, and Rule 128(1) of the Income Tax Rules, which mandates filing of Form No. 67 for claiming foreign tax credit under DTAA provisions.
The petitioner failed to file Form No. 67 along with the return for Assessment Year 2020-21, submitting it belatedly after issuance of intimation under Section 143(1). The respondent rejected the application for condonation of delay on the ground that no genuine hardship was shown, and the explanation for delay was general and insufficient.
The Court examined the statutory provisions, noting that Rule 128(9) (as applicable for AY 2020-21) clearly required filing Form No. 67 on or before the due date of filing the return of income under Section 139(1). However, the Court emphasized that the filing of Form No. 67 is procedural in nature and that the power under Section 119(2)(b) is intended to enable substantive justice rather than to enforce hyper-technical compliance.
Precedents such as Sitaldas K. Motwani v. Director General of Income Tax and Bombay Mercantile Co-op. Bank Ltd. v. CBDT were relied upon to establish that procedural lapses should be viewed liberally, especially when the delay does not cause prejudice or confer undue advantage. The Court also referred to recent High Court decisions emphasizing a justice-oriented approach to condonation of delay.
The Court held that the petitioner's failure to file Form No. 67 within the due date did not justify outright rejection of the claim for foreign tax credit, especially when the tax was duly paid in Bangladesh and disclosed in the return.
Issue 2: Meaning and Application of "Genuine Hardship" in Condonation of Delay
The Court undertook a detailed examination of the phrase "genuine hardship" as used in Section 119(2)(b), drawing on dictionary meanings and judicial interpretations, including the Apex Court's explanation in B.M. Malani v. CIT.
The Court observed that "genuine hardship" should be construed liberally and not be confined to narrow or rigid interpretations. It emphasized that the power to condone delay is conferred to do substantial justice by disposing of matters on merits rather than on technical grounds.
It was noted that ordinarily, an applicant does not benefit from filing a claim late; rather, delay often jeopardizes the applicant's position. The Court quoted extensively from judgments that refusal to condone delay can result in meritorious claims being dismissed at the threshold, defeating justice.
The Court further explained that the authorities should consider all relevant factors and not merely whether the delay was caused by a substantial cause. The absence of mala fides, deliberate delay, or culpable negligence weighs in favor of condonation.
In the instant case, the petitioner's explanation that Form No. 67 was missed was accepted as a plausible reason. The Court held that such a reason, coupled with the petitioner's entitlement to foreign tax credit, constituted genuine hardship warranting condonation.
Issue 3: Discretion of Tax Authorities and Requirement of Reasoned Orders
The Court scrutinized the impugned order rejecting the condonation application, finding it lacked proper appreciation of the petitioner's circumstances and did not apply the principles of genuine hardship liberally.
It was noted that the impugned order was passed without adequate reasoning and failed to consider the petitioner's entitlement under DTAA and the procedural nature of Form No. 67 filing.
The Court referred to precedents holding that orders rejecting condonation applications must be reasoned, consider all submissions, and be passed by the appropriate authority, especially where personal hearings have been granted.
The Court set aside the impugned order and remanded the matter for fresh consideration in accordance with law and principles of justice, directing the respondent to pass a reasoned order after hearing the petitioner.
Issue 4: Procedural Requirements under Rule 128 and Consequences of Non-Compliance
Rule 128(9) mandates filing Form No. 67 on or before the due date of filing the return of income. The respondent argued that this requirement is mandatory and failure to comply disentitles the assessee from claiming foreign tax credit.
The Court acknowledged the mandatory language of Rule 128(9) but emphasized that the power under Section 119(2)(b) exists to condone such procedural lapses when genuine hardship is shown.
The Court distinguished between procedural compliance and substantive rights, holding that procedural non-compliance should not defeat substantive claims if delay is condoned.
The Court also noted that the petitioner had disclosed the foreign tax credit in the return and paid tax abroad, underscoring the legitimacy of the claim.
Issue 5: Application of Law to Facts and Treatment of Competing Arguments
The petitioner's argument was that denial of foreign tax credit solely on account of procedural delay in filing Form No. 67 was unjust and contrary to the spirit of DTAA and the Act.
The respondent contended that strict compliance with Rule 128(9) is necessary to verify claims and prevent misuse, and that no genuine hardship was demonstrated.
The Court balanced these competing arguments by recognizing the importance of procedural safeguards but prioritizing substantial justice and the petitioner's bona fide claim.
The Court found the petitioner's explanation for delay plausible and accepted that the petitioner did not benefit from the delay, thus constituting genuine hardship.
The Court also observed that the respondent's rejection was based on a narrow and technical view, which was inconsistent with the liberal approach mandated by law.
Significant Holdings
"The phrase 'genuine hardship' used in Section 119(2)(b) of the Act should be construed liberally. The Legislature has conferred the power to condone delay to enable the authorities to do substantial justice by disposing of matters on merits. Refusing to condone delay can result in a meritorious matter being thrown out at the threshold and cause of justice being defeated. When substantial justice and technical considerations are pitted against each other, cause of substantial justice deserves to be preferred."
"There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or mala fides. A litigant does not stand to benefit by resorting to delay; in fact, he runs a serious risk. The approach of authorities should be justice-oriented so as to advance cause of justice."
"The filing of Form No. 67 under Rule 128(9) is procedural; failure to file within the due date does not ipso facto disentitle the assessee from claiming foreign tax credit if delay is condoned under Section 119(2)(b)."
"The authorities must pass reasoned orders considering all relevant facts and submissions, and where personal hearings are granted, the order must be authored and signed by the authority who granted the hearing."
"The petitioner had a prima facie genuine claim for foreign tax credit as tax was paid in Bangladesh and disclosed in the return. Mere procedural delay should not defeat the claim."
Final determinations:
- The impugned order rejecting condonation of delay in filing Form No. 67 was quashed and set aside.
- The matter was remanded to the respondent to reconsider the application for condonation of delay in a reasoned manner, applying the liberal principles of genuine hardship and substantial justice.
- The respondent was directed to pass a fresh order giving effect to the foreign tax credit claim and issue a fresh intimation under Section 143(1) of the Act within twelve weeks.
Application u/s 119(2)(b) - condonation of delay in respect of filing of Form no. 67 under Rule 128 of the Rules - petitioner had received the salary income from Bangladesh on which tax was duly paid - only fault on the part of the petitioner was that Form no. 67 as required as per Rule 128 of the Rules was not submitted before the due date of filing of the return - as per DR no genuine hardship shown by the petitioner for not filing the Form no. 67 along with Return of Income as the petitioner has simply stated that he missed to file Form no. 67 before filing the Return of Income.
HELD THAT:- As held by this Court in various judgments while considering the late filing Form 10IC, Form 10B as required under various provisions of the Act for claiming deduction under Chapter-VI, that the filing of form for claiming benefit under the provisions of the Act is procedural, the case of Sitaldas K. Motwani [2009 (12) TMI 36 - BOMBAY HIGH COURT] as well as the case of Bombay Mercantile Co-op. Bank Ltd. [2010 (9) TMI 23 - BOMBAY HIGH COURT] were followed.
Assessee appeal allowed.
Application u/s 119(2)(b) - condonation of delay in respect of filing of Form no. 67 under Rule 128 of the Rules - petitioner had received the salary income from Bangladesh on which tax was duly paid - only fault on the part of the petitioner was that Form no. 67 as required as per Rule 128 of the Rules was not submitted before the due date of filing of the return - as per DR no genuine hardship shown by the petitioner for not filing the Form no. 67 along with Return of Income as the petitioner has simply stated that he missed to file Form no. 67 before filing the Return of Income.
HELD THAT:- As held by this Court in various judgments while considering the late filing Form 10IC, Form 10B as required under various provisions of the Act for claiming deduction under Chapter-VI, that the filing of form for claiming benefit under the provisions of the Act is procedural, the case of Sitaldas K. Motwani [2009 (12) TMI 36 - BOMBAY HIGH COURT] as well as the case of Bombay Mercantile Co-op. Bank Ltd. [2010 (9) TMI 23 - BOMBAY HIGH COURT] were followed.
Assessee appeal allowed.
The core legal questions considered by the Tribunal in these appeals under Section 263 of the Income Tax Act, 1961 ("the Act") are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Validity of initiation of revisionary proceedings under Section 263
Legal framework and precedents: Section 263 empowers the Commissioner to revise an assessment order if it is found to be erroneous and prejudicial to the interests of the revenue. The Supreme Court in Malabar Industrial Co. Ltd. vs. CIT (2000) clarified that both conditions-error and prejudice-must be satisfied. The revisionary power cannot be exercised merely to correct every mistake or for a change of opinion.
Court's interpretation and reasoning: The Tribunal examined whether the original assessment order was erroneous or prejudicial. It noted that the AO had conducted detailed inquiries, including issuing notices under Section 142(1), and had considered documentary evidence submitted by the assessee regarding the interest claimed under Section 24(b). The Tribunal held that since the AO had applied his mind and examined relevant documents, the revisionary proceedings under Section 263 were not justified.
Key evidence and findings: The assessee had submitted loan sanction letters, lease deeds, bank statements, and interest certificates, all of which were considered by the AO. The Tribunal found no new or additional material to justify the revision.
Application of law to facts: The Tribunal applied the principle that Section 263 cannot be invoked for mere change of opinion and found that the AO's order was neither erroneous nor prejudicial to revenue.
Treatment of competing arguments: The Department argued that the AO failed to verify genuineness of claims and that the order was erroneous. The assessee contended that all relevant inquiries were made and documents were submitted. The Tribunal sided with the assessee, emphasizing the comprehensive nature of the AO's inquiries.
Conclusion: The initiation of revisionary proceedings was held to be legally unsustainable.
Issue 2: Whether the original assessment order was erroneous or prejudicial to revenue under Explanation 2 to Section 263
Legal framework: Explanation 2 to Section 263 specifies conditions under which an order is considered erroneous and prejudicial, including failure to make inquiries or verification that should have been made.
Analysis: The Tribunal scrutinized the AO's assessment and found that the AO had raised specific queries about the interest deduction and the loan, and the assessee had responded with detailed evidence. The Tribunal noted that the AO had allowed the interest deduction after due examination.
Conclusion: The Tribunal concluded that the conditions under Explanation 2 were not met, as proper inquiries and verifications had been conducted.
Issue 3: Whether the revisionary order under Section 263 amounted to impermissible change of opinion
Legal framework and precedent: The Supreme Court in Malabar Industrial Co. Ltd. held that Section 263 cannot be invoked for mere change of opinion.
Application: The Tribunal found that the PCIT's order under Section 263 was based on disagreement with the AO's view, without any new material or adverse findings. This amounted to a change of opinion, which is impermissible.
Conclusion: The revisionary order was a classic example of change of opinion and therefore invalid.
Issue 4: Whether reasonable opportunity of hearing was provided
Facts: The assessee contended that the show cause notice dated 20.03.2024 allowed only three days to respond, including a Sunday and a festival day, thus violating principles of natural justice.
Analysis: The Tribunal acknowledged the limited time for compliance and the importance of audi alteram partem principle. However, the Tribunal's main reasoning focused on merits of the case and did not find the procedural lapse sufficient to uphold the revisionary order.
Conclusion: The limited opportunity was a procedural defect but the substantive order was quashed on merits.
Issue 5: Whether the directions for fresh assessment should be restricted to issues indicated in the revisionary order
Analysis: The Tribunal noted that if revisionary proceedings are valid, the scope of fresh assessment should be limited to issues specified in the revisionary order. However, since the revisionary order itself was quashed, this issue became moot.
Issue 6: Whether the original assessment was passed after collective application of mind and concurrent discussions
Facts: The assessee submitted that the assessment was finalized after discussions among various senior officers, including the AO, Additional Commissioner, Commissioner, and DGIT.
Analysis: The Tribunal accepted that such concurrent discussions and approvals were part of the assessment process, supporting the conclusion that the AO's order was well-considered and not erroneous.
Issue 7: Whether the claim of interest deduction under Section 24(b) was correctly allowed
Legal framework: Section 24(b) allows deduction of interest on borrowed capital used for acquisition of property.
Facts and evidence: The assessee had claimed interest of Rs. 3.88 crores on loans taken for purchase of commercial property in Bangalore. The loan was sanctioned by State Bank of India and later refinanced by Standard Chartered Bank. The property was leased to a reputed company. The AO had allowed the deduction after verifying loan sanction letters, lease deed, bank statements, and interest certificates.
Department's argument: The PCIT argued that the loan was not used for purchase of property during the relevant year and no details of loan were submitted.
Tribunal's reasoning: The Tribunal found that the property was acquired in 2008-09, prior to the year under consideration, and that the loan was sanctioned specifically for purchase of the property. The assessee had submitted all relevant documents during assessment proceedings. The Tribunal also noted that the requirement to disclose assets and liabilities in the return was introduced only from A.Y. 2016-17, thus the claim that the assessee failed to disclose assets for earlier years was unfounded.
Conclusion: The interest deduction claim was valid and correctly allowed by the AO. The revisionary order disallowing it was unsustainable.
Issue 8: Procedural compliance in passing the original assessment order
Contentions: The assessee contended that the original assessment order was incomplete, time-barred, passed without mandatory notices under Section 143(2), and without proper approval under Section 153D. It was also argued that the officer passing the order was not authorized under Section 120.
Tribunal's observation: These contentions were raised before the Tribunal but the primary focus was on the merit of the Section 263 revision. The Tribunal did not find sufficient material to uphold the revisionary proceedings on procedural grounds, especially since the original assessment was under challenge before the ITAT.
3. SIGNIFICANT HOLDINGS
The Tribunal's key legal conclusions include:
"A bare reading of section 263(1) makes it clear that the pre-requisite to exercise of Jurisdiction by the Commissioner suo motu under it, is that the order of the ITO is erroneous insofar as it is prejudicial to the interests of the revenue. The Commissioner has to be satisfied of twin conditions, namely, (1) the order of the Assessing Officer sought to be revised is erroneous; and (II) It is prejudicial to the interests of the revenue. If one of them is absent... recourse cannot be had to section 263(1)."
"Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue... where two views are possible and the ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the ITO is unsustainable in law."
"The order impugned is nothing but the non application of mind having regard to the order passed by the Ld. AO in the reassessment proceedings under Section 153A of the Act accepting the claim of interest income under Section 24B of the Act upon examination of the issue after verification of the details filed by the Assessee."
Core principles established:
Final determinations on each issue:
Revision u/s 263 - Validity of assessment and reassessment proceedings u/s 153A - no or inadequate enquiries - computation of total income claiming interest u/s 24B - HELD THAT:- Order impugned invoking Explanation 2 by the Ld. PCIT is found to have no manner of application having regard to all relevant documents being filed by the Ld. AO during reassessment proceedings under Section 153A by the assessee and on verification whereof the assessment was finalized allowing the claim of interest under Section 24B of the Act.
We note that apart from that, in fact this particular aspect of the matter of income from house as declared by the assessee has duly been taken care by the AO in A.Y. 2012-13 which is evident from the order passed by AO being the DCIT Circle 25(1), New Delhi dated 5.3.2015 u/s143(3) of the Act, a copy whereof has already been filed before us.
Needless to mention that it is the continuing cause of action and once the interest has been allowed by the AO initially in A.Y. 2012-13 the same cannot be disturbed subsequently without finding of any different fact which has already been narrated by us hereinbefore against the assessee.
Thus, taking into consideration the entire aspect of the matter we find that the order impugned is nothing but the non application of mind having regard to the order passed by the Ld. AO in the reassessment proceedings under Section 153A of the Act accepting the claim of interest income under Section 24B of the Act upon examination of the issue after verification of the details filed by the Assessee
AR submitted before us that under the present facts and circumstances of the matter it cannot be said that no inquiries what-so-ever have been conducted by the AO with respect to the claims under consideration as relied upon the judgment of Clix Finance India (P) Ltd. [2024 (3) TMI 157 - DELHI HIGH COURT] It was also mentioned by him that the plausible view having been taken by the AO in the assessment order the same cannot be held to be prejudicial to the interests of Revenue.
In support of his contention Ld. AR relied upon the decision of Sunbeam Auto Pvt. Ltd. [2009 (9) TMI 633 - DELHI HIGH COURT] which has been duly considered by us and found to be applicable in the case in hand having regard to the facts and circumstances of the case.
Thus, when the claims of the assessee have been duly examined during original assessment proceedings and also the reassessment proceedings under Section 153A of the Act itself, there could have been no error, neither the same is found to be prejudicial to the interest of Revenue as observed by the Ld. PCIT in the order impugned before us. The order passed under Section 263 of the Act is, therefore, found to have no legs to stand and thus quashed. Assessee’s appeal stands allowed accordingly.
Revision u/s 263 - Validity of assessment and reassessment proceedings u/s 153A - no or inadequate enquiries - computation of total income claiming interest u/s 24B - HELD THAT:- Order impugned invoking Explanation 2 by the Ld. PCIT is found to have no manner of application having regard to all relevant documents being filed by the Ld. AO during reassessment proceedings under Section 153A by the assessee and on verification whereof the assessment was finalized allowing the claim of interest under Section 24B of the Act.
We note that apart from that, in fact this particular aspect of the matter of income from house as declared by the assessee has duly been taken care by the AO in A.Y. 2012-13 which is evident from the order passed by AO being the DCIT Circle 25(1), New Delhi dated 5.3.2015 u/s143(3) of the Act, a copy whereof has already been filed before us.
Needless to mention that it is the continuing cause of action and once the interest has been allowed by the AO initially in A.Y. 2012-13 the same cannot be disturbed subsequently without finding of any different fact which has already been narrated by us hereinbefore against the assessee.
Thus, taking into consideration the entire aspect of the matter we find that the order impugned is nothing but the non application of mind having regard to the order passed by the Ld. AO in the reassessment proceedings under Section 153A of the Act accepting the claim of interest income under Section 24B of the Act upon examination of the issue after verification of the details filed by the Assessee
AR submitted before us that under the present facts and circumstances of the matter it cannot be said that no inquiries what-so-ever have been conducted by the AO with respect to the claims under consideration as relied upon the judgment of Clix Finance India (P) Ltd. [2024 (3) TMI 157 - DELHI HIGH COURT] It was also mentioned by him that the plausible view having been taken by the AO in the assessment order the same cannot be held to be prejudicial to the interests of Revenue.
In support of his contention Ld. AR relied upon the decision of Sunbeam Auto Pvt. Ltd. [2009 (9) TMI 633 - DELHI HIGH COURT] which has been duly considered by us and found to be applicable in the case in hand having regard to the facts and circumstances of the case.
Thus, when the claims of the assessee have been duly examined during original assessment proceedings and also the reassessment proceedings under Section 153A of the Act itself, there could have been no error, neither the same is found to be prejudicial to the interest of Revenue as observed by the Ld. PCIT in the order impugned before us. The order passed under Section 263 of the Act is, therefore, found to have no legs to stand and thus quashed. Assessee’s appeal stands allowed accordingly.
Rate of surcharge on the family trust's income - Levying surcharge of 37% as against the applicable rate of 10% based upon the income of the assessee - HELD THAT:- While computing the tax liability, the assessee has paid surcharge at the rate of 10%. In the intimation u/s 143(1), the CPC while processing the return levied the surcharge at the maximum rate of 37%. The assessee challenged the said action of CPC before Ld. CIT(A) but failed to succeed.
Assessee has referred to the judgement of Araadhya Jain Trust [2025 (4) TMI 648 - ITAT MUMBAI] held that the surcharge is to be levied as per income tax slab as provided in Paragraph A, Part 1, First Schedule and as per first slab, if income exceeds Rs. 50 lakhs but do not exceed Rs. 1 crore including the income by way of dividend or income under the provisions of section 111A, section 112 and section 112A of the Act surcharge is leviable at the rate of 10%.
Though there are three more slabs but since the case of the assessee falls under the first slab, the assessee is required to pay surcharge at the rate of 10% and CIT(A) erred in confirming the action of the CPC of wrongly levying surcharge at the rate of 37%. Appeal of the assessee is allowed.
Rate of surcharge on the family trust's income - Levying surcharge of 37% as against the applicable rate of 10% based upon the income of the assessee - HELD THAT:- While computing the tax liability, the assessee has paid surcharge at the rate of 10%. In the intimation u/s 143(1), the CPC while processing the return levied the surcharge at the maximum rate of 37%. The assessee challenged the said action of CPC before Ld. CIT(A) but failed to succeed.
Assessee has referred to the judgement of Araadhya Jain Trust [2025 (4) TMI 648 - ITAT MUMBAI] held that the surcharge is to be levied as per income tax slab as provided in Paragraph A, Part 1, First Schedule and as per first slab, if income exceeds Rs. 50 lakhs but do not exceed Rs. 1 crore including the income by way of dividend or income under the provisions of section 111A, section 112 and section 112A of the Act surcharge is leviable at the rate of 10%.
Though there are three more slabs but since the case of the assessee falls under the first slab, the assessee is required to pay surcharge at the rate of 10% and CIT(A) erred in confirming the action of the CPC of wrongly levying surcharge at the rate of 37%. Appeal of the assessee is allowed.
The core legal questions considered by the Tribunal are:
(a) Whether the reassessment proceedings initiated under section 147 read with section 148 of the Income-tax Act, 1961 (the Act), for Assessment Year 2017-18, are valid and within jurisdiction, particularly focusing on the compliance with the procedural requirements under the new reassessment regime effective from 01.04.2021, including the necessity of obtaining prior approval under section 151 of the Act from the specified authority.
(b) Whether the issuance of the notice under section 148 dated 31.07.2022 is valid, given that it was issued beyond the three-year period from the end of the relevant assessment year and without proper sanction from the appropriate authority as mandated by the amended provisions.
(c) Whether the reassessment order making an addition of Rs. 1,10,39,000/- under section 56(2)(viia) of the Act, on account of the difference between the consideration paid for immovable property and its stamp duty valuation, is justified.
(d) Whether the procedural safeguards under sections 147, 148, 148A, 149, 151, and related provisions of the Act, as interpreted by the Supreme Court in landmark decisions, have been duly complied with by the Revenue.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Validity of Reassessment Proceedings and Jurisdictional Compliance under Sections 147, 148, 149, and 151 of the Act
Relevant Legal Framework and Precedents:
The reassessment regime underwent significant amendments effective from 01.04.2021, introducing stricter procedural safeguards. Sections 147 to 151 of the Act prescribe the conditions and authorities from whom prior approval must be obtained before issuance of notices under section 148. The Supreme Court judgments in Ashish Agarwal and Rajeev Bansal are pivotal, clarifying the applicability of the new regime retrospectively and emphasizing the necessity of compliance with the new procedural requirements, including the approval under section 151 from the specified authorities.
The Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 (TOLA) and its notifications also play a crucial role in extending time limits for compliance falling between 20.03.2020 and 31.03.2021.
Court's Interpretation and Reasoning:
The Tribunal examined the timeline of notices issued. The first notice under section 148 was dated 15.04.2021, issued within the old regime, with approval from the Range Head (Range 17(1), Mumbai). The second notice under section 148, dated 31.07.2022, was issued under the new regime, beyond the three-year period from the end of the Assessment Year 2017-18 (which expired on 31.03.2021, with extension under TOLA up to 30.06.2021).
The Tribunal noted that the second notice was issued after the extended period, i.e., on 31.07.2022, which is beyond the permissible time limit under section 149(1)(b) of the new regime. Under section 151(1)(ii), for issuance of notice beyond three years, prior approval must be obtained from higher authorities such as the Principal Chief Commissioner or Principal Director General, or Chief Commissioner or Director General.
However, in the present case, the approval was accorded by the Principal Commissioner of Income Tax-17, Mumbai, which does not fall within the specified authorities under the new regime for issuance of notice beyond three years. This non-compliance with the mandatory approval requirement vitiates the jurisdiction of the Assessing Officer to issue the notice under section 148.
The Tribunal relied heavily on the Supreme Court's ruling in Rajeev Bansal, which clarified that the new reassessment regime applies retrospectively, and the prior approval under section 151 must be obtained from the specified authorities based on the time elapsed since the end of the relevant assessment year. The Court emphasized that the sanction by the appropriate authority is a precondition for the Assessing Officer to assume jurisdiction.
Additionally, the Tribunal noted that the Supreme Court in Ashish Agarwal directed compliance with the procedure under section 148A(d) and section 148, including obtaining prior approval under section 151, which was not fulfilled in the present case.
Key Evidence and Findings:
The notice dated 31.07.2022 was issued without the requisite approval from the higher specified authority under section 151(1)(ii). The approval obtained was from the Principal Commissioner, which is insufficient under the new regime for notices issued beyond three years.
Moreover, the notice was issued beyond the extended time limit of 30.06.2021 under TOLA, rendering it time-barred.
Application of Law to Facts:
Given the issuance of the notice beyond the three-year period and the lack of proper sanction from the specified authority, the reassessment proceedings initiated under section 147 and 148 are invalid and without jurisdiction.
Treatment of Competing Arguments:
The Revenue contended that the notice was issued following the Supreme Court's directions in Ashish Agarwal and that the necessary approvals were obtained. However, the Tribunal found that the approval was from an incorrect authority and that the notice was issued beyond the permissible time limit, contrary to the statutory provisions and judicial pronouncements.
Conclusions:
The reassessment notice dated 31.07.2022 is invalid and liable to be quashed for non-compliance with sections 149 and 151 of the Act under the new regime. Consequently, the reassessment order passed pursuant to this notice is also quashed.
Issue 2: Addition under Section 56(2)(viia) on Difference Between Consideration and Stamp Duty Valuation
Relevant Legal Framework and Precedents:
Section 56(2)(viia) of the Act applies to cases where an individual or entity receives immovable property for a consideration less than the stamp duty value, leading to the difference being treated as income from other sources. The valuation report of the Departmental Valuation Officer (DVO) is a key aspect in determining the fair market value for this purpose.
Court's Interpretation and Reasoning:
The Assessing Officer made an addition of Rs. 1,10,39,000/- based on the difference between the consideration paid (Rs. 3,65,00,000/-) and the stamp duty valuation (Rs. 4,79,39,000/-). The assessee requested a reference to the DVO, which was acknowledged but not acted upon before completion of the assessment due to time constraints.
The DVO's valuation report, submitted subsequently, valued the property at Rs. 3,95,19,000/-, which is only about 8.27% higher than the consideration paid. The CIT(A) directed the Assessing Officer to restrict the addition to the difference between the DVO's valuation and the consideration paid.
The Tribunal noted that the difference between the DVO valuation and the purchase price is less than 10%, which is a threshold below which section 56(2)(viia) does not apply.
Key Evidence and Findings:
The DVO valuation report dated 30.01.2024 was placed on record, establishing the fair market value at Rs. 3,95,19,000/-. The difference between this valuation and the consideration paid is Rs. 30,19,000/-.
Application of Law to Facts:
Since the difference is less than 10%, the addition under section 56(2)(viia) is not warranted. The Assessing Officer's addition of Rs. 1,10,39,000/- based on the stamp duty valuation is thus not sustainable.
Treatment of Competing Arguments:
The Revenue relied on the stamp duty valuation to justify the addition, while the assessee emphasized the DVO's valuation and the statutory threshold of 10%. The Tribunal accepted the assessee's argument in line with the valuation report and legal provisions.
Conclusions:
The addition under section 56(2)(viia) is deleted, and the assessee is entitled to relief on merits.
3. SIGNIFICANT HOLDINGS
The Tribunal held:
"The sanction by the specified authority has not been obtained by the ld. Assessing Officer in accordance with the provisions contained in section 151 of the Act under the new regime, since notice u/s. 148 has been issued beyond three years from the end of the relevant Assessment Year in violation of sec 149(1) and 151 of the Act. Accordingly, the said notice issued is invalid liable to be quashed."
"The notice issued dated 31.07.2022 for Assessment Year 2017-18 under the new regime is invalid and thus quashed. Resultantly, the impugned reopening proceeding so initiated and the impugned re-assessment order passed thereafter are also quashed."
"Considering the valuation report from ld. DVO, the difference between the stated consideration vis-`a-vis the valuation is less than 10% in the present case, we find that provisions of section 56(2)(viia) will have no application in the matter. Accordingly, the addition so as made by the ld. Assessing Officer stands deleted considering the merits of the case."
Core principles established include:
(i) The new reassessment regime under sections 147 to 151 applies retrospectively, and strict compliance with procedural safeguards, including prior approval under section 151 from the appropriate authority, is mandatory for validity of reassessment notices issued after 01.04.2021.
(ii) The time limits for issuance of reassessment notices are governed by the amended provisions and the TOLA extensions, and notices issued beyond these limits without appropriate sanction are invalid.
(iii) The valuation for section 56(2)(viia) additions must be based on the fair market value as determined by the DVO, and if the difference between consideration and valuation is less than 10%, no addition is warranted.
Final determinations:
The reassessment notice dated 31.07.2022 and consequent reassessment order are quashed for lack of jurisdiction and procedural non-compliance. The addition under section 56(2)(viia) is deleted on merits based on the DVO valuation report.
Reopening of assessment - mandation of prior approval of the specified authority according to section 151 of the new regime before passing an order u/s. 148A(d) or issuing a notice u/s. 148 - Addition u/s 56(2)(viia) - HELD THAT:- In the present case, since the notice u/s. 148 has been issued beyond the period of three years from the end of the relevant Assessment Year, case of the assessee falls within the provisions of section 151(ii) of the amended law whereby the specified authority for grant of approval is specified as Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General. Contrary to this requirement, the approval obtained is by Principal Commissioner of Income Tax-17, Mumbai. Accordingly, since a proper sanction by the specified authority had not been obtained for issue of notice u/s. 148 under the applicable provisions of law, said notice is invalid and bad in law.
Thus, the sanction by specified authority has not been obtained by the Id. AO in accordance with the provisions contained in section 151 of the Act under the new regime, since notice u/s. 148 has been issued beyond three years from the end of the relevant Assessment Year in violation of sec 149(1) and 151 of the Act. Accordingly, the said notice issued is invalid liable to be quashed.
As relying on case of Ashish Agrawal [2022 (5) TMI 240 - SUPREME COURT] and Rajeev Bansal [2024 (10) TMI 264 - SUPREME COURT (LB)] the notice issued dated 31.07.2022 for Assessment Year 2017-18 under the new regime is invalid and thus quashed. Resultantly, the impugned reopening proceeding so initiated and the impugned re-assessment order passed thereafter are also quashed.
Addition u/s 56(2)(viia) - assessee had purchased an immovable property for which AO took note of difference in the actual consideration and stamp duty valuation - HELD THAT:- We note that as against the stated consideration of Rs. 3,65,00,000/-, the valuation of the property arrived at by ld. DVO is Rs. 3,95,19,000/-, resulting into difference of Rs. 30,19,000/- which come to about 8.27% of the stated purchase consideration. The difference between the stated consideration vis-à-vis the stamp duty valuation arrived at by ld. DVO is admittedly less than 10% in the present case, we find that provisions of section 56(2)(viia) will have no application in the matter. Accordingly, the addition so as made by the AO stands deleted considering the merits of the case. Thus, assessee succeeds both on the legal as well as merits of the case. Assessee appeal allowed.
Reopening of assessment - mandation of prior approval of the specified authority according to section 151 of the new regime before passing an order u/s. 148A(d) or issuing a notice u/s. 148 - Addition u/s 56(2)(viia) - HELD THAT:- In the present case, since the notice u/s. 148 has been issued beyond the period of three years from the end of the relevant Assessment Year, case of the assessee falls within the provisions of section 151(ii) of the amended law whereby the specified authority for grant of approval is specified as Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General. Contrary to this requirement, the approval obtained is by Principal Commissioner of Income Tax-17, Mumbai. Accordingly, since a proper sanction by the specified authority had not been obtained for issue of notice u/s. 148 under the applicable provisions of law, said notice is invalid and bad in law.
Thus, the sanction by specified authority has not been obtained by the Id. AO in accordance with the provisions contained in section 151 of the Act under the new regime, since notice u/s. 148 has been issued beyond three years from the end of the relevant Assessment Year in violation of sec 149(1) and 151 of the Act. Accordingly, the said notice issued is invalid liable to be quashed.
As relying on case of Ashish Agrawal [2022 (5) TMI 240 - SUPREME COURT] and Rajeev Bansal [2024 (10) TMI 264 - SUPREME COURT (LB)] the notice issued dated 31.07.2022 for Assessment Year 2017-18 under the new regime is invalid and thus quashed. Resultantly, the impugned reopening proceeding so initiated and the impugned re-assessment order passed thereafter are also quashed.
Addition u/s 56(2)(viia) - assessee had purchased an immovable property for which AO took note of difference in the actual consideration and stamp duty valuation - HELD THAT:- We note that as against the stated consideration of Rs. 3,65,00,000/-, the valuation of the property arrived at by ld. DVO is Rs. 3,95,19,000/-, resulting into difference of Rs. 30,19,000/- which come to about 8.27% of the stated purchase consideration. The difference between the stated consideration vis-à-vis the stamp duty valuation arrived at by ld. DVO is admittedly less than 10% in the present case, we find that provisions of section 56(2)(viia) will have no application in the matter. Accordingly, the addition so as made by the AO stands deleted considering the merits of the case. Thus, assessee succeeds both on the legal as well as merits of the case. Assessee appeal allowed.
1. Whether the reopening of assessment for the assessment years 2016-2017 and 2017-2018 was valid, given the procedural requirements under the amended provisions of section 147, 148, and 151 of the Income Tax Act.
2. Whether the prior approval for issuance of notice under section 148 was obtained from the competent authority as mandated by the amended section 151(ii) of the Act, considering that the reopening was initiated more than three years after the end of the relevant assessment years.
3. The correctness of additions made by the Assessing Officer under section 69A (unexplained money) and disallowance of exemption claimed under section 10(34) of the Act due to lack of documentary evidence.
4. The applicability and interpretation of judicial precedents, including the Supreme Court's decisions in Union of India vs. Ashish Agarwal and Union of India vs. Rajeev Bansal, and various decisions of ITAT and High Courts on the issue of sanctioning authority under section 151(ii).
Issue-wise Detailed Analysis
Issue 1 & 2: Validity of Reopening of Assessment and Competent Authority Approval under Section 151(ii)
The reopening of assessment under section 147 was initiated based on incriminating material found during a search and seizure operation related to the purchase of commercial property and unexplained income. The Assessing Officer issued notices under section 148 after obtaining prior approval from the Commissioner of Income Tax (International Taxation)-2, Mumbai. However, the reopening notices were issued more than three years after the end of the relevant assessment years, which invokes the amended provisions of section 151(ii) effective from 1 April 2021.
Section 151(ii) mandates that for reopening assessments beyond three years from the end of the relevant assessment year, prior approval must be obtained from the Principal Chief Commissioner of Income Tax or Principal Director General of Income Tax, or in their absence, Chief Commissioner or Director General. The approval from a Commissioner of Income Tax does not satisfy this requirement.
The Tribunal examined the timeline and noted that the notices under section 148 were issued on 23.08.2022 (for AY 2016-2017) and 27.07.2022 (for AY 2017-2018) after the three-year period had elapsed. The approval was obtained from the Commissioner of Income Tax, not the Principal Chief Commissioner or Principal Director General, thus not complying with the amended statutory requirement.
The Tribunal relied heavily on the Supreme Court's decision in Union of India vs. Rajeev Bansal, which clarified that the amended provisions of section 151(ii) apply to notices issued after 1 April 2021, and the specified authority for sanction must be the higher-ranking Principal Chief Commissioner or Principal Director General when reopening occurs after three years.
Further, the Tribunal followed the decision of the ITAT Hyderabad Bench in a similar case involving the same assessee, where it was held that the approval from the Commissioner of Income Tax was invalid for reopening beyond three years, rendering the notice and consequent reassessment order void ab initio. The Tribunal also referred to decisions of ITAT Mumbai in ACIT vs. Manish Financial and Manish Jagdish Joshi vs. CIT, which held that notices issued without proper sanction under the amended section 151(ii) are invalid.
The Revenue's contention that the reopening was under the pre-amended provisions was rejected, as the notices were issued after 1 April 2021, and the Supreme Court's decision in Union of India vs. Ashish Agarwal mandated treating the earlier notice as issued under section 148A, thus bringing the reopening under the new regime.
The Tribunal concluded that the reopening notices issued without approval from the specified authority under the amended section 151(ii) were invalid, and consequently, the final assessment orders passed under section 147 read with section 144C(13) were illegal and liable to be quashed.
Issue 3: Additions under Section 69A and Disallowance of Exempt Income under Section 10(34)
The Assessing Officer made additions of Rs. 33,70,000/- and Rs. 16,67,000/- for AYs 2016-2017 and 2017-2018 respectively, treating these amounts as unexplained money under section 69A, due to failure of the assessee to provide purchase agreements, payment details, bank statements, and other documentary evidence substantiating the source of funds for property purchases from Skill Promoters Pvt. Ltd.
Additionally, the Assessing Officer disallowed exempt income claimed under section 10(34) amounting to Rs. 9,33,950/- (AY 2016-2017) and Rs. 7,09,225/- (AY 2017-2018) for lack of supporting evidence. The assessee also claimed deductions under section 80C, which were denied for similar reasons.
The Disputes Resolution Panel (DRP) upheld these additions and disallowances, emphasizing the fundamental principle that the onus lies on the claimant to provide conclusive documentary evidence to substantiate claims of exemption or deductions. The assessee's failure to furnish such evidence justified the additions and disallowances.
However, since the Tribunal quashed the entire reassessment proceedings due to invalid sanction under section 151(ii), these substantive additions and disallowances were not adjudicated upon in the final order and effectively set aside.
Issue 4: Interpretation of Judicial Precedents and Application to Present Case
The Tribunal extensively analyzed the applicability of the Supreme Court's rulings in Union of India vs. Ashish Agarwal and Union of India vs. Rajeev Bansal. The former clarified the procedure for reopening assessments under the new regime effective from 1 April 2021, including the issuance of notices under section 148A and subsequent section 148 notices. The latter specifically addressed the mandatory nature of obtaining prior approval from the specified authorities under amended section 151(ii) when reopening occurs beyond three years.
The Tribunal also relied on decisions of ITAT Mumbai and Hyderabad Benches which held that failure to obtain prior approval from the appropriate specified authority renders the reopening notice and consequent reassessment order void ab initio. The Tribunal noted that the Revenue's reliance on approval from the Commissioner of Income Tax instead of the Principal Chief Commissioner or Principal Director General was contrary to the statutory mandate and judicial pronouncements.
Conclusions
The Tribunal concluded that:
- The reopening notices issued under section 148 for the assessment years 2016-2017 and 2017-2018 were invalid due to non-compliance with the mandatory prior approval requirement under section 151(ii) as amended by TOLA.
- The approval obtained from the Commissioner of Income Tax was not competent authority sanction as required for reopening assessments beyond three years.
- Consequently, the reassessment orders passed under section 147 read with section 144C(13) of the Income Tax Act for both assessment years were illegal, void ab initio, and liable to be quashed.
- The substantive additions and disallowances made by the Assessing Officer and upheld by the DRP were not adjudicated upon due to the invalidity of the reassessment proceedings.
- The appeals for both assessment years were allowed, and the reassessment orders were quashed accordingly.
Significant Holdings
The Tribunal's crucial legal reasoning is encapsulated in the following verbatim excerpt:
"The notice issued by the Assessing Officer u/sec.148 of the Act dated 30.07.2022 with the approval of Principal Commissioner of Income Tax-1, Hyderabad dated 27.07.2022 is not in accordance with the provisions of sec.151(ii) of the Act and consequently, the re-assessment order passed by the Assessing Officer u/sec.147 r.w.s.144C(13) of the Act is illegal, void ab initio and liable to be quashed."
Core principles established include:
Final determinations on each issue are that the reopening notices and reassessment orders are quashed for non-compliance with section 151(ii), and the appeals are allowed accordingly.
Reopening of assessment u/s 147 - Competent Authority for granting sanction u/sec.151(ii) - reopening assessments beyond three years from the end of the relevant assessment year - scope of amended by the Taxation and Other Laws Amendment Act, 2021 (TOLA) - HELD THAT:- As following the decision of Raziulla Syed, Hyderabad [2025 (3) TMI 651 - ITAT HYDERABAD] we are of the considered view that the notice issued u/sec.148 by obtaining prior approval from the Commissioner of Income Tax [International Taxation]-2, Mumbai is not in accordance with sec.151(ii) as applicable from 01.04.2021 onwards.
Therefore, we quash the notice issued u/sec.148 and consequent Final Assessment Order passed by the AOu/sec.147 r.w.s.144C(13). Accordingly, the grounds raised by the assessee allowed.
Reopening of assessment u/s 147 - Competent Authority for granting sanction u/sec.151(ii) - reopening assessments beyond three years from the end of the relevant assessment year - scope of amended by the Taxation and Other Laws Amendment Act, 2021 (TOLA) - HELD THAT:- As following the decision of Raziulla Syed, Hyderabad [2025 (3) TMI 651 - ITAT HYDERABAD] we are of the considered view that the notice issued u/sec.148 by obtaining prior approval from the Commissioner of Income Tax [International Taxation]-2, Mumbai is not in accordance with sec.151(ii) as applicable from 01.04.2021 onwards.
Therefore, we quash the notice issued u/sec.148 and consequent Final Assessment Order passed by the AOu/sec.147 r.w.s.144C(13). Accordingly, the grounds raised by the assessee allowed.
1. Whether the cancellation of registration of the charitable trust under Section 12AB of the Income Tax Act, 1961 (the Act) from the financial year 2021-22 onwards was justified on the grounds of specified violations and non-genuine activities.
2. Whether the Learned Principal Commissioner of Income Tax (PCIT), Central Circle, Delhi had jurisdiction to cancel the registration under Section 12AB, given that the original registration was granted by the Director of Income Tax (Exemption) and the jurisdiction allegedly vested only with the Commissioner of Income Tax (Exemption) (CIT(E)).
3. Whether the invocation of powers under the second proviso to Section 143(2) of the Act by the PCIT was valid, considering that the proviso was introduced by the Finance Act, 2022 with effect from 01.04.2022 and thus not applicable for assessment year (AY) 2021-22.
4. Whether the application of Section 12AB(4), which was introduced by the Finance Act, 2022 and applicable from AY 2022-23 onwards, could be validly applied for AY 2021-22 and earlier years.
5. Whether the allegations of violation of Foreign Contribution Regulation Act (FCRA) norms, misappropriation of funds, receipt of anonymous donations, and non-maintenance of proper books of account were supported by cogent evidence.
6. Whether the activities of the trust were genuine and carried out in accordance with its objects, and whether the trust complied with the conditions subject to which registration was granted.
Issue-wise Detailed Analysis:
1. Justification for Cancellation of Registration under Section 12AB
The legal framework involves Sections 12A, 12AA, and 12AB of the Income Tax Act, which govern the registration of charitable trusts and the conditions for claiming exemption. Section 12AB(4) introduces the concept of "specified violations" which can lead to cancellation of registration.
Precedents such as the Supreme Court judgments in CIT Vs Batanagar Education & Research Trust (2021) and PCIT Vs Singhad Technical Education Society (2025) uphold the cancellation of registration for non-compliance with conditions.
The PCIT's order detailed multiple findings based on evidence collected during a survey under Section 133A, including:
The PCIT concluded that these constituted "specified violations" under Section 12AB(4) and that the trust's activities were not genuine nor in accordance with its objects, justifying cancellation of registration from FY 2021-22 onwards.
The trust contested these findings, denying violations and asserting that humanitarian aid to marginal farmers fell within charitable activities. However, the PCIT relied on documentary evidence, emails, and statements recorded during the survey to establish the violations.
2. Jurisdiction of PCIT to Cancel Registration
The appellant argued that only the CIT(E) had jurisdiction to grant or cancel registration under Sections 12A, 12AA, and 12AB, and that the PCIT, Central Circle, Delhi had no such power. The appellant relied on a coordinate bench decision and the principle that transfer of jurisdiction under Section 127 of the Act did not confer powers beyond assessment proceedings.
The Department relied on binding precedents from the jurisdictional High Court and Supreme Court, including CIT Vs Sahara India Financial Corp Ltd (2007) and PCIT Vs ABC Papers Ltd (2022), which clarify that once a case is transferred under Section 127, all proceedings relating to that case transfer to the transferee officer, including powers to act for assessment and related matters.
The Department further contended that the transfer order dated 09.11.2021 was valid, having obtained concurrence from higher authorities exercising administrative control over the transferee AO, and that intra-city transfers under Section 127(3) do not require prior notice to the assessee.
The Tribunal examined the issue in light of the coordinate bench decision in Aggarwal Vidya Pracharni Sabha Vs PCIT, which held that the PCIT lacked jurisdiction to cancel registration under Section 12AB(4) as the power to grant or cancel registration vests exclusively with the CIT(E). The Tribunal found that the PCIT had not identified the specified violation prior to issuing the notice and had acted without jurisdiction.
The Tribunal also noted that the invocation of Section 12AB(4) requires that the authority first form an opinion of a specified violation before issuing a show cause notice, which was not done here.
3. Application of Second Proviso to Section 143(2)
The appellant contended that the PCIT's reliance on the second proviso to Section 143(2), introduced by Finance Act, 2022 effective 01.04.2022, was invalid for AY 2021-22 as the proviso was not applicable then.
The Tribunal agreed with this contention, referencing the decision in Lakhmi Chand Charitable Society Vs PCIT, which held that the proviso could not be applied retrospectively to assessment years prior to its effective date.
4. Applicability of Section 12AB(4) for Prior Years
The appellant argued that Section 12AB(4), introduced by Finance Act, 2022, was applicable only from FY 2022-23 onwards and could not be invoked for earlier years.
The Department contended that Section 12AA was invoked for AY 2021-22 and prior years, while Section 12AB(4) was invoked only for AY 2022-23, consistent with the law's applicability from 01.04.2022.
The Tribunal found that the PCIT erred in applying Section 12AB(4) to FY 2020-21 and earlier years, which was not legally tenable.
5. Allegations of FCRA Violations, Misappropriation, and Anonymous Donations
The PCIT found that the trust had received foreign donations in violation of FCRA norms and had applied funds for trustees' benefit, which was prohibited under Section 13(2). The trust denied these allegations, stating no foreign inward remittances occurred and no FCRA order had been passed against it.
The Tribunal did not adjudicate these factual contentions due to the findings on jurisdiction and applicability of law, rendering these issues academic.
6. Genuine Activities and Compliance with Objects of Trust
The PCIT held that the trust's activities were not genuine and not in consonance with its objects, citing evidence of fund mobilization for farmers' protests and cash transactions outside books of account.
The trust argued that humanitarian aid to marginal farmers was charitable and that explanations and evidence submitted were not properly considered.
Given the Tribunal's findings on jurisdiction and procedural errors, it did not delve into the merits of these contentions.
Significant Holdings:
The Tribunal held that:
"The order passed by the Ld. PCIT, Central Circle is without jurisdiction in the context of territorial jurisdiction and subject matter as well as not in accordance with law, liable to be quashed."
It emphasized that the power to grant or cancel registration under Sections 12A, 12AA, and 12AB vests exclusively with the CIT(E), and transfer of assessment proceedings under Section 127 does not confer such jurisdiction to the PCIT.
It further held:
"The invocation of 'specified violation' clause in Section 12AB along with explanation with reference to financial year 2020-21 onwards whereas sub-section (4) of the Act was introduced by Finance Act, 2022 and is applicable from financial year 2022-23 is erroneous."
The Tribunal allowed the appeal on grounds of lack of jurisdiction and incorrect application of law, leaving the adjudication of substantive issues regarding genuineness of activities and violations open and academic.
Accordingly, the cancellation order dated 28.12.2023 was set aside, and the stay application filed by the appellant was dismissed as infructuous.
Cancellation of registration granted to the assessee u/s 12AB - charitable activity u/s 2(15) - as per AO activities of the trust are not genuine - validity of order passed by the Ld. PCIT, Central Circle denying exemption - HELD THAT:- As order passed by the Ld. PCIT, Central Circle is without jurisdiction in to the context of territorial jurisdiction and subject matter as well as not in accordance with law, liable to be quashed. Accordingly, ground of appeal nos. 2 and 3 of appeal are allowed.
PCIT has repeatedly referred to “specified violations” which was introduced vide Finance Bill 2022 w.e.f. 01.04.2022 could not have been used for assessment years 2019-20, 2020-21 and 2021-22.
Reference to judgment in the case of Lakhmi Chand Charitable Society [2024 (8) TMI 1297 - ITAT DELHI] is important. Therefore, it is held that Ld. PCIT erred in applying “specified violation” clause in section 12AB along with explanation with reference to financial year 2020-21 onwards whereas aforesaid sub section (4) of the Act was introduced by Finance Act, 2022 was applicable for financial year 2022-23. Accordingly, ground of appeal nos. 4 and 5 are allowed.
Cancellation of registration granted to the assessee u/s 12AB - charitable activity u/s 2(15) - as per AO activities of the trust are not genuine - validity of order passed by the Ld. PCIT, Central Circle denying exemption - HELD THAT:- As order passed by the Ld. PCIT, Central Circle is without jurisdiction in to the context of territorial jurisdiction and subject matter as well as not in accordance with law, liable to be quashed. Accordingly, ground of appeal nos. 2 and 3 of appeal are allowed.
PCIT has repeatedly referred to “specified violations” which was introduced vide Finance Bill 2022 w.e.f. 01.04.2022 could not have been used for assessment years 2019-20, 2020-21 and 2021-22.
Reference to judgment in the case of Lakhmi Chand Charitable Society [2024 (8) TMI 1297 - ITAT DELHI] is important. Therefore, it is held that Ld. PCIT erred in applying “specified violation” clause in section 12AB along with explanation with reference to financial year 2020-21 onwards whereas aforesaid sub section (4) of the Act was introduced by Finance Act, 2022 was applicable for financial year 2022-23. Accordingly, ground of appeal nos. 4 and 5 are allowed.
1. Whether the assessee was entitled to claim exemption under section 10(25)(ii) of the Act despite not explicitly claiming it in the correct column of the ITRs.
2. Whether the disallowance of exemption on the ground of non-registration under section 12A of the Act was justified.
3. Whether delay in filing appeals should be condoned in light of the circumstances.
4. The scope of appellate authority and the power of the Tribunal and Commissioner of Income Tax (Appeals) to entertain fresh claims or rectify omissions not made at the assessment stage.
5. The application of principles laid down by higher courts regarding the interpretation of tax appeals as administrative adjustments rather than adversarial litigation.
Issue-wise Detailed Analysis
1. Entitlement to exemption under section 10(25)(ii) despite procedural irregularities in ITR filing
The relevant legal framework includes section 10(25)(ii) of the Income Tax Act, which exempts income of a provident fund trust recognized under Rule 3(1) of Part A of the Fourth Schedule. The assessee claimed exemption under section 10 generally in the ITRs but erroneously filled the breakup of exemption in Column 14 instead of Column 16 of Part B - TI Statement of Income. The Assessing Officer (AO) disallowed exemption on the ground that the claim was not properly made in the ITRs.
The Tribunal noted that the assessee had been recognized as a provident fund trust since 1984 and had consistently been allowed exemption under section 10(25)(ii) in preceding and subsequent years. The Tribunal emphasized that a mere clerical or prima facie mistake in filling out the ITR should not defeat the substantive right of the assessee to claim exemption. The Tribunal relied on the principle that the intent of the Act and the substantive rights of the assessee must prevail over procedural technicalities.
Relevant precedents cited include decisions where the Tribunal and High Courts have held that the power of the appellate authorities is to arrive at the correct taxable income and not to be confined by strict procedural formalities. The case of Delhi Policy Group (reg.) was particularly relied upon, where a similar omission in the ITR did not disentitle the assessee from claiming exemption once registration was established.
The Tribunal also referred to CBDT Circular No. 14 - XZ (35) dated 11/04/1955, which directs officers not to take advantage of the ignorance of the assessee and to assist taxpayers, reinforcing the principle that procedural mistakes should not override substantive rights.
Thus, the Tribunal applied the law to the facts, concluding that the assessee's entitlement to exemption under section 10(25)(ii) could not be denied solely because of an incorrect column entry in the ITR.
2. Non-registration under section 12A and its impact on exemption claim
The AO and CIT(A) rejected the exemption claim partly on the ground that the assessee was not a registered trust or institution under section 12A of the Act. However, the Tribunal observed that section 10(25)(ii) exemption for provident fund trusts is distinct and does not mandatorily require registration under section 12A. The assessee was recognized as a provident fund trust under Rule 3(1) of Part A of the Fourth Schedule since 1984, which sufficed for claiming exemption under section 10(25)(ii).
The Tribunal noted that the CIT(A) failed to consider relevant case laws and the directions of the Tribunal in its earlier remand order, which had emphasized examining the claim afresh in accordance with law and judicial precedents. The Tribunal reiterated that the exemption under section 10(25)(ii) is independent of section 12A registration and the rejection on this ground was not sustainable.
3. Condonation of delay in filing appeals
The appeals were filed with a delay of 68 days. The assessee explained that the delay was due to initial advice to file rectification applications before the CIT(A) rather than appeals, and the appeals were filed only after that advice changed. The Revenue opposed condonation citing lack of sufficient cause.
The Tribunal applied the principles laid down by the Supreme Court in Collector, Land Acquisition, Anantnag vs. Mst. Katiji and N. Balakrishnan vs. M. Krishnamurthy, emphasizing the elastic and liberal approach to condoning delay to promote substantial justice. It was held that there was no mala fide or deliberate delay and no prejudice to the Revenue. The Tribunal accordingly condoned the delay under section 253(5) of the Act, admitting the appeals for adjudication on merits.
4. Scope of appellate authority to entertain fresh claims and rectify omissions
The Tribunal relied heavily on the Supreme Court decision in Goetze (India) Ltd., which held that the appellate authority under section 254 of the Act has plenary jurisdiction to entertain points of law for the first time, provided the facts supporting the issue are on record. The appellate process in tax matters is not adversarial litigation but an administrative adjustment of tax liability.
The Tribunal also cited the Madras High Court decision in Indian Express (Madurai) (P.) Ltd., which explained that the appellate authorities' function is to arrive at the correct taxable income and not to be confined by procedural omissions or the absence of claims in the original return. The appellate authority can entertain fresh claims or allow deductions to which the assessee is entitled, even if not claimed earlier.
The Tribunal noted that the CIT(A) had failed to consider these precedents and the directions of the Tribunal's earlier order, which had remanded the matter for fresh consideration in light of these principles.
5. Application of judicial principles and precedents to the factsThe Tribunal applied the above legal principles and precedents to the facts, concluding that the assessee's claim for exemption under section 10(25)(ii) was valid and should be allowed despite the procedural error in the ITRs. The Tribunal emphasized that the exemption had been allowed in earlier and later years and that the assessee was duly recognized as a provident fund trust under the relevant rules.
The Tribunal also rejected the Revenue's reliance on the non-registration under section 12A as a ground for denial, holding that such registration was not a prerequisite for exemption under section 10(25)(ii).
Furthermore, the Tribunal held that the delay in filing appeals was adequately explained and justified, and condoned the delay to enable adjudication on merits.
Finally, the Tribunal noted the duty of the Revenue to assist taxpayers and not to take advantage of technical mistakes, reinforcing the principle of substantial justice over procedural technicalities.
Significant Holdings
"The Tribunal has limited jurisdiction while processing the return under section 143(1) and can rectify only obvious and patent mistakes under section 154. However, the Commissioner of Income Tax (Appeals) has co-terminus powers with the Assessing Officer and is fully empowered to permit the assessee to entertain a fresh claim of deduction and to examine the validity of assessment and modify the assessment order for ends of substantial justice."
"A simple prima-facie mistake in filing a particular column of ITR should not go against the intent of the Act."
"The power of the Tribunal under section 254 is to entertain for the first time a point of law provided the fact on the basis of which the issue of law can be raised before the Tribunal. The appellate authorities are not deciding a lis between two parties but are engaged in an administrative act of adjusting the taxpayer's liability."
"When substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred."
"The Tribunal was justified in entertaining the additional ground raised by the assessee relating to a claim which was not raised either before the ITO or before the AAC."
"The Revenue must not take advantage of ignorance of an assessee as to his rights and it is one of their duties to assist a taxpayer which in the long run benefits the Department."
"The assessee's claim, which is undisputedly admissible, cannot be denied only on the reasoning that one of the columns of the ITR was wrongly filled up."
In conclusion, the Tribunal allowed the appeals, directing that exemption under section 10(25)(ii) of the Income Tax Act be granted for the assessment years in question, and granted consequential relief to the assessee.
Disallowance of exemption u/s 10(25)(ii) - as per AO assessee was not eligible for said exemption under specified sub-sections of section 10 of the Act duly mentioned in ITRs - assessee filed applications u/s 154 which was rejected on the reasoning that there was neither a prima facie mistake apparent from the record as there was no claim of exemption u/s 10(25)(ii) of the Act in ITRs nor the assessee was a registered Trust or Institution u/s 12A of the Act.
HELD THAT:- We are of the considered view that the assessee’s claim, which is undisputedly admissible, cannot be denied only on the reasoning that one of the columns of the ITR was wrongly filled up.
This case is squarely covered by the decision of Delhi Policy Group [2023 (10) TMI 1238 - ITAT DELHI] wherein the fact is that the said assessee, a charitable trust registered under section 12A since 30-12-1993, failed to claim exemption under section 11 of the Act by mentioning its registration under section 12A/12AA of the Act in its ITR. Tribunal allowed the appeal holding that since the assessee did not seek registration or any fresh claim of benefit of exemption under section 12A/12AA of the Act in its rectification application u/s 154 of the Act instead it made a mere request to rectify inadvertent mistake which had crept in ITR filed by it online, AO was not right in denying benefit of registration under section 12A of the Act. Appeals of the assessee are allowed.
Disallowance of exemption u/s 10(25)(ii) - as per AO assessee was not eligible for said exemption under specified sub-sections of section 10 of the Act duly mentioned in ITRs - assessee filed applications u/s 154 which was rejected on the reasoning that there was neither a prima facie mistake apparent from the record as there was no claim of exemption u/s 10(25)(ii) of the Act in ITRs nor the assessee was a registered Trust or Institution u/s 12A of the Act.
HELD THAT:- We are of the considered view that the assessee’s claim, which is undisputedly admissible, cannot be denied only on the reasoning that one of the columns of the ITR was wrongly filled up.
This case is squarely covered by the decision of Delhi Policy Group [2023 (10) TMI 1238 - ITAT DELHI] wherein the fact is that the said assessee, a charitable trust registered under section 12A since 30-12-1993, failed to claim exemption under section 11 of the Act by mentioning its registration under section 12A/12AA of the Act in its ITR. Tribunal allowed the appeal holding that since the assessee did not seek registration or any fresh claim of benefit of exemption under section 12A/12AA of the Act in its rectification application u/s 154 of the Act instead it made a mere request to rectify inadvertent mistake which had crept in ITR filed by it online, AO was not right in denying benefit of registration under section 12A of the Act. Appeals of the assessee are allowed.
The core legal questions considered in the appeals arising from assessment years 2010-11 to 2014-15 primarily relate to the following issues:
- Whether additions made by the Assessing Officer (AO) under sections 68 and 69 of the Income Tax Act, 1961 (the Act) on account of unexplained credits, unsecured loans, bank overdraft accounts, and out-of-books sales based on documents found during search and seizure operations are justified and sustainable.
- Whether additions can be made in the hands of the assessee on the basis of documents seized from third parties or group companies without direct linkage or examination of the third parties.
- The validity and applicability of the presumption under section 132(4A) of the Act regarding documents found during search belonging to the person searched.
- Whether the additions made on account of unexplained cash, jewellery seized during search, and unexplained investments in movable and immovable properties are justified.
- Whether the additions made on account of alleged out-of-books sales and unaccounted turnover should be restricted to reasonable profits or entire turnover.
- The correctness of the jurisdiction assumed by AO and CIT(A) under section 153A and related procedural aspects.
- Whether the additions made on the basis of digital data without proper certification under section 65B of the Indian Evidence Act are admissible.
- The treatment of interlinked transactions involving related parties and the application of peak credit theory in such cases.
- Whether additions made based on documents not found in the possession of the assessee but in group companies can be sustained by lifting the corporate veil.
- The correctness of the additions made on account of agricultural income and net profit estimated on cattle feed business.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Additions under Section 68 and 69 on Unexplained Credits and Out-of-Books Sales Based on Documents Found During Search
Legal Framework and Precedents: Section 68 of the Act deals with unexplained cash credits, and section 69 deals with unexplained investments. The principle that additions cannot be made solely on the basis of documents found from third parties without linking them to the assessee is well established in jurisprudence. The Tribunal referred to several precedents including ACIT vs. Lata Mangeshkar, Prakash Chand Nahta v. CIT, CIT v. Salek Chand, SMC Share Broker Ltd, CIT vs. JMD Computers & Communications, and others, which emphasize that additions based on third-party documents require examination and linkage to the assessee.
Court's Interpretation and Reasoning: The documents seized during search belonged to various Rama Group companies and were not found in the possession of the assessee. The Panchnama did not mention the name of the assessee, and the documents did not bear the assessee's signature or handwriting. The Tribunal upheld the principle that additions cannot be made in the hands of the assessee on the basis of third-party documents without establishing a nexus. The AO's reliance on digital data without proper certification under section 65B was also questioned.
Key Evidence and Findings: The documents (Annexure A-36 and RU-1) belonged to Rama Group entities, and the assessee was not linked directly to these documents. The assessee had surrendered certain income during search proceedings. The CIT(A) deleted additions except for a specific amount related to an entry in the name of an individual (Sanjeev Kumar), which was directed to be assessed in the relevant period.
Application of Law to Facts: The Tribunal applied the legal principle that no addition can be made solely on third-party documents without linkage and upheld the deletion of additions under sections 68 and 69 except where direct evidence linked the amount to the assessee.
Treatment of Competing Arguments: The Revenue argued for lifting the corporate veil and reliance on digital data found during search. The assessee contended the documents were not found in his possession and lacked proper certification. The Tribunal sided with the assessee on these points.
Conclusion: Additions under sections 68 and 69 based on third-party documents without direct nexus to the assessee were deleted. The AO was directed to initiate proceedings in the relevant assessment years where direct linkage existed.
Issue 2: Additions on Account of Out-of-Books Sales and Unexplained Payments
Legal Framework and Precedents: The principle that only reasonable profits from out-of-books sales can be added, rather than the entire turnover, is recognized. The burden lies on the Revenue to prove concealment and unexplained income.
Court's Interpretation and Reasoning: The Tribunal observed that the sales and purchase registers related to Rama Central Store, a group company, and that the assessee was a separate legal entity. The CIT(A) restricted the addition to the reasonable profit earned by Rama Central Store rather than the entire turnover. The Tribunal agreed with this approach.
Key Evidence and Findings: The assessee submitted purchase and sales registers and profit and loss accounts. The AO had made additions based on the entire turnover found in seized digital data. The CIT(A) and Tribunal restricted additions to profits only.
Application of Law to Facts: The Tribunal applied the principle of separate legal entity and accepted the CIT(A)'s approach to tax only profits, not gross turnover, in the hands of the group company, not the individual assessee.
Treatment of Competing Arguments: Revenue sought to sustain additions on entire turnover, relying on digital data. Assessee argued for deletion or restriction to profit. The Tribunal accepted the assessee's submissions.
Conclusion: Additions on out-of-books sales were restricted to reasonable profits and made in the hands of the relevant group company, not the individual assessee.
Issue 3: Additions on Account of Unexplained Cash, Jewellery, and Investments
Legal Framework and Precedents: Under sections 69A and 69, unexplained cash and unexplained investments can be added to income if the assessee fails to explain the source. The presumption under section 132(4A) applies to documents found during search but can be rebutted by evidence.
Court's Interpretation and Reasoning: The Tribunal examined the facts of cash found at premises of group companies and the assessee, jewellery seized from lockers, and investments in land. It accepted the assessee's explanation and evidence for cash and land purchases, leading to deletion of additions. Regarding jewellery, affidavits were filed claiming ownership by relatives, and the Tribunal held that the tax authorities must test such affidavits; failing which, the affidavits are presumed true.
Key Evidence and Findings: Cash of Rs. 6.4 lakhs found at group company premises was not added to the assessee. Cash of Rs. 42 lakhs found at assessee's premises was covered by surrendered income. Jewellery worth Rs. 29.42 lakhs was claimed to belong to relatives with affidavits supporting the claim. Land purchases were supported by bank statements and explanations.
Application of Law to Facts: The Tribunal applied the principle that unexplained cash and investments can be added unless satisfactorily explained. It accepted the assessee's explanations and evidence, including affidavits, leading to deletion of additions.
Treatment of Competing Arguments: Revenue emphasized lack of documentary evidence and sought to sustain additions. Assessee provided detailed explanations and evidence. The Tribunal favored the assessee where credible evidence was produced.
Conclusion: Additions on unexplained cash, jewellery, and investments were deleted where the assessee satisfactorily explained the sources and ownership.
Issue 4: Jurisdictional and Procedural Issues Regarding Assessment under Section 153A
Legal Framework and Precedents: Section 153A deals with assessment following search and seizure. Jurisdiction and procedural compliance are essential. The principle of natural justice requires adequate opportunity to be given to the assessee.
Court's Interpretation and Reasoning: The Tribunal noted that in some cases, the CIT(A) and AO passed orders without proper opportunity or relied on remand reports without giving the assessee a chance to respond. The Tribunal remitted such matters for fresh adjudication with proper opportunity.
Key Evidence and Findings: In AY 2011-12, the AO passed the assessment order with a backdated date before the search, raising procedural concerns. The CIT(A) sustained additions without allowing the assessee to respond to observations made in remand reports.
Application of Law to Facts: The Tribunal emphasized the need for compliance with natural justice and proper jurisdiction. It remitted the matter for fresh adjudication.
Treatment of Competing Arguments: The assessee argued for quashing the assessment for lack of jurisdiction and violation of natural justice. The Revenue defended the orders. The Tribunal sided with the assessee on procedural grounds.
Conclusion: The Tribunal allowed the appeal for statistical purposes and directed fresh adjudication with proper opportunity.
Issue 5: Additions Based on Digital Data without Certification under Section 65B of the Indian Evidence Act
Legal Framework and Precedents: Section 65B mandates certification for electronic records to be admissible as evidence. Without such certification, digital evidence may be inadmissible.
Court's Interpretation and Reasoning: The Tribunal noted that certain digital documents (Annexure A-36) were relied upon by AO without certificate under section 65B. The assessee challenged the admissibility. The Tribunal upheld the objection and disallowed additions based on uncertified digital evidence.
Key Evidence and Findings: The digital data was not accompanied by the required certificate under section 65B.
Application of Law to Facts: The Tribunal applied statutory evidentiary requirements and excluded the digital data from consideration.
Treatment of Competing Arguments: Revenue sought to rely on digital data; assessee challenged admissibility. Tribunal favored the assessee.
Conclusion: Additions based on uncertified digital data were disallowed.
Issue 6: Treatment of Interlinked Related Party Transactions and Application of Peak Credit Theory
Legal Framework and Precedents: In related party transactions, the peak credit theory is applied to avoid multiple taxation of the same amount. Additions should be based on net outstanding or peak balance rather than aggregate transactions.
Court's Interpretation and Reasoning: The Tribunal observed that transactions involving Mohit Kumar Shahdara and Shahdara Didi (relatives) were interlinked with opening and closing balances. The CIT(A) applied peak credit theory and sustained addition only to the extent of peak credit. The Tribunal further reduced the addition to the outstanding balance after considering repayments.
Key Evidence and Findings: Ledger accounts showed opening balances, credits, and debits during the year. Prior additions for opening balances were sustained in earlier years.
Application of Law to Facts: The Tribunal applied the peak credit principle to avoid double taxation and upheld addition only to the extent of net outstanding balance.
Treatment of Competing Arguments: Revenue sought to sustain full additions; assessee argued for peak credit approach. Tribunal agreed with the assessee.
Conclusion: Additions in related party transactions were restricted to peak outstanding balances.
Issue 7: Additions in the Hands of Individual Assessee Based on Documents Found in Group Companies and Lifting Corporate Veil
Legal Framework and Precedents: Companies are separate legal entities under the Act. Additions should be made in the hands of the entity to whom the documents belong unless there is sufficient material to lift the corporate veil.
Court's Interpretation and Reasoning: The Tribunal held that documents found in group companies cannot be attributed to individual assessee without material to lift the corporate veil. No such material was brought on record. Assessments were made in the respective companies.
Key Evidence and Findings: Documents were found in premises of group companies; no direct evidence linked them to the assessee individually.
Application of Law to Facts: The Tribunal upheld the principle of separate legal entity and rejected Revenue's attempt to attribute group company transactions to the individual assessee.
Treatment of Competing Arguments: Revenue argued for lifting corporate veil; assessee denied nexus. Tribunal sided with assessee.
Conclusion: Additions based on group company documents were not sustained in the hands of individual assessee.
Issue 8: Additions on Agricultural Income and Estimated Net Profit on Cattle Feed Business
Legal Framework and Precedents: Agricultural income is exempt but must be properly substantiated. Estimations of net profit must be based on relevant evidence and not mere assumptions.
Court's Interpretation and Reasoning: The Tribunal found that the CIT(A) sustained additions on agricultural income and net profit without giving proper opportunity to the assessee to substantiate. The Tribunal remitted the matter for fresh adjudication with opportunity to the assessee.
Key Evidence and Findings: The assessee submitted agricultural income and claimed receipts through mandi samiti. The AO and CIT(A) found evidence insufficient or illegible.
Application of Law to Facts: The Tribunal emphasized procedural fairness and proper opportunity to the assessee.
Treatment of Competing Arguments: Revenue supported additions; assessee sought deletion. Tribunal ordered remand.
Conclusion: Matter remitted for fresh adjudication on agricultural income and net profit additions.
3. SIGNIFICANT HOLDINGS
"No addition can be made on the basis of documents found from a third party without examining the third party and linking the contents of the documents with him."
"The presumption under section 132(4A) that documents found during search belong to the person searched can be rebutted by credible evidence, including affidavits, and the tax authorities are under obligation to test such evidence."
"Additions based on digital data without certificate under section 65B of the Indian Evidence Act are inadmissible."
"The corporate veil cannot be lifted merely because the assessee is a director or connected with group companies; additions must be made in the hands of the entity to whom the documents pertain."
"In related party transactions involving continuous credits and debits, the peak credit theory applies to avoid double taxation."
"Additions on account of out-of-books sales should be restricted to reasonable profits and made in the hands of the relevant entity."
"Proper opportunity of hearing and compliance with jurisdictional requirements under section 153A are mandatory; failure warrants remand or quashing of assessment."
"Additions on unexplained cash and investments can be deleted if the assessee satisfactorily explains the sources and ownership."
"Additions relating to agricultural income and estimated profits must be based on proper evidence and after giving opportunity to the assessee."
Final determinations included dismissal of Revenue's appeals for AYs 2011-12 and 2014-15, partial allowance for AYs 2012-13 and 2013-14, and partial allowance of assessee's appeals across assessment years. Some matters were remanded for fresh adjudication to ensure procedural fairness.
Unexplained credit u/s 68 - AO relying on the statement of the Accounts Head and non-submission of any document before him, proceeded to make the addition with the observation that the credit entries in the case of sundry creditors are made with the narration under the head particulars show “cash” was written on these pages - HELD THAT:- We observed that the document found during the search belongs to various entities of the Rama Group and its associate companies. The last Panchnama was in the name of group companies, identified as RU-1 and it was observed that there is no mention of the assessee’s name anywhere in the Panchnama. Therefore, all these materials found during the search belong to the Rama Group entities.
Therefore, the addition should have been made in the hands of the relevant entities based on the material found and Panchnama on record. Therefore, no addition can be made on the basis of third party without examining and linked to various contents of the documents with the third party in this case assessee. Various courts have held that no addition can be made in the hands of the assessee treating the material found during the search, the relevant search was not initiated in the name of the assessee and such material cannot be applied to make addition in the hands of the assessee. After considering the detailed findings of the ld. CIT (A), in this regard, we are inclined to dismiss ground nos.1 to 4 raised by the Revenue.
Cash transactions in the seized material - CIT (A) has deleted the addition after considering the detailed remand report submitted by the AO - HELD THAT:- We observed that in remand report, the Assessing Officer has accepted the actual unreconciled amount of Rs. 42.79 lakhs. The same was accepted by both parties. The assessee also surrendered an amount of Rs. 52.50 lakhs to compensate the above. Therefore, there is no loss to the Revenue. Accordingly, we do not see any reason to disturb the findings of the ld. CIT(A). Accordingly, ground raised by the Revenue is dismissed.
Book balance in the seized material excluding the opening balance - We observed that there is a credit of Rs. 5,50,000/- and Rs. 3,00,000/- during the year and also there are debit balances of Rs. 2,13,000/-. We observed that there is opening balance of Rs. 4,01,000/-. The opening balance is not a transaction relevant for the current assessment year. Since total credit relevant for the current assessment year is Rs. 8,50,000/- excluding opening balance and there is a debit balance as well. The net credit transactions are Rs. 6,35,000/-. Since the relevant documents were found at the premises of the assessee, the maximum addition could be made is Rs. 6,35,000/- during the current assessment year. Therefore, we direct AO to restrict the addition to Rs. 6,35,000/-. Accordingly, ground no.6 of Revenue’s appeal as well as ground raised by the assessee are partly allowed.
Addition based on the material found during search - sales transactions carried on by Rama Central Store - As per the data found during the search, it clearly indicates that assessee was indulged in purchase as well as sales during that period and the AO has made addition only the sales without considering the purchases. As per the record submitted before the first appellate authority and the details submitted before us, it clearly shows that Rama Central Store was indulged in booking sales as well as purchase during that period. We observed that ld. CIT (A) has sustained only the profit earned by the Rama Central Store, in our considered view, may be reasonable approach to make addition in the hands of Rama Central Store. No reason to disturb the findings of the ld. CIT (A) in proposing the addition based on the profit earned in the hands of Rama Central Store or Rama Group. However, it is apparent on record that purchase and sales were made by Rama Central Store which belongs to Rama Group of companies and they are separate assessees and additions can be made in the respective companies in the relevant assessment proceedings. Assessee being a Director is separate from the company and the addition cannot be made in the hands of the assessee. There is no material brought on record to lift the corporate veil in this case.
Unreconciled turnover - We observed that AO has noticed that assessee has declared unreconciled turnover from the data seized from RU-1 Annexure A-39 to the extent of Rs. 11,65,77,710. We observed that AO has not brought on any record to show that assessee has received more than the amount found during the search as per Annexure A-39. That being so, in our considered view, the actual income alone can be brought on record for taxation and not on the basis of notional income or anything on presumption basis. Therefore, assessee has already accepted the actual receipt of cash as actual income and declared the same during search proceedings. Therefore, we do not see any reason to disturb finding of the ld. CIT (A). Accordingly, ground no.1 raised by the Revenue is dismissed.
Addition based on document find from group companies - We observed that AO has noticed that assessee has declared unreconciled turnover from the data seized from RU-1 Annexure A-39 to the extent of Rs. 11,65,77,710. We observed that AO has not brought on any record to show that assessee has received more than the amount found during the search as per Annexure A-39. That being so, in our considered view, the actual income alone can be brought on record for taxation and not on the basis of notional income or anything on presumption basis. Therefore, after considering the relevant document on record, the assessee has already accepted the actual receipt of cash as actual income and declared the same during search proceedings. Therefore, we do not see any reason to disturb finding of the ld. CIT (A). Accordingly, ground no.1 raised by the Revenue is dismissed.
1074.05 grms. of jewellery were found during the search from locker no.171 which was in the name of the assessee as well as Leena Agarwal - Assessee has stated that the abovesaid jewellery belongs to brother-in-law and sister-in-law, namely, Sachin Goel and Prachi Goel. In support, they have also filed affidavits claiming the same that these jewellery belongs to them.
Considering the fact that assessee has submitted at the time of recording statement during the course of search as well as subsequently that these jewellery belong to brother-inlaw and sister-in-law of the assessee. In this regard, they also filed specific affidavits. After considering the due submissions, we observed that assessee has submitted and claimed the jewellery belongs to his in-law family including mother-in-law and other family members.
After due consideration of the affidavits filed by Sachin Goel and Prachi Goel, we are of the view that no doubt the material found at the time of search presumed to belongs to the assessee as per section 132(4A) of the Act, but in case of rebuttal during the search on subsequent proceedings, the tax authorities are under obligation to put to test the material as well as the affidavits filed before them. In case if failure is on the part of the authorities below, it is presumed that the affidavits filed are true. Assessee ground allowed.
Addition of net profit @ 5% in wholesale trading business of cattle feed - CIT (A) has sustained the addition merely relying on the information submitted before him in the form of remand report and rejoinder to the remand report. He observed certain discrepancies on the information supplied by the assessee, however he could have asked the assessee to substantiate those observations before dismissing the appeal. In our considered view and for the sake of complete justice, we are inclined to remit this matter back to the file of ld. CIT (A) to decide the matter on merits as per law after giving proper opportunity of being heard to the assessee.
Unexplained credit u/s 68 - AO relying on the statement of the Accounts Head and non-submission of any document before him, proceeded to make the addition with the observation that the credit entries in the case of sundry creditors are made with the narration under the head particulars show “cash” was written on these pages - HELD THAT:- We observed that the document found during the search belongs to various entities of the Rama Group and its associate companies. The last Panchnama was in the name of group companies, identified as RU-1 and it was observed that there is no mention of the assessee’s name anywhere in the Panchnama. Therefore, all these materials found during the search belong to the Rama Group entities.
Therefore, the addition should have been made in the hands of the relevant entities based on the material found and Panchnama on record. Therefore, no addition can be made on the basis of third party without examining and linked to various contents of the documents with the third party in this case assessee. Various courts have held that no addition can be made in the hands of the assessee treating the material found during the search, the relevant search was not initiated in the name of the assessee and such material cannot be applied to make addition in the hands of the assessee. After considering the detailed findings of the ld. CIT (A), in this regard, we are inclined to dismiss ground nos.1 to 4 raised by the Revenue.
Cash transactions in the seized material - CIT (A) has deleted the addition after considering the detailed remand report submitted by the AO - HELD THAT:- We observed that in remand report, the Assessing Officer has accepted the actual unreconciled amount of Rs. 42.79 lakhs. The same was accepted by both parties. The assessee also surrendered an amount of Rs. 52.50 lakhs to compensate the above. Therefore, there is no loss to the Revenue. Accordingly, we do not see any reason to disturb the findings of the ld. CIT(A). Accordingly, ground raised by the Revenue is dismissed.
Book balance in the seized material excluding the opening balance - We observed that there is a credit of Rs. 5,50,000/- and Rs. 3,00,000/- during the year and also there are debit balances of Rs. 2,13,000/-. We observed that there is opening balance of Rs. 4,01,000/-. The opening balance is not a transaction relevant for the current assessment year. Since total credit relevant for the current assessment year is Rs. 8,50,000/- excluding opening balance and there is a debit balance as well. The net credit transactions are Rs. 6,35,000/-. Since the relevant documents were found at the premises of the assessee, the maximum addition could be made is Rs. 6,35,000/- during the current assessment year. Therefore, we direct AO to restrict the addition to Rs. 6,35,000/-. Accordingly, ground no.6 of Revenue’s appeal as well as ground raised by the assessee are partly allowed.
Addition based on the material found during search - sales transactions carried on by Rama Central Store - As per the data found during the search, it clearly indicates that assessee was indulged in purchase as well as sales during that period and the AO has made addition only the sales without considering the purchases. As per the record submitted before the first appellate authority and the details submitted before us, it clearly shows that Rama Central Store was indulged in booking sales as well as purchase during that period. We observed that ld. CIT (A) has sustained only the profit earned by the Rama Central Store, in our considered view, may be reasonable approach to make addition in the hands of Rama Central Store. No reason to disturb the findings of the ld. CIT (A) in proposing the addition based on the profit earned in the hands of Rama Central Store or Rama Group. However, it is apparent on record that purchase and sales were made by Rama Central Store which belongs to Rama Group of companies and they are separate assessees and additions can be made in the respective companies in the relevant assessment proceedings. Assessee being a Director is separate from the company and the addition cannot be made in the hands of the assessee. There is no material brought on record to lift the corporate veil in this case.
Unreconciled turnover - We observed that AO has noticed that assessee has declared unreconciled turnover from the data seized from RU-1 Annexure A-39 to the extent of Rs. 11,65,77,710. We observed that AO has not brought on any record to show that assessee has received more than the amount found during the search as per Annexure A-39. That being so, in our considered view, the actual income alone can be brought on record for taxation and not on the basis of notional income or anything on presumption basis. Therefore, assessee has already accepted the actual receipt of cash as actual income and declared the same during search proceedings. Therefore, we do not see any reason to disturb finding of the ld. CIT (A). Accordingly, ground no.1 raised by the Revenue is dismissed.
Addition based on document find from group companies - We observed that AO has noticed that assessee has declared unreconciled turnover from the data seized from RU-1 Annexure A-39 to the extent of Rs. 11,65,77,710. We observed that AO has not brought on any record to show that assessee has received more than the amount found during the search as per Annexure A-39. That being so, in our considered view, the actual income alone can be brought on record for taxation and not on the basis of notional income or anything on presumption basis. Therefore, after considering the relevant document on record, the assessee has already accepted the actual receipt of cash as actual income and declared the same during search proceedings. Therefore, we do not see any reason to disturb finding of the ld. CIT (A). Accordingly, ground no.1 raised by the Revenue is dismissed.
1074.05 grms. of jewellery were found during the search from locker no.171 which was in the name of the assessee as well as Leena Agarwal - Assessee has stated that the abovesaid jewellery belongs to brother-in-law and sister-in-law, namely, Sachin Goel and Prachi Goel. In support, they have also filed affidavits claiming the same that these jewellery belongs to them.
Considering the fact that assessee has submitted at the time of recording statement during the course of search as well as subsequently that these jewellery belong to brother-inlaw and sister-in-law of the assessee. In this regard, they also filed specific affidavits. After considering the due submissions, we observed that assessee has submitted and claimed the jewellery belongs to his in-law family including mother-in-law and other family members.
After due consideration of the affidavits filed by Sachin Goel and Prachi Goel, we are of the view that no doubt the material found at the time of search presumed to belongs to the assessee as per section 132(4A) of the Act, but in case of rebuttal during the search on subsequent proceedings, the tax authorities are under obligation to put to test the material as well as the affidavits filed before them. In case if failure is on the part of the authorities below, it is presumed that the affidavits filed are true. Assessee ground allowed.
Addition of net profit @ 5% in wholesale trading business of cattle feed - CIT (A) has sustained the addition merely relying on the information submitted before him in the form of remand report and rejoinder to the remand report. He observed certain discrepancies on the information supplied by the assessee, however he could have asked the assessee to substantiate those observations before dismissing the appeal. In our considered view and for the sake of complete justice, we are inclined to remit this matter back to the file of ld. CIT (A) to decide the matter on merits as per law after giving proper opportunity of being heard to the assessee.
The core legal questions considered by the Tribunal in this appeal are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Validity of addition under Section 69A of the Act on unexplained cash deposits
Relevant legal framework and precedents: Section 69A of the Act deals with unexplained money, where any sum found deposited in a bank account of the assessee is deemed to be income of the assessee if the assessee fails to satisfactorily explain the nature and source of such money. The burden lies on the assessee to establish the source of deposits. The Tribunal considered precedents where cash deposited shortly after withdrawal was accepted as a reasonable explanation, but also noted that mere assertions without corroborative evidence are insufficient.
Court's interpretation and reasoning: The Tribunal acknowledged the undisputed fact that Rs. 18,46,500/- was deposited in the assessee's bank account during the demonetization period. The assessee claimed these deposits originated from cash withdrawals made over the preceding financial years and the current year, which were allegedly intended for purchasing a residential property at Vishakhapattam. However, the Tribunal observed that the withdrawals were made on numerous occasions, even though the assessee claimed to have kept cash in hand, which was inconsistent with normal human behavior. The Tribunal also noted the absence of any documentary evidence such as agreement of sale or advance payment for the house purchase, weakening the assessee's explanation.
Key evidence and findings: The assessee submitted details of multiple withdrawals amounting to Rs. 18,46,000/- from 2014-15 to 2016, including Rs. 6,00,000/- and Rs. 3,00,000/- withdrawn shortly before demonetization. The assessee also withdrew Rs. 49,000/- on multiple occasions for household expenses. On the same day as the large deposit, the assessee transferred Rs. 18,00,000/- and Rs. 1,00,000/- to unknown accounts, which remained unexplained.
Application of law to facts: The Tribunal partially accepted the explanation for Rs. 9,00,000/- withdrawn shortly before demonetization as genuine source of deposits, given the proximity and consistency with the claimed purpose. However, it rejected the remainder of the withdrawals as unsubstantiated and inconsistent with the assessee's lifestyle and behavior. The unexplained transfers on the day of deposit further cast doubt on the genuineness of the source.
Treatment of competing arguments: The assessee argued that the deposits were legitimate, arising from accumulated savings and withdrawals for a house purchase. The Revenue contended that the explanation was a "make-believe story" lacking evidentiary support. The Tribunal sided with the Revenue on most of the amount, except the Rs. 9,00,000/- withdrawn shortly before demonetization.
Conclusions: The Tribunal upheld addition of Rs. 9,46,500/- (Rs. 18,46,500/- less Rs. 9,00,000/-) under Section 69A as unexplained money, confirming the onus on the assessee to explain the source was not discharged fully.
Issue 2: Applicability of Section 69A to the unexplained deposits
Relevant legal framework and precedents: Section 69A applies when the assessee fails to explain the nature and source of money found deposited in bank accounts. The unexplained sum is deemed income and taxable accordingly.
Court's interpretation and reasoning: The Tribunal noted that the assessee's disclosed sources of income (interest on SB accounts, pension, FD interest, NSC interest, etc.) totaling Rs. 3,70,454/- were insufficient and unrelated to the cash deposits. The assessee failed to establish any nexus between these disclosed incomes and the impugned deposits. Since the assessee was the owner of the money and failed to explain its source satisfactorily, the provisions of Section 69A were attracted.
Key evidence and findings: The assessee's income sources were documented but did not explain the large cash deposits. The unexplained portion of Rs. 9,46,500/- was thus rightly treated as unexplained money.
Application of law to facts: The Tribunal applied Section 69A to the unexplained portion of the deposits, as the assessee failed to discharge the burden of proof.
Treatment of competing arguments: The assessee's contention that the deposits were from known sources was rejected due to lack of evidence. The Revenue's stand was upheld.
Conclusions: The Tribunal dismissed the ground challenging applicability of Section 69A and upheld the addition under this provision.
Issue 3: Applicability of Section 115BBE of the Act for enhanced tax rate on unexplained income
Relevant legal framework and precedents: Section 115BBE prescribes a higher tax rate (60%) on unexplained income or investment. However, its applicability to AY 2017-18 was under scrutiny in various Tribunal decisions.
Court's interpretation and reasoning: The Tribunal referred to a series of decisions by Division and Single Member Benches of the Tribunal holding that Section 115BBE was not applicable for AY 2017-18. The Tribunal relied on these precedents to conclude that the enhanced rate of tax under Section 115BBE should not be levied for the year in question.
Key evidence and findings: The Tribunal noted consistent judicial pronouncements supporting non-applicability of Section 115BBE for AY 2017-18.
Application of law to facts: The addition was to be taxed as income but not at the enhanced rate prescribed by Section 115BBE.
Treatment of competing arguments: The assessee's argument against applicability of Section 115BBE was accepted. The Revenue did not contest this point vigorously.
Conclusions: The Tribunal allowed the ground raised by the assessee and disallowed levy of tax under Section 115BBE for AY 2017-18.
3. SIGNIFICANT HOLDINGS
The Tribunal made the following crucial determinations:
"The explanation of the appellant that the amount of cash withdrawn from 27.06.2014 to 21.10.2016 amounting to Rs. 18,46,000/- was used for re-deposit cannot be accepted in toto... However, we find that assessee had withdrawn Rs. 6,00,000/- on 26.09.2016 and Rs. 3,00,000/- on 21.10.2016. These two withdrawals totalling to Rs. 9,00,000/- just prior to demonetization period is accepted as part of the explained source of deposits... The remaining addition of Rs. 9,46,500/- is upheld."
"The appellant was found to be the owner of such money and he has not been able to offer explanation about the nature and source of acquisition of the said money. As already discussed, the explanation offered by him was also not found satisfactory. Therefore, mischief of the provisions of Section 69A are clearly attracted in the present case."
"So far as taxing the addition at the enhanced rate of tax u/s 115BBE is concerned... enhanced rate prescribed u/s 115BBE is not applicable for AY 2017-18."
The core principles established include:
Final determinations on each issue:
Addition u/s 69A r/w/s 115BBE - large cash deposits during demonetization period as compared to returned income - assessee stated that the source was earlier cash withdrawals by him from FYs 2014-15 to 2015-16 and also withdrawals during the year before the demonetization - HELD THAT:- Appellant himself submitted that he is a retired person and leads a very simple and frugal life. Hence, it is not understood as to why the appellant would keep on withdrawing cash so many occasions if he already had substantial cash-in-hand due to the earlier withdrawals. This is against normal human behaviour. The appellant had also not been able to file any evidence whatsoever before the AO or CIT(A) or the Tribunal that he needed cash to purchase a property at Vishakhapattam. No agreement of sale or evidence of any advance has been filed by the appellant to substantiate such claim.
CIT(A) has rightly observed that it is a makebelieve story and feeble attempt by the appellant to explain away the onus of proof regarding the source of cash deposits. Hence, explanation of the appellant that the amount of cash withdrawn from 27.06.2014 to 21.10.2016 amounting to Rs. 18,46,000/- was used for re-deposit cannot be accepted in toto. Assessee had withdrawn Rs. 6,00,000/- on 26.09.2016 and Rs. 3,00,000/- on 21.10.2016. These two withdrawals totalling to Rs. 9,00,000/- just prior to demonetization period is accepted as part of the explained source of deposits of Rs. 18,46,000/-. It is so held because the assessee had also withdrawn of Rs. 49,000/- each from his three bank accounts (Total: Rs. 1,47,000/-) on 01.07.2016. This amount of Rs,.1,47,000/- was sufficient to take care of his personal and household expenses till the demonetization period. Hence, AO is directed to delete Rs. 9,00,000/- from the total addition of Rs. 18,46,500/- The remaining addition of Rs. 9,46,500/- (Rs.18,46,500 – Rs. 9,00,000/-) is upheld. The ground is partly allowed.
Applicability of provisions of Sec. 69A to the impugned addition - As per the computation of income filed by the appellant sources of income were interest on SB account, pension received, interest on FD, NSC interest, other interests etc. Such income from other sources was Rs. 3,70,454/-. The appellant has not been able to establish the nexus of these disclosed sources with the cash deposited in the bank accounts. Hence, the impugned amount sustained by us in the preceding para takes the character of unexplained money within the meaning of Section 69A of the Act. The appellant was found to be the owner of such money and he has not been able to offer explanation about the nature and source of acquisition of the said money. As already discussed, the explanation offered by him was also not found satisfactory. Therefore, mischief of the provisions of Section 69A are clearly attracted in the present case. We do not find any infirmity in the order of lower authorities. Hence, this ground of assessee is dismissed.
Applicability of Section 115BBE - This is repetitive issue before the Tribunal in many cases. So far as taxing the addition at the enhanced rate of tax u/s 115BBE is concerned, we find that Divisions Bench as well as SMC Bench of this Tribunal in a series of case has held that enhanced rate prescribed u/s 115BBE is not applicable for AY 2017-18. Useful reference may be made to the cases of Samir Shantilal Mehta [2023 (5) TMI 1279 - ITAT SURAT] Arjunsinh Harisinh Thakor [2023 (6) TMI 770 - ITAT SURAT] and Jitendra Nemichand Gupta [2023 (6) TMI 1338 - ITAT SURAT] and Punjab Retail Pvt. Ltd [2021 (11) TMI 405 - ITAT INDORE] and Sandesh Kumar Jain [2022 (11) TMI 126 - ITAT JABALPUR] Accordingly, ground raised by the assessee is allowed.
Appeal of the assessee is partly allowed.
Addition u/s 69A r/w/s 115BBE - large cash deposits during demonetization period as compared to returned income - assessee stated that the source was earlier cash withdrawals by him from FYs 2014-15 to 2015-16 and also withdrawals during the year before the demonetization - HELD THAT:- Appellant himself submitted that he is a retired person and leads a very simple and frugal life. Hence, it is not understood as to why the appellant would keep on withdrawing cash so many occasions if he already had substantial cash-in-hand due to the earlier withdrawals. This is against normal human behaviour. The appellant had also not been able to file any evidence whatsoever before the AO or CIT(A) or the Tribunal that he needed cash to purchase a property at Vishakhapattam. No agreement of sale or evidence of any advance has been filed by the appellant to substantiate such claim.
CIT(A) has rightly observed that it is a makebelieve story and feeble attempt by the appellant to explain away the onus of proof regarding the source of cash deposits. Hence, explanation of the appellant that the amount of cash withdrawn from 27.06.2014 to 21.10.2016 amounting to Rs. 18,46,000/- was used for re-deposit cannot be accepted in toto. Assessee had withdrawn Rs. 6,00,000/- on 26.09.2016 and Rs. 3,00,000/- on 21.10.2016. These two withdrawals totalling to Rs. 9,00,000/- just prior to demonetization period is accepted as part of the explained source of deposits of Rs. 18,46,000/-. It is so held because the assessee had also withdrawn of Rs. 49,000/- each from his three bank accounts (Total: Rs. 1,47,000/-) on 01.07.2016. This amount of Rs,.1,47,000/- was sufficient to take care of his personal and household expenses till the demonetization period. Hence, AO is directed to delete Rs. 9,00,000/- from the total addition of Rs. 18,46,500/- The remaining addition of Rs. 9,46,500/- (Rs.18,46,500 – Rs. 9,00,000/-) is upheld. The ground is partly allowed.
Applicability of provisions of Sec. 69A to the impugned addition - As per the computation of income filed by the appellant sources of income were interest on SB account, pension received, interest on FD, NSC interest, other interests etc. Such income from other sources was Rs. 3,70,454/-. The appellant has not been able to establish the nexus of these disclosed sources with the cash deposited in the bank accounts. Hence, the impugned amount sustained by us in the preceding para takes the character of unexplained money within the meaning of Section 69A of the Act. The appellant was found to be the owner of such money and he has not been able to offer explanation about the nature and source of acquisition of the said money. As already discussed, the explanation offered by him was also not found satisfactory. Therefore, mischief of the provisions of Section 69A are clearly attracted in the present case. We do not find any infirmity in the order of lower authorities. Hence, this ground of assessee is dismissed.
Applicability of Section 115BBE - This is repetitive issue before the Tribunal in many cases. So far as taxing the addition at the enhanced rate of tax u/s 115BBE is concerned, we find that Divisions Bench as well as SMC Bench of this Tribunal in a series of case has held that enhanced rate prescribed u/s 115BBE is not applicable for AY 2017-18. Useful reference may be made to the cases of Samir Shantilal Mehta [2023 (5) TMI 1279 - ITAT SURAT] Arjunsinh Harisinh Thakor [2023 (6) TMI 770 - ITAT SURAT] and Jitendra Nemichand Gupta [2023 (6) TMI 1338 - ITAT SURAT] and Punjab Retail Pvt. Ltd [2021 (11) TMI 405 - ITAT INDORE] and Sandesh Kumar Jain [2022 (11) TMI 126 - ITAT JABALPUR] Accordingly, ground raised by the assessee is allowed.
Appeal of the assessee is partly allowed.
The core legal questions considered by the Tribunal include:
2. ISSUE-WISE DETAILED ANALYSIS
Validity of Reopening under Section 148
Legal Framework and Precedents: Section 148 permits reopening of assessments if the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment. The reopening must be based on valid reasons recorded in writing and prior approval from the competent authority must be obtained. The reopening must comply with procedural safeguards and the reasons must be clear and justifiable.
Court's Interpretation and Reasoning: The Tribunal noted that the reopening was initiated after the Assessing Officer received information from AIR (Annual Information Return) data showing a transaction involving immovable property worth over Rs. 3.28 crores that was not reflected in the original return. The notice under Section 148 was issued after recording reasons and obtaining prior approval. The appellant had not filed a return of income initially.
Key Evidence and Findings: The Assessing Officer issued notice under Section 148 on 27-03-2018, followed by notices under Section 142(1). The appellant filed return of income only after the reopening notice. No discrepancy was pointed out by the appellant's representatives regarding the procedural validity of reopening.
Application of Law to Facts: The Tribunal found that the reopening complied with statutory requirements, including recording of reasons and prior approval. The appellant's failure to file return of income initially justified reopening.
Treatment of Competing Arguments: The appellant argued improper reasons and lack of clear basis for reopening, but the Tribunal rejected these, emphasizing adherence to procedure and availability of information justifying reopening.
Conclusion: The reopening under Section 148 was valid and the assessment order passed under Section 147 was proper. Ground 1 was dismissed.
Ownership of Property and Application of Section 50C
Legal Framework and Precedents: Section 50C applies to capital gains arising from transfer of land or building, where the sale consideration is less than the value assessed by the stamp valuation authority. Ownership of the property at the time of sale is a precondition for applicability of this provision. The burden is on the assessee to prove non-ownership if claimed.
Court's Interpretation and Reasoning: The appellant contended that the property was sold in 2005 to relatives with registered documentation, and thus the addition under Section 50C for AY 2011-12 was incorrect and double taxation. The appellant submitted sale deed and earlier ITR showing capital gains for AY 2005-06.
The Tribunal analyzed the facts that the appellant had not disclosed the sale before the Hon'ble Gujarat High Court during liquidation proceedings, where the official liquidator was appointed and the appellant was declared owner for distribution of sale proceeds. The appellant's contention that ownership had passed in 2005 was not supported before the Court or the official liquidator.
Key Evidence and Findings: The sale deed dated 08-02-2011 showed payments made directly by the purchaser to various parties including the official liquidator and mutual funds, but the appellant did not receive the full sale consideration directly. Ledger and journal entries from Neptune Realty Pvt. Ltd. indicated payments to the appellant after 31-03-2011. The appellant's own submissions before the Assessing Officer acknowledged ownership and receipt of payments through the liquidator.
Application of Law to Facts: The Tribunal held that the appellant was the owner in the eyes of law at the relevant time as per the High Court's decision and liquidation proceedings. The 2005 sale deed was considered a colourable device to evade creditors and reduce tax liability, lacking bona fide ownership transfer.
Treatment of Competing Arguments: The appellant's claim of prior sale and non-ownership was rejected due to failure to establish ownership change before the High Court and inconsistencies in submissions. The revenue's contention that the property was owned by the appellant and capital gains were rightly assessed was accepted.
Conclusion: The addition under Section 50C and consequent capital gains tax was justified. Grounds 2, 4, and 5 were dismissed.
Procedural Fairness in Application of Section 50C
Legal Framework and Precedents: Proper notice and opportunity to submit valuation reports are mandatory before making additions under Section 50C to ensure natural justice.
Court's Interpretation and Reasoning: The appellant contended that no proper notice was issued before making additions under Section 50C. However, the record showed that notices under Sections 148 and 142(1) were issued and the appellant was given opportunity to submit documents and explanations.
Key Evidence and Findings: The appellant submitted sale deed, ledger entries, and other documents during assessment proceedings. The Assessing Officer considered these before making the addition.
Application of Law to Facts: The Tribunal found that procedural requirements were complied with and the appellant was afforded adequate opportunity.
Treatment of Competing Arguments: The appellant's argument was rejected as the procedural safeguards were fulfilled.
Conclusion: The addition under Section 50C was made after due procedure. Ground 3 was dismissed.
Validity of CIT (Appeals) Order
Legal Framework and Precedents: The CIT (Appeals) must consider all relevant facts and documents and provide reasoned order. Failure to consider crucial evidence may vitiate the order.
Court's Interpretation and Reasoning: The appellant argued that CIT (Appeals) ignored crucial facts such as payment details in the sale deed and dismissed the appeal without proper inquiry.
Key Evidence and Findings: The Tribunal observed that the CIT (Appeals) had considered the submissions and evidence including the sale deed, ledger entries, and High Court's decision. The CIT (Appeals) upheld the Assessing Officer's findings after due consideration.
Application of Law to Facts: The Tribunal found no infirmity in the CIT (Appeals) order and held that it was based on proper appreciation of facts and law.
Treatment of Competing Arguments: The appellant's contention was rejected due to lack of substantive evidence to overturn the findings.
Conclusion: The CIT (Appeals) order was proper and justified. Ground 4 was dismissed.
Reassessment under Section 147 and Timing of Sale
Legal Framework and Precedents: Reassessment under Section 147 requires valid reasons and the capital gains tax liability arises in the year of transfer. The date of sale deed and registration are relevant for determining the year of capital gain.
Court's Interpretation and Reasoning: The appellant argued that the sale deed dated 09-02-2005 was registered only in 2007 and thus reassessment for AY 2011-12 was invalid.
Key Evidence and Findings: The Tribunal noted that the appellant had not disclosed this sale to the tax authorities or the High Court during liquidation proceedings. The High Court had declared the appellant owner for distribution of proceeds in 2011. The reassessment was triggered by information regarding sale in 2011, which was not disclosed earlier.
Application of Law to Facts: The Tribunal held that the reassessment was valid as the sale consideration was received or deemed to be received in AY 2011-12 and the appellant had not disclosed the transaction earlier.
Treatment of Competing Arguments: The appellant's argument based on registration delay was rejected as the legal ownership and receipt of sale consideration were determinative.
Conclusion: The reassessment was valid and additions were justified. Ground 5 was dismissed.
3. SIGNIFICANT HOLDINGS
The Tribunal held:
"The reopening under Section 148 was valid as the Assessing Officer had recorded proper reasons and obtained prior approval, and the appellant had not filed return of income initially."
"The appellant's contention of prior sale in 2005 to relatives was a colourable device to evade creditors and reduce tax liability, as the appellant was declared owner by the Hon'ble Gujarat High Court and received sale proceeds through the official liquidator."
"The addition under Section 50C was rightly made as the appellant was owner at the time of sale and received sale consideration, and procedural safeguards including notice and opportunity to submit valuation were complied with."
"The CIT (Appeals) order dismissing the appellant's appeal was based on proper appreciation of facts and law and did not suffer from any infirmity."
"The reassessment under Section 147 was valid and justified given the non-disclosure and timing of receipt of sale consideration."
Validity of reopening of assessment - reasons to believe - A.R. submitted that the reopening u/s. 148 does not meet the requirement of law including the failure to provide proper reasons for reopening to provide a clear basis for such action - DR submitted that the reopening was rightly done as the assessee has not filed any return of income and there was huge transaction related to the immovable property owned by the assessee.
HELD THAT:- It is pertinent to note that the assessee has not filed the return of income. In fact after receiving the information relating to the sale of immovable property, the department after following all the procedure issued notice u/s. 148 of the Act. The assessee never filed return of income in response to notice u/s. 148 of the Act. As the reopening was properly done as per Income Tax Act and no discrepancy pointed out by the Ld. A.R., the proceedings u/s. 148 of the Act are valid and assessment order passed u/s. 147 is just and proper. Thus, ground no. 1 is dismissed.
LTCG - Transaction related to the immovable property owned by the assessee - Real owner of property - The assessee’s contention before the Assessing Officer that the assessee is not owner and the amount was not at all paid to the assessee has failed and the revenue has pointed out as to why the said contention of the assessee has failed.
AO has rightly made calculation of long term capital gain on the whole immoveable property and the same is justified. CIT(A) has also taken into cognizance of these aspects and has rightly confirmed the same. As regards the assessee’s contention that there was attachment on the property in question and company Motorol India Ltd. was in liquidation, the same has been taken care of by the Hon’ble Gujarat High Court by declaring assessee as owner of the said property which was at no point of time was denied by the assessee before the Hon’ble High Court despite showing the documents of 2005 only to the tax authorities and not to the Hon’ble High Court.
Therefore, the journal entry as well as payment entry made by the Neptune Realty Pvt. Ltd. in the case of (assessment proceedings) of Neptune Realty Ltd. appears to be co-relating with the decision of Hon’ble Gujarat High Court and hence sales amount of Rs. 97,00,000/- was paid to the assessee and the property sale price of Rs. 3,20,00,000/- to that extent has to be treated as long term capital gain and the calculation to that effect was rightly done by the Assessing Officer. Hence, the appeal of the assessee is dismissed.
Validity of reopening of assessment - reasons to believe - A.R. submitted that the reopening u/s. 148 does not meet the requirement of law including the failure to provide proper reasons for reopening to provide a clear basis for such action - DR submitted that the reopening was rightly done as the assessee has not filed any return of income and there was huge transaction related to the immovable property owned by the assessee.
HELD THAT:- It is pertinent to note that the assessee has not filed the return of income. In fact after receiving the information relating to the sale of immovable property, the department after following all the procedure issued notice u/s. 148 of the Act. The assessee never filed return of income in response to notice u/s. 148 of the Act. As the reopening was properly done as per Income Tax Act and no discrepancy pointed out by the Ld. A.R., the proceedings u/s. 148 of the Act are valid and assessment order passed u/s. 147 is just and proper. Thus, ground no. 1 is dismissed.
LTCG - Transaction related to the immovable property owned by the assessee - Real owner of property - The assessee’s contention before the Assessing Officer that the assessee is not owner and the amount was not at all paid to the assessee has failed and the revenue has pointed out as to why the said contention of the assessee has failed.
AO has rightly made calculation of long term capital gain on the whole immoveable property and the same is justified. CIT(A) has also taken into cognizance of these aspects and has rightly confirmed the same. As regards the assessee’s contention that there was attachment on the property in question and company Motorol India Ltd. was in liquidation, the same has been taken care of by the Hon’ble Gujarat High Court by declaring assessee as owner of the said property which was at no point of time was denied by the assessee before the Hon’ble High Court despite showing the documents of 2005 only to the tax authorities and not to the Hon’ble High Court.
Therefore, the journal entry as well as payment entry made by the Neptune Realty Pvt. Ltd. in the case of (assessment proceedings) of Neptune Realty Ltd. appears to be co-relating with the decision of Hon’ble Gujarat High Court and hence sales amount of Rs. 97,00,000/- was paid to the assessee and the property sale price of Rs. 3,20,00,000/- to that extent has to be treated as long term capital gain and the calculation to that effect was rightly done by the Assessing Officer. Hence, the appeal of the assessee is dismissed.
- Whether the delay of 221 days in filing the appeal before the Appellate Tribunal is liable to be condoned based on the explanation provided by the assessee.
- Whether the ex parte order passed by the Commissioner of Income Tax (Appeals) (Ld. CIT(A)) upholding additions under sections 56(2)(x) and 69B of the Income Tax Act, 1961, without the assessee's participation, violated the principles of natural justice.
- Whether the matter should be remanded to the Ld. CIT(A) for fresh adjudication in light of the assessee's non-appearance due to bona fide reasons and procedural irregularities.
2. ISSUE-WISE DETAILED ANALYSIS
Condonation of Delay in Filing Appeal
Relevant legal framework and precedents: The Income Tax Act empowers the Appellate Tribunal to condone delay in filing appeals if sufficient cause is shown. The principle of "sufficient cause" encompasses bona fide reasons such as illness, absence of legal counsel, or other unavoidable circumstances. Judicial precedents emphasize that procedural delays should be condoned liberally to advance substantial justice rather than technicalities.
Court's interpretation and reasoning: The Tribunal noted the delay of 221 days in filing the appeal and considered the affidavit filed by the assessee explaining the delay. The explanation included the change of Chartered Accountant (CA) from Mr. Kushwat Ojha to Mr. Nikash Mehta, with the latter failing to pursue the appeal before the Ld. CIT(A). Additionally, the assessee was under mental distress due to the demise of a close relative, impairing her ability to manage appellate proceedings.
Key evidence and findings: The affidavit dated 06/06/2025 detailing the circumstances causing delay was accepted. The Revenue did not raise substantive objections to the explanation.
Application of law to facts: The Tribunal found that the assessee was prevented by sufficient cause from filing the appeal in time. The reliance on the Chartered Accountant who failed to act and the emotional distress were held to constitute reasonable cause.
Treatment of competing arguments: The Revenue's acceptance of the explanation without contesting the sufficiency of cause reinforced the Tribunal's decision to condone the delay.
Conclusion: The delay of 221 days in filing the appeal was condoned.
Validity of Ex Parte Order Passed by Ld. CIT(A)
Relevant legal framework and precedents: The principles of natural justice require that an assessee be given a reasonable opportunity of being heard before adverse orders are passed. Ex parte orders are generally disfavored unless the assessee wilfully abstains from participation. The Income Tax Act and judicial pronouncements mandate adherence to fair hearing norms in appellate proceedings.
Court's interpretation and reasoning: The Tribunal observed that the Ld. CIT(A) allowed a hearing opportunity, but the assessee did not appear due to reliance on her Chartered Accountant who failed to represent her, compounded by emotional distress. The ex parte order upholding additions under sections 56(2)(x) and 69B was thus passed without the assessee's effective participation.
Key evidence and findings: The Tribunal relied on the affidavit and the absence of any wilful non-cooperation by the assessee. The failure was attributed to the Chartered Accountant's non-action and personal distress of the assessee.
Application of law to facts: Since the ex parte order was passed without affording the assessee a genuine opportunity to be heard, the principles of natural justice were violated. The Tribunal emphasized that such procedural irregularity warranted remedial action.
Treatment of competing arguments: The Revenue did not contest the bona fide nature of the non-appearance, and no substantive objection was raised to the explanation provided.
Conclusion: The ex parte order is set aside on the ground of denial of natural justice.
Remand for Fresh Adjudication
Relevant legal framework and precedents: Courts and Tribunals have the power to remand matters for de novo consideration when procedural lapses or denial of natural justice occur. Remand ensures that the assessee receives a fair hearing and the matter is decided on merits.
Court's interpretation and reasoning: The Tribunal refrained from expressing any opinion on the merits of the additions under sections 56(2)(x) and 69B. Instead, it directed the matter to be remanded to the Ld. CIT(A) for fresh adjudication with the explicit direction to grant the assessee a reasonable opportunity of hearing and allow filing of additional documents.
Key evidence and findings: The Tribunal relied on the procedural history, the affidavit explaining non-appearance, and the absence of substantive objections from the Revenue.
Application of law to facts: The Tribunal applied the principles of natural justice and fair play to ensure that the assessee's appeal is adjudicated afresh without prejudice.
Treatment of competing arguments: The Revenue did not oppose the remand and accepted the explanation for delay and non-appearance.
Conclusion: The matter is remanded to the Ld. CIT(A) for de novo adjudication with directions to provide a fair hearing and allow submission of documents.
3. SIGNIFICANT HOLDINGS
"We find that the assessee was prevented by sufficient cause from filing the appeal in time; therefore, we condone the delay of 221 days and adjudicate the matter as below."
"The appellate order has been passed ex parte without affording the assessee a reasonable opportunity of being heard, thereby resulting in a denial of the principles of natural justice."
"In view of the above, we find it appropriate, in the interest of justice, to remand the matter to the file of the Ld. CIT(A) for adjudication afresh. We make no comment on the merits of the case, so as not to prejudice the outcome of the de novo proceedings."
Core principles established include the liberal condonation of delay where bona fide reasons exist, strict adherence to natural justice in appellate proceedings, and the necessity of remanding matters for fresh adjudication where procedural lapses occur without prejudice to substantive rights.
Final determinations:
- Delay in filing the appeal was condoned.
Ex parte order passed by CIT(A) - Addition u/s 56(2)(x) - difference in stamp duty value and purchase value of the property shown by the assessee which was added back under the head “Income from other sources” to the total income - HELD THAT:- The assessee had bona fide relied on her Chartered Accountant, who neither properly participated in the appellate proceedings nor informed the assessee about the status thereof. Additionally, the assessee was undergoing emotional distress due to the loss of a close relative. The appellate order has been passed ex parte without affording the assessee a reasonable opportunity of being heard, thereby resulting in a denial of the principles of natural justice.
We find it appropriate, in the interest of justice, to remand the matter to the file of the CIT(A) for adjudication afresh. We make no comment on the merits of the case, so as not to prejudice the outcome of the de novo proceedings. It is, however, directed that the assessee be granted a reasonable opportunity of being heard, and be permitted to file any additional documents in support of her case, in accordance with law. Appeal of the assessee allowed for statistical purpose.
Ex parte order passed by CIT(A) - Addition u/s 56(2)(x) - difference in stamp duty value and purchase value of the property shown by the assessee which was added back under the head “Income from other sources” to the total income - HELD THAT:- The assessee had bona fide relied on her Chartered Accountant, who neither properly participated in the appellate proceedings nor informed the assessee about the status thereof. Additionally, the assessee was undergoing emotional distress due to the loss of a close relative. The appellate order has been passed ex parte without affording the assessee a reasonable opportunity of being heard, thereby resulting in a denial of the principles of natural justice.
We find it appropriate, in the interest of justice, to remand the matter to the file of the CIT(A) for adjudication afresh. We make no comment on the merits of the case, so as not to prejudice the outcome of the de novo proceedings. It is, however, directed that the assessee be granted a reasonable opportunity of being heard, and be permitted to file any additional documents in support of her case, in accordance with law. Appeal of the assessee allowed for statistical purpose.
The core legal questions considered by the Tribunal were:
(a) Whether the reopening of assessment under section 147 of the Income-tax Act, 1961, and issuance of notice under section 148, was valid and justified in the facts and circumstances of the case;
(b) Whether the addition of Rs. 2,51,574/- on account of 30% of total credits in an undisclosed bank account as business income was justified, or whether a lesser percentage should be applied for estimation;
(c) Whether the penalty imposed (though mentioned in grounds) should be deleted or maintained (though the Tribunal did not explicitly address penalty in the order).
2. ISSUE-WISE DETAILED ANALYSIS
Issue (a): Validity of Reopening under Section 147/148
Relevant legal framework and precedents: Section 147 of the Income-tax Act empowers the Assessing Officer (AO) to reopen an assessment if there is reason to believe that income has escaped assessment. Section 148 mandates issuance of a notice before reopening. The reopening must be based on tangible material and reasons recorded in writing. The reopening is subject to limitation periods and procedural safeguards. The assessee is entitled to know the reasons for reopening and can challenge validity if reasons are not disclosed or are mala fide.
Court's interpretation and reasoning: The Tribunal noted that the Commissioner of Income-tax (Appeals) [CIT(A)] had dismissed the assessee's objection to reopening on the ground that the assessee had not sought reasons for reopening during assessment proceedings, but only after five years. The AO had recorded and served reasons for reopening, which were not contested. The Tribunal found no infirmity in the CIT(A)'s reasoning and upheld the validity of reopening.
Key evidence and findings: The AO found an undisclosed bank account with cash credits amounting to Rs. 8,38,580/-. This constituted tangible material to form reason to believe that income had escaped assessment. The assessee did not contest the existence or service of reasons for reopening.
Application of law to facts: The Tribunal applied the principle that reopening is valid if reasons are recorded and communicated. The delay in seeking reasons by the assessee did not invalidate the reopening.
Treatment of competing arguments: The assessee argued invalidity of reopening, but did not present fresh arguments beyond those considered by CIT(A). The Tribunal gave weight to the procedural compliance by AO and absence of challenge to reasons.
Conclusion: The reopening under section 147/148 was valid and justified.
Issue (b): Quantum of Addition on Account of Undisclosed Bank Account Credits
Relevant legal framework and precedents: Section 69 of the Income-tax Act authorizes addition of unexplained cash credits to income. The AO can estimate income where exact quantification is not possible. The estimation should be reasonable and based on facts. Precedents emphasize that estimation must be just and fair, not arbitrary or punitive.
Court's interpretation and reasoning: The AO initially added the entire amount of Rs. 8,38,580/-. The CIT(A) reduced this addition to 30% of the total credits, i.e., Rs. 2,51,574/-. During the Tribunal hearing, both parties agreed that a reasonable estimate should be made by the Tribunal. The Tribunal considered the totality of facts and concluded that 20% of the total cash deposits/credits would meet the ends of justice.
Key evidence and findings: The undisclosed bank account had both debit and credit entries. The assessee did not disclose this account in books of account. The total credits were Rs. 8,38,580/-. The assessee requested estimation at 5%, which was rejected by CIT(A). The Tribunal found 20% to be a reasonable middle ground.
Application of law to facts: The Tribunal applied the principle of reasonable estimation and fairness. The reduction from AO's full addition to 20% reflects moderation based on facts and submissions.
Treatment of competing arguments: The assessee's plea for 5% was considered but found insufficient to reflect true income. The revenue's stand for higher addition was moderated by the Tribunal.
Conclusion: Addition is confirmed at 20% of total credits, amounting to Rs. 1,67,716/-.
Issue (c): Penalty Deletion
The grounds mention deletion of penalty, but the Tribunal's order does not expressly address penalty. Hence, no detailed analysis or conclusion on penalty is recorded in the judgment.
3. SIGNIFICANT HOLDINGS
"The reopening under section 147/148 is valid where reasons are duly recorded and served upon the assessee, and the assessee's failure to seek reasons at the time of assessment proceedings does not invalidate the reopening."
"In estimating unexplained cash credits under section 69, the Tribunal may apply a reasonable percentage to total credits to meet the ends of justice, balancing between the AO's full addition and the assessee's minimal estimate."
"Considering the facts of the case, 20% of total cash deposits/credits in the undisclosed bank account is a fair and just estimate of income to be added."
Final determinations:
(a) The reopening of assessment under section 147/148 is upheld as valid;
(b) The addition on account of unexplained cash credits in the undisclosed bank account is sustained but reduced to 20% of total credits, i.e., Rs. 1,67,716/-;
(c) The appeal is partly allowed accordingly.
Reopening the assessment u/s 147 - addition on account of alleged 30% of total credits treated business income - HELD THAT:- AR has repeated the submission made during the appellate proceedings before CIT(A). He has not made any additional arguments as to why the findings of the CIT(A) is not correct. We do not find any infirmity in the reasoning of the CIT(A) in dismissing the ground. Hence, this ground No.1 is dismissed.
Estimation income at 30% of the unexplained cash deposits/credits entries in the HDFC Bank account of assessee - AO has added the entire deposit, which was restricted to 30% by the CIT(A). During the hearing, it was submitted by both counsel that a reasonable estimate may be made by the Tribunal. After considering the totality of the facts, we are of the considered view that 20% of the total cash deposits/credits in the impugned bank account would meet the ends of justice. Hence, the AO is directed to add Rs. 1,67,716/-(i.e., 20% Rs. 8,38,580/-). The ground is partly allowed.
Reopening the assessment u/s 147 - addition on account of alleged 30% of total credits treated business income - HELD THAT:- AR has repeated the submission made during the appellate proceedings before CIT(A). He has not made any additional arguments as to why the findings of the CIT(A) is not correct. We do not find any infirmity in the reasoning of the CIT(A) in dismissing the ground. Hence, this ground No.1 is dismissed.
Estimation income at 30% of the unexplained cash deposits/credits entries in the HDFC Bank account of assessee - AO has added the entire deposit, which was restricted to 30% by the CIT(A). During the hearing, it was submitted by both counsel that a reasonable estimate may be made by the Tribunal. After considering the totality of the facts, we are of the considered view that 20% of the total cash deposits/credits in the impugned bank account would meet the ends of justice. Hence, the AO is directed to add Rs. 1,67,716/-(i.e., 20% Rs. 8,38,580/-). The ground is partly allowed.
1. Whether the Commissioner of Income Tax (Appeals) was justified in restricting the addition to 12.5% of the alleged bogus purchases instead of disallowing 100% of such purchases, relying on certain High Court decisions.
2. Whether the appellate order suffers from perversity due to misreading or ignoring relevant evidence and facts on record.
3. The applicability and interpretation of Section 69C regarding unexplained expenditure and the burden of proof on the assessee to establish genuineness of purchases.
4. The extent to which judicial precedents on bogus purchases and accommodation entries apply to the facts of this case.
5. Whether the entire amount of alleged bogus purchases should be added back to income or only the profit element embedded therein.
Issue-wise Detailed Analysis:
1. Justification of restricting addition to 12.5% of bogus purchases versus 100% disallowance
The legal framework involves Section 69C of the Income Tax Act, which mandates that unexplained expenditure can be deemed as income if the assessee fails to satisfactorily explain the source of such expenditure. The burden lies on the assessee to prove the genuineness of transactions, especially when dealing with accommodation entries or bogus purchases.
The Assessing Officer (AO) found that the assessee had recorded purchases amounting to Rs. 76,21,830 from an entity engaged in issuing bogus bills, as established by investigation and corroborated by GST department findings. The AO disallowed the entire amount under Section 69C.
The Commissioner of Income Tax (Appeals) (CIT(A)) partially allowed the appeal by restricting the addition to 12.5% of the bogus purchases, relying heavily on the Bombay High Court decision in PCIT vs. S.V. Jiwani and Gujarat High Court decision in CIT vs. Simit Sheth. These decisions held that only the profit element embedded in bogus purchases should be taxed rather than the entire purchase amount.
The CIT(A) reasoned that the entire purchases could not be disallowed as the sale proceeds were accounted for and offered to tax, and only the profit portion should be added to income to prevent revenue leakage. The CIT(A) also cited various precedents where disallowance percentages ranged from 10% to 100%, depending on facts.
The Tribunal, however, found the CIT(A)'s approach perverse, emphasizing that the CIT(A) accepted the AO's finding that purchases were bogus and books were rejected but then arbitrarily restricted the addition to 12.5% without analyzing the facts of the present case or reconciling them with the cited judgments. The Tribunal underscored that judicial precedents must be applied after a thorough factual analysis, which was missing here.
Further, the Tribunal noted the assessee failed to discharge the onus of proving the genuineness of purchases or source of payments, supported by statements from the investigation wing and reversal of input tax credits by the assessee itself, indicating acknowledgment of bogus transactions.
2. Burden of proof and applicability of Section 69C
Section 69C provides that unexplained expenditure can be treated as income if the assessee fails to explain the source satisfactorily. The AO and CIT(A) found that the assessee did not produce any credible evidence to prove the genuineness of purchases from the alleged bogus supplier.
The Tribunal reiterated that strict rules of evidence do not apply in income tax proceedings. The AO is entitled to draw conclusions based on the cumulative effect of facts and circumstances, including investigation reports and failure to respond to show cause notices.
Reliance was placed on the Supreme Court decision in N.K. Proteins Ltd. vs. DCIT, which held that once purchases are found bogus, the entire amount can be added back without restricting disallowance to a percentage.
The Tribunal also referred to the Bombay High Court decision in PCIT vs. Kanak Impex (India) Ltd., which upheld the AO's addition of the entire unexplained expenditure under Section 69C and disapproved the appellate authorities' estimation of profit rate to reduce the addition. This decision emphasized that unexplained expenditure cannot be partially disallowed by estimating profits when the assessee fails to discharge the onus.
3. Treatment of judicial precedents and their applicability
The CIT(A) relied on various judicial decisions to justify restricting addition to 12.5%, including cases where disallowances ranged from 10% to 25% based on facts. However, the Tribunal found that the CIT(A) failed to analyze whether the facts of the present case aligned with those precedents.
The Tribunal highlighted that the CIT(A) accepted the AO's findings of bogus purchases but then selectively applied precedents without factual correlation. The Tribunal emphasized that judicial precedents cannot be applied in a vacuum and must be contextualized with the facts and evidence of each case.
Further, the Tribunal pointed out that many decisions cited by CIT(A) involved situations where some evidence or explanation was furnished by the assessee, which was not the case here.
4. Factual findings on the nature of purchases and involvement of the assessee
The AO's detailed inquiry revealed that the alleged supplier was involved in issuing fake invoices and fraudulent Input Tax Credit claims. The assessee reversed ITC and did not appeal against GST department actions, indicating acknowledgment of bogus transactions.
Statements recorded by the investigation wing confirmed the sham nature of transactions. The assessee failed to respond adequately to show cause notices and did not produce any documentary evidence to substantiate the purchases.
The Tribunal underscored that these factual findings are critical and cannot be ignored or overridden by mechanical application of precedents.
5. Competent authority and procedural propriety
The Tribunal noted that under Section 250 of the Act, the First Appellate Authority (CIT(A)) is the final fact-finding authority and is required to conduct a detailed inquiry and adjudication based on facts and evidence.
In this case, the Tribunal found that the CIT(A) failed to discharge this duty adequately, leading to a perverse order. The Tribunal therefore set aside the appellate order and restored the matter to the CIT(A) for de novo adjudication with a direction to provide the assessee an opportunity to prove genuineness of purchases and to examine all facts thoroughly.
The Tribunal also referred to its own prior observations on the need to investigate whether transactions constitute tax evasion or legitimate tax planning, citing Supreme Court decisions emphasizing that colorable devices and fraud vitiate proceedings.
6. Treatment of competing arguments
The revenue contended that the entire amount should be added back as the assessee failed to prove genuineness and source of payments, invoking Section 69C and relying on Supreme Court and High Court decisions.
The assessee, though absent during hearings, had argued before CIT(A) relying on precedents restricting addition to profit element only.
The Tribunal sided with the revenue's position, holding that the assessee's failure to discharge the onus and the factual findings of bogus transactions warranted addition of the entire amount unless the assessee proves otherwise.
Conclusions:
The Tribunal concluded that the CIT(A)'s order restricting addition to 12.5% was perverse and not based on proper factual analysis. The assessee failed to prove the genuineness of purchases, and the AO rightly invoked Section 69C to add back the entire amount of bogus purchases.
The matter was remanded to the CIT(A) for fresh adjudication in accordance with law and facts, with directions to conduct a thorough inquiry and provide opportunity to the assessee to substantiate its claims.
Significant Holdings:
"The genuineness of transactions is a factual finding, which cannot be established without understanding the facts properly along with substantial corroborative evidence to support the same. Only after getting a clear depiction of the facts, the pertinence of judicial pronouncements would come into the play to justify their applicability under the given facts and circumstances."
"In the present case, on perusal of facts on records, the assessee was not able to substantiate the genuineness of transactions doubted by Ld. AO."
"The observations of Ld. CIT(A) are found to be perverse as; at one place he is accepting the findings of the Ld. AO qua the rejection of books of accounts and assessee's failure in substantiating its claim of genuineness of purchases, on the other hand he is allowing the estimation of profit based on certain judgments without correlating the facts of present case to the facts of such judgments."
"Once it is found that the purchases were bogus, addition has to be made to the extent of the purchases found to be fictitious. The consideration that the gross profit disclosed by the assessee compares favorably as compared to the earlier years is wholly irrelevant." (Reproduced from judicial precedent)
"Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the Assessing Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year." (Section 69C)
"Tax planning may be legitimate provided it is within the framework of law, Colourable devices cannot be part of tax planning." (Supreme Court ruling)
The Tribunal's final determination was to set aside the CIT(A) order and restore the appeal for fresh adjudication, allowing the revenue's appeal for statistical purposes, emphasizing the need for detailed factual inquiry and adherence to the legal mandate under Section 69C and related jurisprudence.
Bogus purchases - onus cast upon the assessee could not be discharged either before the Ld. AO or before the Ld. CIT(A) - CIT(A) sustaining the disallowance to the extent of 12.5% of the non-genuine/suspicious/bogus purchases instead of 100% disallowance - HELD THAT:- The genuineness of transactions is a factual finding, which cannot be established without understanding the facts properly along with substantial corroborative evidence to support the same. Only after getting a clear depiction of the facts, the pertinence of judicial pronouncements would come into the play to justify their applicability under the given facts and circumstances, whereas in present case, on perusal of facts on records, the assessee was not able to substantiate the genuineness of transactions doubted by Ld. AO.
We are of the considered view that the assessee is liable to substantiate that there are genuine purchases to achieve the turnover / sales declared by it in its Return of Income for the relevant year. Whereas the assessee squarely failed in offering any plausible explanation about the bogus purchases, nor was it able to justify that there was no inflation in the purchase expenses on account of such sham transactions.
As all such facts of the present matter are not examined by the Ld. CIT(A) before deciding the issue, he only kept his entire focus and remain self-centered on the jurisprudence dehors relating the factual aspect of the alleged bogus transactions. Therefore, the matter needs thorough examinations and enquiries by the First Appellate Authority by himself or through Ld. AO, in accordance with the mandate of Section 250 of the Act.
Before parting with, we may herein observe that as the matter in present case pertains to bogus purchases/ sham transactions, the observations of this tribunal in the case of Subedar Pathak [2025 (6) TMI 810 - ITAT RAIPUR] restored appeal in the set aside appellate proceedings as it is the responsibility of the revenue authorities to investigate the matter in detailed manner as per law whether there is tax planning or tax evasion as per the transactions entered into by the assessee. If tax evasion is determined by the revenue in such circumstances, additions are to be sustained in the hands of the assessee.
The order of CIT(A) is set aside and the matter is restored back to his file for denovo adjudication, with adequate opportunity of being heard to the assessee to prove the genuineness of the disputed bogus purchases pointed out by the Ld. AO - Appeal of revenue is allowed for statistical purposes.
Bogus purchases - onus cast upon the assessee could not be discharged either before the Ld. AO or before the Ld. CIT(A) - CIT(A) sustaining the disallowance to the extent of 12.5% of the non-genuine/suspicious/bogus purchases instead of 100% disallowance - HELD THAT:- The genuineness of transactions is a factual finding, which cannot be established without understanding the facts properly along with substantial corroborative evidence to support the same. Only after getting a clear depiction of the facts, the pertinence of judicial pronouncements would come into the play to justify their applicability under the given facts and circumstances, whereas in present case, on perusal of facts on records, the assessee was not able to substantiate the genuineness of transactions doubted by Ld. AO.
We are of the considered view that the assessee is liable to substantiate that there are genuine purchases to achieve the turnover / sales declared by it in its Return of Income for the relevant year. Whereas the assessee squarely failed in offering any plausible explanation about the bogus purchases, nor was it able to justify that there was no inflation in the purchase expenses on account of such sham transactions.
As all such facts of the present matter are not examined by the Ld. CIT(A) before deciding the issue, he only kept his entire focus and remain self-centered on the jurisprudence dehors relating the factual aspect of the alleged bogus transactions. Therefore, the matter needs thorough examinations and enquiries by the First Appellate Authority by himself or through Ld. AO, in accordance with the mandate of Section 250 of the Act.
Before parting with, we may herein observe that as the matter in present case pertains to bogus purchases/ sham transactions, the observations of this tribunal in the case of Subedar Pathak [2025 (6) TMI 810 - ITAT RAIPUR] restored appeal in the set aside appellate proceedings as it is the responsibility of the revenue authorities to investigate the matter in detailed manner as per law whether there is tax planning or tax evasion as per the transactions entered into by the assessee. If tax evasion is determined by the revenue in such circumstances, additions are to be sustained in the hands of the assessee.
The order of CIT(A) is set aside and the matter is restored back to his file for denovo adjudication, with adequate opportunity of being heard to the assessee to prove the genuineness of the disputed bogus purchases pointed out by the Ld. AO - Appeal of revenue is allowed for statistical purposes.
The core legal questions considered by the Tribunal in this appeal include:
(a) Whether the Assessing Officer (AO), specifically the Deputy Commissioner of Income Tax (DCIT), Circle 3(1)(2), Ahmedabad, had jurisdiction to pass the assessment order for the Assessment Year 2015-16, despite simultaneous notices issued by the Income Tax Officer (ITO), Ward 3(1)(3), Ahmedabad.
(b) Whether the AO exceeded his jurisdiction by converting a limited scrutiny assessment into a complete scrutiny assessment and making an ad hoc addition of Rs. 2,50,00,000/- without identifying the nature and basis of the addition.
(c) Whether the addition of Rs. 2,50,00,000/- is justified in light of the discrepancies found in import turnover, customs duty payments, payments to related persons, and duty drawback receipts/receivables.
(d) Whether the First Appellate Authority (CIT(A)) erred in setting aside the assessment to the file of the AO for fresh adjudication without deciding the grounds raised by the assessee on merits, especially when a remand report had already been obtained.
2. ISSUE-WISE DETAILED ANALYSIS
(a) Jurisdiction of the Assessing Officer
Legal Framework and Precedents: The Income Tax Act, 1961, along with CBDT instructions, governs the territorial and monetary jurisdiction of Income Tax Officers and Deputy Commissioners. The CBDT Instruction No. 1/2011 dated 31-1-2011 prescribes pecuniary limits for assignment of cases between ITOs and ACs/DCs, with higher income cases assigned to ACs/DCs.
Court's Interpretation and Reasoning: The Tribunal observed that both the ITO and DCIT issued notices under Section 143(2) of the Act. However, the monetary limit for the case, based on the declared income exceeding Rs. 30 lakhs, placed jurisdiction with the ACIT/DCIT as per CBDT instructions. The Tribunal emphasized that territorial jurisdiction is common within the Range, and assignment depends on monetary limits, which are dynamic and can change year to year.
Key Evidence and Findings: The assessee filed copies of notices issued by both officers. The Tribunal noted that the initial notice by the ITO does not preclude jurisdiction of the DCIT when the pecuniary limit is exceeded.
Application of Law to Facts: Since the declared income was above Rs. 30 lakhs, jurisdiction was rightly assumed by the DCIT. The Tribunal rejected the contention that the DCIT lacked jurisdiction and held the assessment order as valid in this regard.
Treatment of Competing Arguments: The assessee argued that the DCIT had no jurisdiction and the order was void ab initio. The Tribunal rejected this, relying on CBDT instructions and the dynamic nature of jurisdiction.
Conclusion: The ground challenging jurisdiction was dismissed.
(b) Conversion of Limited Scrutiny into Complete Scrutiny and Ad Hoc Addition
Legal Framework and Precedents: The CBDT guidelines on limited scrutiny assessments restrict the AO to examine only specified issues for which the case is selected. Any additions beyond these issues are considered beyond jurisdiction.
Court's Interpretation and Reasoning: The Tribunal acknowledged that the case was selected for limited scrutiny on specific issues - import turnover mismatch, customs duty payment mismatch, payment to related persons, and duty drawback discrepancies. The AO made an ad hoc addition of Rs. 2.5 crores, which exceeded the specific issues.
Key Evidence and Findings: The AO identified discrepancies amounting to Rs. 2,11,04,500/- in import purchases and Rs. 51,538/- in duty drawback mismatch, totaling Rs. 2,11,56,038/-. The AO later rectified the order under Section 154, reducing the addition to this amount.
Application of Law to Facts: The Tribunal held that while the AO was not empowered to exceed the limited scrutiny scope, the addition corresponding to the identified discrepancies was valid. The excess addition was illegal but rectified by the AO's subsequent order.
Treatment of Competing Arguments: The assessee argued that the entire addition was unjustified and beyond jurisdiction. The Tribunal found that the addition to the extent of the discrepancies was justified due to the assessee's failure to comply with notices and explain mismatches.
Conclusion: Grounds related to conversion of scrutiny and ad hoc addition were dismissed, with the Tribunal upholding the rectified addition amount.
(c) Justification of the Addition of Rs. 2,50,00,000/-
Legal Framework and Precedents: Section 40A(2)(b) of the Income Tax Act allows disallowance of unreasonable payments to specified persons. Section 145(2) requires adherence to accounting standards. The AO can make additions if accounts are not verifiable or incomplete.
Court's Interpretation and Reasoning: The AO found that the assessee did not furnish explanations or comply with notices regarding mismatches in import turnover, customs duty payments, and duty drawback receipts. Consequently, the AO held the accounts unverifiable and non-compliant with accounting standards, justifying additions.
Key Evidence and Findings: The assessee declared purchase of Rs. 4.87 crores, whereas import invoice value was Rs. 6.99 crores, a difference of Rs. 2.11 crores unexplained. Duty drawback difference was Rs. 51,538/-. Payments to related persons amounting to Rs. 11.5 lakhs were found unreasonable. The assessee also failed to explain the diversion of loans.
Application of Law to Facts: The Tribunal noted that the addition was warranted due to lack of explanation and compliance, consistent with the AO's authority under the Act. The assessee's failure to provide necessary details justified the additions.
Treatment of Competing Arguments: The assessee contended that the mismatches could be reconciled with proper information from Customs, which was not provided by the AO. However, the Tribunal found that the absence of compliance and explanation justified the AO's action.
Conclusion: The addition was justified to the extent of the discrepancies identified.
(d) Setting Aside the Assessment to the AO for Fresh Adjudication
Legal Framework and Precedents: The appellate authority has discretion to remand cases for fresh assessment where facts are not fully verified or evidence is incomplete. The appellate authority may decide on merits if facts are sufficiently on record.
Court's Interpretation and Reasoning: The CIT(A) set aside the assessment for fresh adjudication because the discrepancies could only be reconciled after obtaining detailed bill-wise information from Customs, which was not available. The remand report from the AO confirmed that reconciliation was not possible without further inquiry.
Key Evidence and Findings: The assessee submitted rejoinder stating that the AO did not carry out necessary enquiries and did not obtain complete information from Customs. The CIT(A) found merit in this and directed fresh assessment after verification.
Application of Law to Facts: The Tribunal held that the CIT(A) acted correctly in remanding the matter, as deciding on merits without complete information would be improper. The appellate authority's discretion to remand for further inquiry was justified.
Treatment of Competing Arguments: The assessee argued that the CIT(A) should have decided the grounds on merits since a remand report was available. The Tribunal disagreed, emphasizing the need for complete factual verification before adjudication.
Conclusion: The ground challenging the remand was dismissed.
3. SIGNIFICANT HOLDINGS
"Merely because the notices were issued both by the ITO as well as by the ACIT, it cannot be concluded that the ACIT was having no jurisdiction over the case. The territorial jurisdiction of the ITO and the ACIT/DCIT working in the same Range is common. Within the common jurisdiction, the cases are assigned to the ITO and to the ACIT/DCIT on the basis of the monetary limit."
"The income declared by the assessee in the current year was above Rs. 30 lakhs and thus the jurisdiction over the case was with the ACIT/DCIT in accordance with the CBDT Instruction."
"The AO was entitled to make addition to the extent of the total difference of Rs. 2,11,56,038/- as identified in the assessment order. Only the addition made in excess of the identified difference can be held as beyond jurisdiction. The Assessing Officer had rectified this mistake by passing an order under Section 154 of the Act whereby the addition was restricted to Rs. 2,11,56,038/- which pertained to the issues on which the case was selected for limited scrutiny."
"In the absence of such details, it was not feasible for the Ld. CIT(A) to decide the issue on merit. Therefore, he had rightly set aside the matter to the file of the AO with a direction to allow another opportunity of being heard to the assessee and decide the matter afresh after verification of the facts of the case."
Core principles established include the dynamic nature of jurisdiction based on monetary limits and CBDT instructions, the limitation of AO's powers in limited scrutiny assessments to the specific issues selected, and the appellate authority's discretion to remand for fresh inquiry when factual details are incomplete.
Final determinations:
(i) The AO had jurisdiction to pass the assessment order.
(ii) The AO exceeded jurisdiction by making ad hoc additions beyond limited scrutiny issues, but this was rectified, and additions to the extent of identified discrepancies were valid.
(iii) The addition of Rs. 2,11,56,038/- was justified due to unexplained mismatches and non-compliance.
(iv) The CIT(A) correctly remanded the matter for fresh assessment due to incomplete factual verification, and this was not erroneous.
The appeal was dismissed accordingly.
Jurisdiction of DCIT, Circle 3(1)(2) over the case of the assessee - HELD THAT:- The income declared by the assessee in the current year was above Rs. 30 lacs and thus the jurisdiction over the case was with the ACIT/DCIT in accordance with the CBDT Instruction. Merely because the assessment of past year was made by the ITO, it cannot be presumed that the jurisdiction for the current year will remain with the ITO.
The jurisdiction was dynamic considering the CBDT Instruction and the income declared by the assessee in different years. Even if the initial notice u/s 143(2) was issued by the ITO, the jurisdiction was required to be transferred to the ACIT/DCIT considering the fact that the returned income of the assessee in the current year was in excess of Rs. 30,00,000/-.
Therefore, the contention of the assessee that the AO had no jurisdiction over the case can’t be accepted. The jurisdiction over the case for the current year was with the ACIT/DCIT and not with the ITO. The jurisdiction was also rightly assumed by the ACIT/DCIT by issue of notice u/s 143(2) of the Act dated 26.07.2016. Therefore, the assessment order as passed by the DCIT, Circle – 3(1)(2), Ahmedabad in this case cannot be held as without jurisdiction. Accordingly, the ground raised by the assessee in respect of jurisdiction over the case is dismissed.
Conversion of limited scrutiny into complete scrutiny by the AO and making ad hoc addition without identifying the nature of addition - Addition was finally restricted only to the issues of limited scrutiny. In fact, the assessee itself was to be blamed for this addition as no compliance, at all, was made before the AO. The assessee has acknowledged receipt of the notices issued by the AO. When the compliance was made before the ITO, the assessee could have simply filed a copy of those submissions before the AO as well. In the absence of any explanation in respect of the discrepancies on the two of the issues of limited scrutiny, the AO had no option but to make the addition.
The objection taken by the assessee on the addition beyond the limited scrutiny issues is no longer res integra as the same stands rectified by the AO. The entire addition can’t be held as beyond jurisdiction and the assessment order can’t be quashed for this reason. Moreover, the assessment has already been set aside by the CIT(A) for denovo assessment on the issues after giving another opportunity to the assessee to present his case and after verification of the facts of the case. Hence, the assessee, under the circumstances at this stage, is not left with any grievance relating to the impugned additions made by the AO. Therefore, the ground by the assessee in this regard are dismissed.
Assessee is against setting aside the matter to the file of the AO for making fresh assessment - As explained by the assessee itself in the rejoinder to the remand report, these differences could have been reconciled only after obtaining specific information/bill-wise details in respect of the data as uploaded on ITD. In the absence of such details, it was not feasible for the CIT(A) to decide the issue on merit. Therefore, he had rightly set aside the matter to the file of the AO with a direction to allow another opportunity of being heard to the assessee and decide the matter afresh after verification of the facts of the case.
Since the CIT(A) could not have decided the matter on merits in the absence of necessary details, there was nothing wrong in his setting aside the matter to the file of the AO for deciding the matter afresh after conducing further enquiries and verifications as deemed necessary. Therefore, the ground as taken by the assessee is dismissed.
Appeal of the assessee is dismissed.
Jurisdiction of DCIT, Circle 3(1)(2) over the case of the assessee - HELD THAT:- The income declared by the assessee in the current year was above Rs. 30 lacs and thus the jurisdiction over the case was with the ACIT/DCIT in accordance with the CBDT Instruction. Merely because the assessment of past year was made by the ITO, it cannot be presumed that the jurisdiction for the current year will remain with the ITO.
The jurisdiction was dynamic considering the CBDT Instruction and the income declared by the assessee in different years. Even if the initial notice u/s 143(2) was issued by the ITO, the jurisdiction was required to be transferred to the ACIT/DCIT considering the fact that the returned income of the assessee in the current year was in excess of Rs. 30,00,000/-.
Therefore, the contention of the assessee that the AO had no jurisdiction over the case can’t be accepted. The jurisdiction over the case for the current year was with the ACIT/DCIT and not with the ITO. The jurisdiction was also rightly assumed by the ACIT/DCIT by issue of notice u/s 143(2) of the Act dated 26.07.2016. Therefore, the assessment order as passed by the DCIT, Circle – 3(1)(2), Ahmedabad in this case cannot be held as without jurisdiction. Accordingly, the ground raised by the assessee in respect of jurisdiction over the case is dismissed.
Conversion of limited scrutiny into complete scrutiny by the AO and making ad hoc addition without identifying the nature of addition - Addition was finally restricted only to the issues of limited scrutiny. In fact, the assessee itself was to be blamed for this addition as no compliance, at all, was made before the AO. The assessee has acknowledged receipt of the notices issued by the AO. When the compliance was made before the ITO, the assessee could have simply filed a copy of those submissions before the AO as well. In the absence of any explanation in respect of the discrepancies on the two of the issues of limited scrutiny, the AO had no option but to make the addition.
The objection taken by the assessee on the addition beyond the limited scrutiny issues is no longer res integra as the same stands rectified by the AO. The entire addition can’t be held as beyond jurisdiction and the assessment order can’t be quashed for this reason. Moreover, the assessment has already been set aside by the CIT(A) for denovo assessment on the issues after giving another opportunity to the assessee to present his case and after verification of the facts of the case. Hence, the assessee, under the circumstances at this stage, is not left with any grievance relating to the impugned additions made by the AO. Therefore, the ground by the assessee in this regard are dismissed.
Assessee is against setting aside the matter to the file of the AO for making fresh assessment - As explained by the assessee itself in the rejoinder to the remand report, these differences could have been reconciled only after obtaining specific information/bill-wise details in respect of the data as uploaded on ITD. In the absence of such details, it was not feasible for the CIT(A) to decide the issue on merit. Therefore, he had rightly set aside the matter to the file of the AO with a direction to allow another opportunity of being heard to the assessee and decide the matter afresh after verification of the facts of the case.
Since the CIT(A) could not have decided the matter on merits in the absence of necessary details, there was nothing wrong in his setting aside the matter to the file of the AO for deciding the matter afresh after conducing further enquiries and verifications as deemed necessary. Therefore, the ground as taken by the assessee is dismissed.
Appeal of the assessee is dismissed.
The core legal questions considered by the Tribunal include:
(a) Whether the Indian subsidiary, Zscaler Softech India Pvt. Ltd., constitutes a Dependent Agent Permanent Establishment (DAPE) of the foreign assessee company under Article 5(4) of the India-USA Double Taxation Avoidance Agreement (DTAA) for AYs 2021-22 and 2022-23;
(b) Whether the receipts earned by the foreign assessee from Indian customers for provision of software-based information security solutions are taxable as business income attributable to the alleged PE in India;
(c) Whether the assessee is entitled to exemption under section 10(50) of the Income Tax Act on account of payment of Equalisation Levy;
(d) Whether the assessee was duly provided opportunity of being heard before the AO held Zscaler India as DAPE, in compliance with principles of natural justice;
(e) Whether the remuneration paid to Zscaler India is at arm's length and whether any further income could be attributed to the foreign company beyond such remuneration;
(f) Whether the AO's attribution of entire receipts from India to the alleged PE is justified;
(g) Whether the AO's adoption of 25% profit margin for attribution is appropriate given the assessee's global losses;
(h) Whether the assessee is entitled to credit for Equalisation Levy paid;
(i) Whether interest and penalty proceedings initiated under sections 234A, 234B, and 270A of the Act are justified.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (a): Whether Zscaler India constitutes a Dependent Agent Permanent Establishment (DAPE) under Article 5(4) of India-USA DTAA
Legal Framework and Precedents: Article 5(4) of the India-USA DTAA defines DAPE based on the existence of a principal-agent relationship where the agent has authority to conclude contracts on behalf of the foreign enterprise, maintains stock of goods, or habitually secures orders. The Supreme Court's decision in Bharti Cellular Ltd. vs. ACIT clarifies that agency exists where the agent acts on behalf of the principal in dealings with third parties, representing the principal rather than himself.
Court's Interpretation and Reasoning: The Tribunal examined the contractual relationships between the foreign company and its Indian subsidiary through the Reseller Agreement and Service Agreement. It was found that:
The Tribunal relied on the recent High Court and Supreme Court decisions, including Progress Rail Locomotive Inc. vs. DCIT and Western Union Financial Services Inc. vs. DIT, which emphasize that for DAPE to exist, the agent must habitually exercise authority to conclude contracts or maintain stock or secure orders almost wholly for the foreign enterprise. Such conditions were not met here.
Key Evidence and Findings: The agreements explicitly restrict Zscaler India from concluding contracts or binding the foreign company. The reseller/channel partners, not Zscaler India, enter into contracts with Indian customers. Financial records showed no evidence of stock maintenance by Zscaler India. The foreign company's end users enter into subscription agreements directly with the foreign company.
Application of Law to Facts: Since the preconditions under Article 5(4) were not satisfied, the Tribunal concluded that Zscaler India does not constitute a DAPE of the foreign company.
Treatment of Competing Arguments: The Revenue argued that Zscaler India is economically dependent and acts wholly for the foreign enterprise, thus constituting DAPE. The Tribunal rejected this, noting absence of contractual authority and actual conduct. The Revenue's reliance on lack of direct evidence such as emails or travel records was considered insufficient to establish agency. The Tribunal distinguished precedents cited by the Revenue on facts.
Conclusion: The Tribunal held that Zscaler India is not a DAPE under Article 5(4) of the India-USA DTAA.
Issue (b): Taxability of receipts from Indian customers as business income attributable to PE
Legal Framework and Precedents: Under Article 7 of the DTAA, business profits are taxable in the source country only if attributable to a PE therein. The Supreme Court's ruling in Engineering Analysis Centre of Excellence (EACoE) clarified that revenues from provision of software-based solutions do not constitute royalty.
Court's Interpretation and Reasoning: Since the Tribunal found no PE in India, the receipts from Indian customers are not taxable in India as business profits. The assessee's claim of exemption under DTAA stands upheld.
Key Evidence and Findings: The assessee's receipts were from subscription-based software services, directly contracted with end users outside India. No income was routed through Zscaler India beyond arm's length remuneration for support services.
Application of Law to Facts: Absence of PE negates taxability of business profits in India. The receipts are not royalty as per settled law.
Treatment of Competing Arguments: The Revenue's attribution of entire receipts to the alleged PE was rejected due to lack of PE. The Revenue's attempt to characterize the Indian subsidiary as DAPE was also dismissed.
Conclusion: Receipts are not taxable in India as business income attributable to PE.
Issue (c): Exemption under section 10(50) of the Income Tax Act on account of Equalisation Levy
Legal Framework: Section 10(50) exempts income on which equalisation levy has been paid. However, Section 165A of the Act excludes e-commerce operators having PE in India from the levy.
Court's Interpretation and Reasoning: Since the Tribunal rejected existence of PE, the assessee's payment of Equalisation Levy was not an afterthought to avoid tax on business income. However, the Revenue contended that where PE exists, equalisation levy is not applicable.
Key Evidence and Findings: The assessee paid equalisation levy before the scrutiny proceedings but after the notice under section 142(1). The Tribunal noted that the assessee's receipts fall under business income with no PE; hence, the equalisation levy does not apply.
Application of Law to Facts: Since no PE exists, the assessee's payments of equalisation levy do not disqualify it from exemption under section 10(50).
Treatment of Competing Arguments: The Revenue's contention that the levy was paid to avoid higher tax was rejected as speculative. The Tribunal did not sustain the AO's denial of exemption under section 10(50).
Conclusion: The assessee is entitled to exemption under section 10(50) for equalisation levy paid.
Issue (d): Whether principles of natural justice were violated by AO not issuing show cause notice before holding Zscaler India as DAPE
Court's Interpretation and Reasoning: The Tribunal found no merit in the contention that the AO failed to provide opportunity of hearing before holding Zscaler India as DAPE. The issue was considered during assessment and DRP proceedings with ample opportunity to the assessee to present its case.
Conclusion: No violation of natural justice occurred.
Issue (e): Whether remuneration paid to Zscaler India is at arm's length and whether further income can be attributed to the foreign company
Legal Framework and Precedents: The Supreme Court in DIT (International Taxation) v. Morgan Stanley & Co. held that where the Indian entity is remunerated at arm's length for services rendered, no further income can be attributed to the foreign company.
Court's Interpretation and Reasoning: The Tribunal found that Zscaler India was remunerated at arm's length price for IT and marketing support services. No evidence suggested diversion of income beyond such remuneration.
Conclusion: No additional income is attributable to the foreign company beyond arm's length remuneration paid to Zscaler India.
Issue (f): Whether AO's attribution of entire receipts from India to alleged PE is justified
Court's Interpretation and Reasoning: Since the Tribunal held no PE exists, attribution of entire receipts to a PE is not sustainable. The receipts belong to the foreign company and are not taxable in India.
Conclusion: AO's attribution is rejected.
Issue (g): Whether AO's adoption of 25% profit margin for attribution is appropriate given assessee's global losses
Court's Interpretation and Reasoning: The Tribunal noted that the AO's arbitrary adoption of 25% profit margin without considering the assessee's global losses is erroneous.
Conclusion: Profit attribution methodology is flawed and not upheld.
Issue (h): Whether assessee is entitled to credit for Equalisation Levy paid
Court's Interpretation and Reasoning: The Tribunal observed that the AO failed to allow credit for equalisation levy despite directions by the Dispute Resolution Panel. Given the levy was paid, credit is warranted.
Conclusion: Assessee is entitled to credit for equalisation levy paid.
Issue (i): Whether interest and penalty proceedings under sections 234A, 234B, and 270A are justified
Court's Interpretation and Reasoning: These grounds were general or consequential and not separately adjudicated by the Tribunal, given the primary issues were decided in favour of the assessee.
Conclusion: No separate determination made; consequential relief implied.
3. SIGNIFICANT HOLDINGS
"Agency in terms of Section 182 exists when the principal employs another person, who is not his employee, to act or represent him in dealings with a third person. An agent renders services to the principal. The agent does what has been entrusted to him by the principal to do. It is the principal he represents before third parties, and not himself. As the transaction by the agent is on behalf of the principal whom the agent represents, the contract is between the principal and the third party."
"It is pertinent to recall that in order to fall within the scope of Article 5(4), it was imperative for the respondents to have found that the Indian subsidiary not only stood conferred with the 'authority to conclude contracts' but also that it was in fact 'habitually' engaged in acting in discharge of that authority. The issue of a habitual or recurrent exercise of authority does not arise at all since we have already found that an 'authority to conclude contracts' never stood conferred."
"Clause (c) of Article 5(4) would have been attracted if the respondents had, even on a prima facie examination, found that the Indian subsidiary was concerned primarily with securing orders for the petitioner. This, in light of the said clause using the expression 'wholly or almost wholly for the enterprise'. Clause (c) not only alludes to aspects of an enterprise being exclusively concerned with working for the fulfilment of the business interests of another, it would also have to be additionally proven that it does so 'habitually'."
"Section 165A clearly states that E-Commerce operator who has a PE in India does not come under the purview of Equalisation levy."
"Where compensation received by the Indian entity is established for valuable services, then without there being direct evidence by way of an agreement that the contract is one of agency, on the basis of contract orders received by appellant, there can be no justification to hold the Indian entity to be agent."
Core principles established include:
Final determinations:
Receipts earned by the foreign assessee from Indian customers for provision of software-based information security solutions -Income deemed to accrue or arise in India - income attributable to the alleged PE in India - assertion of Revenue - HELD THAT:- The burden to prove, that assessee has a PE in India lies initially on the Revenue as held in E-Funds IT Solution Inc. [2017 (10) TMI 1011 - SUPREME COURT] As discussed above there was no discussion of ld.Tax authorites on basis of any material available in the form of two agreements, we have discussed to show that any element of agency was there in the respective rights and obligations of two parties.
Evidence such as email record, travel itinerary etc. would not have mattered much. Reliance placed on the judgment of Daikin Industries Ltd [2018 (6) TMI 210 - ITAT DELHI] is differentiated by ld.Sr. Counel submitting in the said case, the Indian entity involved was finalizing products sold by it in the capacity of a distributor as well by the non-resident entity therein, which is not the case herein.
In any case, the above principles have been distinguished by this Tribunal in in the case of Siemens Mobile Communications SPA vs. DCIT, [2019 (10) TMI 512 - ITAT DELHI] Secondly, the reliance placed on the judgment of Rolls Royce Singapore (P.) Ltd. vs. ADIT, [2011 (8) TMI 769 - DELHI HIGH COURT] is also misplaced inasmuch as, in that case the Tribunal had given a factual finding that there existed DAPE and the Hon’ble High Court after concluding that the Tribunal had arrived on wrong conclusion, remanded the matter back to reconsider the issue. In the present case, it has been sufficiently demonstrated above that Zscaler India does not constitute DAPE of the Appellant and is only providing marketing support services to the Appellant.
Receipts earned by the foreign assessee from Indian customers for provision of software-based information security solutions -Income deemed to accrue or arise in India - income attributable to the alleged PE in India - assertion of Revenue - HELD THAT:- The burden to prove, that assessee has a PE in India lies initially on the Revenue as held in E-Funds IT Solution Inc. [2017 (10) TMI 1011 - SUPREME COURT] As discussed above there was no discussion of ld.Tax authorites on basis of any material available in the form of two agreements, we have discussed to show that any element of agency was there in the respective rights and obligations of two parties.
Evidence such as email record, travel itinerary etc. would not have mattered much. Reliance placed on the judgment of Daikin Industries Ltd [2018 (6) TMI 210 - ITAT DELHI] is differentiated by ld.Sr. Counel submitting in the said case, the Indian entity involved was finalizing products sold by it in the capacity of a distributor as well by the non-resident entity therein, which is not the case herein.
In any case, the above principles have been distinguished by this Tribunal in in the case of Siemens Mobile Communications SPA vs. DCIT, [2019 (10) TMI 512 - ITAT DELHI] Secondly, the reliance placed on the judgment of Rolls Royce Singapore (P.) Ltd. vs. ADIT, [2011 (8) TMI 769 - DELHI HIGH COURT] is also misplaced inasmuch as, in that case the Tribunal had given a factual finding that there existed DAPE and the Hon’ble High Court after concluding that the Tribunal had arrived on wrong conclusion, remanded the matter back to reconsider the issue. In the present case, it has been sufficiently demonstrated above that Zscaler India does not constitute DAPE of the Appellant and is only providing marketing support services to the Appellant.
1. Whether interest income received by a cooperative society from the Sikkim State Cooperative Bank Limited and Citizens Urban Cooperative Bank Ltd., both registered under the Sikkim Cooperative Societies Act, 1978, qualifies for deduction under section 80P(2)(d) of the Act.
2. Whether these cooperative banks, though registered as cooperative societies, are excluded from the ambit of section 80P(2)(d) by virtue of section 80P(4), which excludes cooperative banks other than primary agricultural credit societies or primary cooperative agricultural and rural development banks.
3. The applicability of the principle of mutuality to interest income earned by a cooperative society from investments in cooperative banks.
4. The interpretation and scope of the term "cooperative society" in the context of section 80P(2)(d), and whether cooperative banks can be treated as cooperative societies for the purpose of claiming deductions.
5. The impact of various judicial precedents, including Supreme Court and High Court decisions, on the above issues.
Issue-wise Detailed Analysis:
Issue 1 & 2: Eligibility of Deduction under Section 80P(2)(d) for Interest Income from Cooperative Banks
The relevant statutory provisions are section 80P(2)(d) and section 80P(4) of the Income Tax Act, 1961. Section 80P(2)(d) allows deduction for income by way of interest or dividends derived by a cooperative society from investments with any other cooperative society. Section 80P(4) excludes the applicability of section 80P to cooperative banks other than primary agricultural credit societies or primary cooperative agricultural and rural development banks.
The Assessing Officer (AO) disallowed the deduction claimed by the assessee cooperative society on interest income from Sikkim State Cooperative Bank Ltd. and Citizens Urban Cooperative Bank Ltd., holding that these banks are cooperative banks and not primary agricultural credit societies or primary cooperative agricultural and rural development banks, and hence excluded by section 80P(4). The AO relied on Supreme Court decisions such as Totagars Co-operative Sales Society Ltd. and Mavilayi Service Co-operative Bank Ltd., which emphasize the exclusion of cooperative banks from the benefit of section 80P and the principle that interest income from investments outside the operational business is taxable as income from other sources under section 56.
The Commissioner of Income Tax (Appeals) (CIT(A)) reversed this view, relying on the fact that both banks are registered as cooperative societies under the State law and thus qualify as cooperative societies within the meaning of section 2(19) of the Act. CIT(A) referred to the Karnataka High Court decision in Pr. CIT vs Totagars Co-operative Sale Society (2017), which held that a cooperative bank is a species of the genus cooperative society and therefore interest income from such banks qualifies for deduction under section 80P(2)(d).
The CIT(A) distinguished the Supreme Court decisions cited by AO, noting that those dealt with section 80P(2)(a)(i) or principle of mutuality in different contexts, not directly with section 80P(2)(d). The CIT(A) also relied on various Tribunal and High Court decisions supporting the eligibility of deduction under section 80P(2)(d) for interest income from cooperative banks registered as cooperative societies.
However, the Revenue challenged this view before the Tribunal, reiterating the binding nature of Supreme Court decisions that interest income from cooperative banks is not eligible for deduction under section 80P(2)(d), especially after the insertion of section 80P(4) which specifically excludes cooperative banks from the benefit except for primary agricultural credit societies or primary cooperative agricultural and rural development banks.
The Tribunal examined the legislative framework, including the Banking Regulation Act, 1949 (Part V), which treats cooperative banks as distinct entities governed by RBI regulations, unlike other cooperative societies. The Tribunal noted that cooperative banks operate commercially with non-members, which ruptures the principle of mutuality, a foundational concept for exemption under section 80P.
The Tribunal also discussed the legislative intent behind section 80P(4), which was introduced to bring cooperative banks at par with commercial banks for income tax purposes and to exclude them from the benefits available to cooperative societies under section 80P. The Tribunal emphasized that the omission of an amendment to section 80P(2)(d) does not override the express exclusion in section 80P(4).
In applying these legal principles to the facts, the Tribunal found that the Sikkim State Cooperative Bank Ltd. and Citizens Urban Cooperative Bank Ltd., though registered as cooperative societies under State law, are cooperative banks engaged in banking business and regulated by RBI. Therefore, they fall within the exclusion under section 80P(4), and interest income from investments with them is not eligible for deduction under section 80P(2)(d).
The Tribunal further noted that the interest income earned by the assessee on surplus funds invested in these banks is income from other sources under section 56 and not operational business income eligible for deduction under section 80P.
Issue 3: Principle of Mutuality
The principle of mutuality requires a closed flow of funds between contributors and participators without profiteering, and that income arises from mutual dealings among members. The Revenue argued that interest income from cooperative banks fails this test because cooperative banks operate commercially with non-members, exposing the funds to third-party transactions and commercial risk.
The Tribunal relied on Supreme Court authority in Bangalore Club vs CIT, which held that interest income earned by a club from member banks does not satisfy the principle of mutuality due to commercial operations with third parties. Similarly, the interest earned by the assessee from cooperative banks is not from mutual dealings but from commercial banking activities, thus not satisfying mutuality.
The CIT(A)'s reliance on principle of mutuality was found misplaced as the principle does not extend to interest income from cooperative banks, which operate beyond the closed group of members.
Issue 4: Interpretation of "Cooperative Society" in Section 80P(2)(d)
The term "cooperative society" is defined in section 2(19) of the Income Tax Act as a society registered under any law for the registration of cooperative societies. The assessee contended that since the banks are registered under the Sikkim Cooperative Societies Act, they qualify as cooperative societies for section 80P(2)(d).
The Tribunal analyzed the legislative scheme and judicial precedents and concluded that the term "cooperative society" in section 80P(2)(d) does not include cooperative banks carrying on banking business, which are specifically excluded by section 80P(4). The legislative intent is to exclude cooperative banks from the benefit to align them with commercial banks for tax purposes.
The Tribunal also referred to the Banking Regulation Act, 1949, which treats cooperative banks as distinct entities governed by RBI regulations, unlike other cooperative societies. This distinction supports the exclusion of cooperative banks from section 80P(2)(d) benefits.
Issue 5: Treatment of Judicial Precedents and Conflicting Decisions
The Tribunal examined various decisions relied upon by both parties. The Revenue relied heavily on Supreme Court decisions including Totagars Co-operative Sale Society Ltd., Mavilayi Service Co-operative Bank Ltd., and Bangalore Club vs CIT, which support the exclusion of cooperative banks from section 80P benefits and treat interest income from investments outside operational activities as taxable under section 56.
The assessee relied on several Tribunal and High Court decisions, including Gujarat and Kerala High Courts, which took a more liberal view allowing deduction under section 80P(2)(d) for interest income from cooperative banks registered as cooperative societies.
The Tribunal distinguished these decisions by emphasizing the binding nature of Supreme Court rulings and the clear legislative intent expressed in section 80P(4). It noted that decisions permitting deduction from cooperative banks' interest income often failed to consider the effect of section 80P(4) and the regulatory framework governing cooperative banks.
The Tribunal also highlighted that the principle of strict interpretation applies to exemption provisions in taxing statutes, and no liberal interpretation can be extended to provisions granting deduction or exemption beyond their clear scope.
Conclusions
The Tribunal concluded that the interest income earned by the assessee cooperative society from investments made with Sikkim State Cooperative Bank Ltd. and Citizens Urban Cooperative Bank Ltd. is not eligible for deduction under section 80P(2)(d) of the Income Tax Act, 1961. This is because these banks are cooperative banks engaged in banking business and are excluded from the benefit of section 80P by virtue of section 80P(4).
The Tribunal held that such interest income is taxable under section 56 as income from other sources and not deductible as operational business income under section 80P.
The Tribunal allowed the appeals filed by the Revenue, set aside the orders of the CIT(A), and confirmed the assessment orders disallowing the deduction claimed under section 80P(2)(d).
Significant Holdings:
"The provisions granting concessions should be rigidly interpreted. The AO has taken a view that if the words 'cooperative society' were to be read as 'co-operative bank', the same would render the entire provision redundant, otiose and nugatory; an outcome which is surely not intended by the Parliament."
"The legislative intention behind the amendments was to bring Co-operative Banks at par with commercial Banks and the provisions of Clause (d) of sub-Section (2) of Section 80P of the Act apply in respect of any income by way of interest or dividend derived by the co-operative Society from its investments with any other Society. Since Co-operative Bank and co-operative Society have been specified at different places in Section 80P of the Act, the reference to co-operative Society in Section 80P(2)(d) of the Act is a reference to the co-operative Society which is not a Co-operative Bank and is not carrying on any banking activity while the reference to Co-operative Bank in sub-Section (4) of Section 80P of the Act is to an entity which is a cooperative Society but is carrying on the business of banking and is governed by the rules and regulations of the RBI."
"The interest income earned by the assessee on surplus funds invested in these banks is income from other sources under section 56 and not operational business income eligible for deduction under section 80P."
"The principle of mutuality does not extend to interest income from cooperative banks, which operate commercially with non-members, thereby rupturing the closed flow of funds required for mutuality."
"The interest income of the assessee cooperative society from investments in cooperative banks is not eligible for deduction under section 80P(2)(d) and is taxable under section 56."
Deduction u/s 80P(2)(d) - interest income earned from investments made with cooperative banks - HELD THAT:- Exemption provisions have to be strictly interpreted, the submissions of the Ld. DR and as has been elaborately discussed and brought out in the orders of the Hon'ble Karnataka High Court in the case of Bangalore Club as well as Totagars [2017 (7) TMI 1049 - KARNATAKA HIGH COURT] in which reliance has been placed upon the judgment of Hon'ble Supreme Court, the interest received from Cooperative Banks, even though they are Cooperative Societies, is not allowable in view of the express provision of sub-section (4) of section 80P of the Act as the Cooperative Banks have been treated at par with the Scheduled Banks and the deduction u/s 80P of the Act is allowable only for the interest received from the Cooperative Society per se and not from the Cooperative Bank.
DR has amply demonstrated how the reliance on the decisions by the Ld. AR is not applicable to the facts of the case being distinguishable. Hence, the appeal of the Revenue is allowed, the order of the Ld. CIT(A) is set aside and the order of the Ld. AO is confirmed on this issue. Appeals filed by the Revenue are allowed.
Deduction u/s 80P(2)(d) - interest income earned from investments made with cooperative banks - HELD THAT:- Exemption provisions have to be strictly interpreted, the submissions of the Ld. DR and as has been elaborately discussed and brought out in the orders of the Hon'ble Karnataka High Court in the case of Bangalore Club as well as Totagars [2017 (7) TMI 1049 - KARNATAKA HIGH COURT] in which reliance has been placed upon the judgment of Hon'ble Supreme Court, the interest received from Cooperative Banks, even though they are Cooperative Societies, is not allowable in view of the express provision of sub-section (4) of section 80P of the Act as the Cooperative Banks have been treated at par with the Scheduled Banks and the deduction u/s 80P of the Act is allowable only for the interest received from the Cooperative Society per se and not from the Cooperative Bank.
DR has amply demonstrated how the reliance on the decisions by the Ld. AR is not applicable to the facts of the case being distinguishable. Hence, the appeal of the Revenue is allowed, the order of the Ld. CIT(A) is set aside and the order of the Ld. AO is confirmed on this issue. Appeals filed by the Revenue are allowed.
Seeking direction upon the respondents to immediately release the gold ornaments - goods liable for confiscation or not - value of the goods is less than Rs.1 crore - HELD THAT:- Since the respondents are in the process of taking steps to comply with the direction passed by the Tribunal, no fruitful purpose would be served by keeping the writ petition pending. Accordingly, the writ petition is disposed of by directing the respondents to act in terms of the order passed by the Tribunal on 11th December 2024 and to expedite the process of releasing of the gold ornaments preferably within a period of 15 days from the date of communication of this order.
Petition disposed off.
Seeking direction upon the respondents to immediately release the gold ornaments - goods liable for confiscation or not - value of the goods is less than Rs.1 crore - HELD THAT:- Since the respondents are in the process of taking steps to comply with the direction passed by the Tribunal, no fruitful purpose would be served by keeping the writ petition pending. Accordingly, the writ petition is disposed of by directing the respondents to act in terms of the order passed by the Tribunal on 11th December 2024 and to expedite the process of releasing of the gold ornaments preferably within a period of 15 days from the date of communication of this order.
Petition disposed off.
The core legal questions considered by the Court are:
(a) Whether the penalty imposed on the petitioner for non-fulfillment of export obligation under the EPCG licence was justified in the absence of consideration of the petitioner's stand and relevant documents, including the non-utilization certificate issued by the jurisdictional customs authority.
(b) Whether the appellate authority was justified in rejecting the petitioner's appeal on the ground of delay under Section 15(1)(b) of the Foreign Trade (Development and Regulation) Act, 1992, without considering the merits of the appeal.
(c) Whether the petitioner, who did not utilize the EPCG licence benefits and paid full customs duty on imports, was liable to fulfill the export obligation stipulated under the licence.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (a): Justification of penalty imposed without considering petitioner's stand and documents
Relevant legal framework and precedents: The EPCG (Export Promotion Capital Goods) scheme allows import of capital goods at concessional customs duty subject to fulfillment of export obligations within a prescribed period. Failure to fulfill such obligations attracts penalty under the Foreign Trade (Development and Regulation) Act, 1992. The authorities are required to consider the representations and documents submitted by the licensee before imposing penalty.
Court's interpretation and reasoning: The Court noted that the petitioner had submitted replies to the show cause notices explaining non-utilization of the EPCG licence and had documents including a non-utilization certificate from the jurisdictional customs authority. However, the second respondent did not consider these submissions before imposing penalty. The Court emphasized that the petitioner's contestable case regarding non-utilization and consequent non-applicability of export obligation was not adjudicated on merits.
Key evidence and findings: The petitioner's reply dated 16.05.2015 and 24.03.2022, along with the non-utilization certificate, were crucial documents evidencing that the petitioner did not claim benefits under the EPCG licence and paid full customs duty. These were not considered by the second respondent prior to penalty imposition.
Application of law to facts: Since the export obligation arises only if the EPCG licence benefits are availed, the petitioner's case that they did not utilize the licence and paid full duty negates the obligation. The failure to consider this crucial fact vitiates the penalty order.
Treatment of competing arguments: The respondents contended that the petitioner failed to produce relevant documents during the proceedings before the second respondent, justifying penalty. The Court found this argument insufficient to deny the petitioner a fair opportunity to contest the charge.
Conclusion: The penalty order was passed without affording adequate opportunity and without considering the petitioner's stand and documents, rendering it unsustainable.
Issue (b): Validity of rejection of appeal on ground of delay under Section 15(1)(b) of the Foreign Trade Act
Relevant legal framework and precedents: Section 15(1)(b) of the Foreign Trade (Development and Regulation) Act, 1992 prescribes the limitation period for filing appeals against orders passed by authorities under the Act. However, courts have held that procedural bars such as limitation should not be invoked to deny adjudication on substantial questions of law and fact, especially where the appellant has a prima facie contestable case.
Court's interpretation and reasoning: The appellate authority rejected the petitioner's appeal on the sole ground that it was filed beyond the prescribed limitation period. The Court observed that the petitioner was in possession of crucial documents, including the non-utilization certificate, which were not considered earlier. The Court held that the issue of delay should not be a ground to deny the petitioner an opportunity to have the appeal decided on merits.
Key evidence and findings: The appeal was filed after a delay of approximately one year and four months. However, the petitioner's possession of the non-utilization certificate and the failure of earlier authorities to consider it justified remanding the matter for fresh consideration.
Application of law to facts: The Court applied the principle that limitation should not be an absolute bar where the appellant has a substantial defense and the authorities failed to consider relevant material. The Court directed that the appeal be decided on merits without being prejudiced by delay.
Treatment of competing arguments: The respondents emphasized strict adherence to limitation provisions. The Court balanced this against the petitioner's right to be heard on the substantive issue and found in favor of the latter.
Conclusion: The appellate authority erred in rejecting the appeal solely on limitation grounds without examining the merits.
Issue (c): Liability of petitioner to fulfill export obligation when EPCG benefits were not utilized
Relevant legal framework and precedents: Under the EPCG scheme, export obligation arises only when the importer avails of the duty concession by utilizing the EPCG licence. If the licence is not utilized and full customs duty is paid, no export obligation is triggered.
Court's interpretation and reasoning: The petitioner contended that they did not utilize the EPCG licence and paid full customs duty on imports, supported by the non-utilization certificate. The Court recognized this as a crucial factual and legal issue that must be adjudicated by the authorities before imposing penalty.
Key evidence and findings: The non-utilization certificate issued by the jurisdictional customs authority was key evidence supporting the petitioner's claim that the licence was not utilized.
Application of law to facts: The Court held that if the petitioner did not avail the EPCG benefits, the export obligation would not apply, and penalty for non-fulfillment would be unwarranted.
Treatment of competing arguments: The respondents argued that the export obligation was not fulfilled regardless of utilization. The Court rejected this, emphasizing the conditional nature of the obligation linked to license utilization.
Conclusion: The question of liability to fulfill export obligation depends on whether the EPCG licence benefits were availed and must be decided on merits by the authorities.
3. SIGNIFICANT HOLDINGS
The Court held: "If the petitioner had not utilized the EPCG licence and had paid the import duty every time when the machineries were imported, the fulfillment of the export obligation will not apply to the petitioner. This crucial issue must be decided by the authorities, more particularly, in the light of the non-utilization certificate that was issued by the jurisdictional customs."
Core principles established include:
(i) The export obligation under the EPCG scheme arises only if the EPCG licence benefits are availed.
(ii) Authorities must consider all relevant documents and the petitioner's stand before imposing penalty for non-fulfillment of export obligation.
(iii) Procedural bars such as limitation cannot be invoked to deny adjudication on the merits where the appellant has a prima facie contestable case and relevant material was not considered earlier.
Final determinations:
The impugned order imposing penalty was quashed for non-consideration of petitioner's submissions and documents.
The appellate authority's rejection of the appeal on limitation grounds was set aside, and the matter was remanded for fresh adjudication on merits without regard to delay.
The petitioner was granted a fair opportunity to be heard and produce relevant evidence, including the non-utilization certificate, to determine the applicability of export obligation.
Violation of principles of natural justice - impugned order has been passed against the petitioner without affording sufficient opportunity and without considering the stand taken by the petitioner and the documents submitted by the petitioner - HELD THAT:- On a careful consideration of the submissions made by the learned counsel on either side and the materials available on record, it is seen that the petitioner has a contestable case to agitate before the authorities. If the petitioner had not utilized the EPCG licence and had paid the import duty every time when the machineries were imported, the fulfillment of the export obligation will not apply to the petitioner. This crucial issue must be decided by the authorities, more particularly, in the light of the non-utilization certificate that was issued by the jurisdictional customs. Hence this Court is inclined to remand this case back to the file of the first respondent, who is the appellate authority, to deal with the appeal on merits and in accordance with law.
The impugned proceedings of the first respondent dated 22.08.2024 are quashed and the matter is remanded to the file of the first respondent - Petition allowed by way of remand.
Violation of principles of natural justice - impugned order has been passed against the petitioner without affording sufficient opportunity and without considering the stand taken by the petitioner and the documents submitted by the petitioner - HELD THAT:- On a careful consideration of the submissions made by the learned counsel on either side and the materials available on record, it is seen that the petitioner has a contestable case to agitate before the authorities. If the petitioner had not utilized the EPCG licence and had paid the import duty every time when the machineries were imported, the fulfillment of the export obligation will not apply to the petitioner. This crucial issue must be decided by the authorities, more particularly, in the light of the non-utilization certificate that was issued by the jurisdictional customs. Hence this Court is inclined to remand this case back to the file of the first respondent, who is the appellate authority, to deal with the appeal on merits and in accordance with law.
The impugned proceedings of the first respondent dated 22.08.2024 are quashed and the matter is remanded to the file of the first respondent - Petition allowed by way of remand.
- Whether the Petitioners are entitled to refund of Special Additional Duty (SAD) paid under Section 3(5) of the Customs Tariff Act, 1975, pursuant to Notification No.102/2007-Cus., dated 14.09.2007, upon fulfilling prescribed conditions including payment of appropriate sales tax or VAT on sale of imported goods.
- Whether the Customs authorities can deny refund claims based on alleged mismatches or deficiencies in invoices or documents, especially concerning VAT returns and particulars of buyers.
- Whether the Petitioners are entitled to interest under Section 27A of the Customs Act, 1962 on delayed refunds of SAD.
- The applicability and interpretation of Circulars issued by the Central Board of Excise and Customs (CBEC), specifically Circular No.6 of 2018, Circular No.18/2013-Cus., and Circular No.869/7/2008-CX, in relation to refund claims and procedural requirements.
- The validity and effect of earlier orders of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), including both Single Bench and Division Bench decisions, on the entitlement to refund of SAD.
- The scope of judicial review under Article 226 of the Constitution of India concerning the impugned Orders-in-Original rejecting or partially allowing refund claims.
2. ISSUE-WISE DETAILED ANALYSIS
Entitlement to Refund of Special Additional Duty (SAD) under Notification No.102/2007-Cus.
The legal framework governing the refund of SAD is primarily Notification No.102/2007-Cus., issued under Section 25 of the Customs Act, 1962, which exempts certain goods from SAD subject to conditions including payment of SAD at import, issuance of invoices indicating no credit of SAD, filing of refund claims, and payment of appropriate sales tax or VAT on sale of imported goods. The refund is sanctioned upon satisfaction of these conditions by the jurisdictional customs officer.
CESTAT's Division Bench judgment dated 02.06.2017 in the matter of M/s. Kubota Agricultural Machinery India Pvt. Ltd. clarified that refund cannot be denied if the importer has discharged appropriate sales tax or VAT and can establish that nil VAT/Sales Tax was payable on the impugned goods. The Tribunal emphasized that the refund claim cannot be rejected solely on the ground of document mismatches if the essential conditions are met.
The Court noted that earlier, the Single Bench of CESTAT had denied refund on the ground of "Nil" VAT, but this was overruled by the Division Bench, which held that the importer's compliance with VAT payment or establishing nil VAT liability sufficed for refund entitlement.
The Petitioners relied on this precedent and sought refund claims certified by Chartered Accountants as per Circular No.6 of 2018, which mandates certification of returns for refund claims. The Court observed that once such certified returns are filed, customs authorities cannot deny refunds by scrutinizing individual invoices or raising demands for particulars of buyers, as this would contravene the procedural safeguards and the conditions stipulated in the Notification.
The Respondents contended that refund claims were rejected partly due to incomplete documents, non-filing of VAT returns, and suspicion of non-bona fide transactions. They relied on Circular No.18/2013-Cus. and Circular No.869/7/2008-CX, which prescribe pre-audit and procedural requirements for refund claims exceeding Rs. 5 lakhs and emphasize cash payment of SAD for refund eligibility.
The Court examined these contentions and held that the Circulars do not override the statutory provisions or the binding precedents of the Tribunal and Courts. The Circulars serve as administrative guidelines but cannot be used to deny refunds where statutory conditions are fulfilled. The Court further noted that the Department had itself accepted refund claims in similar cases, sanctioning substantial amounts, thereby acknowledging compliance with procedural and substantive requirements.
Denial of Refund on Grounds of Document Mismatches and Non-Filing of VAT Returns
The Respondents argued that refund claims were rejected due to alleged mismatches in invoices and non-filing of VAT returns as per Circular No.6 of 2018 and other guidelines. They contended that such deficiencies justified partial or full rejection of refund claims.
The Court analyzed the evidence and submissions, observing that the Petitioners had filed returns duly certified by Chartered Accountants, which is the prescribed mode of compliance. The Court held that it is not within the Customs Authority's jurisdiction to conduct detailed invoice-wise scrutiny to deny refunds once certified returns are filed. The Court emphasized that the statutory scheme and the Notification do not require individual invoice audits by Customs but rely on the overall compliance evidenced by certified returns and payment of VAT or sales tax.
The Court also referred to earlier orders sanctioning refunds in cases involving similar facts, underscoring that the Department's inconsistent approach undermined the justification for rejection based on document mismatches. The Court concluded that the denial of refunds on such grounds was unsustainable.
Entitlement to Interest under Section 27A of the Customs Act, 1962 on Delayed Refunds
The Petitioners claimed interest under Section 27A of the Customs Act, 1962 on delayed refunds of SAD, which mandates payment of interest if refund is not paid within three months from the date of receipt of the refund application. The Petitioners contended that interest was wrongly denied even for sanctioned claims.
The Court extensively examined authoritative decisions, including the Supreme Court's ruling in Union of India v. B.T. Patil & Sons (2024), Bombay High Court's Ajay Industrial Corporation Ltd. case (2024), and other High Court decisions including Karnataka Power Corporation Limited (2023) and Madras High Court precedents. These decisions uniformly held that interest under Section 27A is payable from the expiry of three months from the date of refund application until actual payment, regardless of delays caused by the Revenue.
The Court rejected the Department's reliance on explanations to Section 27A and administrative decisions that sought to limit interest liability to the date of refund order. It held that the statutory mandate is clear and interest cannot be denied on technical or procedural grounds where refund claims are valid and delayed.
The Court directed the Respondents to pay the accrued interest within a stipulated period and imposed a cost order, warning that failure to comply would attract further interest and potential contempt proceedings. The Court also directed recovery of additional interest from officers responsible for delay to prevent unjust enrichment at the cost of the Petitioners and the public exchequer.
Application of Law to Facts and Treatment of Competing Arguments
The Court carefully balanced the Petitioners' compliance with statutory and procedural requirements against the Respondents' concerns about incomplete documentation and bona fide transactions. It found that the Petitioners had met the conditions under the Notification, filed certified returns, and that the Department had itself sanctioned refunds in analogous cases.
The Court held that administrative circulars and guidelines cannot override statutory provisions or judicial pronouncements. It also emphasized that the Customs authorities must act fairly and consistently, and cannot arbitrarily reject refund claims or withhold interest when statutory conditions are fulfilled.
The Court rejected the Respondents' arguments regarding non-filing of VAT returns and document mismatches as insufficient to deny refunds or interest, especially in light of the Tribunal's Division Bench ruling and the Department's own prior orders sanctioning refunds.
3. SIGNIFICANT HOLDINGS
"It is held that the appellant have discharged appropriate sales tax/VAT for the sale of the goods imported by them. As such the refund claimed by them under Notification No. 102/2007-Cus. cannot be denied to them, as long as the appellants are able to establish that nil VAT/Sales Tax was required to be discharged on the impugned goods." (CESTAT Division Bench, 2017)
"Interest under Section 27A of the Customs Act, 1962 is payable from the date immediately after the expiry of three months from the date of receipt of the refund application till the date of refund of such duty." (Supreme Court and various High Court decisions)
"Once returns duly certified by the Chartered Accountant are filed, it is not for the Customs Authority to look into each of the individual invoices to deny the refund of the Special Additional Duty (SAD)." (Madras High Court)
"Administrative circulars cannot override the statutory provisions or judicial precedents. The Customs authorities must act fairly and consistently in sanctioning refunds and payment of interest." (Madras High Court)
Final determinations:
Refund of Special Additional Duty (SAD) of Customs paid under Section 3(5) of the Customs Tariff Act, 1975 - interest under Section 27A of the Customs Act, 1962 on delayed refunds of SAD - alleged mismatches or deficiencies in invoices or documents - HELD THAT:- In Union of India and others Vs. B.T.Patil & Sons, Belgaum (Construction) Private Limited [2024 (2) TMI 324 - SUPREME COURT], involving refund of duty drawback, the Hon'ble Supreme Court held that 'under sub-section (1) of Section 75-A of the Customs Act, where duty drawback is not paid within a period of three months from the date of filing of claim, the claimant would be entitled to interest in addition to the amount of drawback. This section provides that the interest would be at the rate fixed under Section 27-A from the date after expiry of the said period of three months till the payment of such drawback. If we look at Section 27-A, the interest rate prescribed thereunder at the relevant point of time was not below ten per cent and not exceeding thirty per cent per annum.'
The Petitioners are entitled to interest u/s 27A of the Customs Act, 1962 from the date of the expiry of three months from the date of filing of the refund application.
Conclusion - i) The Petitioners are entitled to refund of SAD paid under Notification No.102/2007-Cus., subject to fulfillment of statutory conditions, which they have complied with. ii) The Petitioners are entitled to interest under Section 27A of the Customs Act, 1962 on delayed refunds, payable from three months after filing of refund applications until actual payment.
Petition allowed.
Refund of Special Additional Duty (SAD) of Customs paid under Section 3(5) of the Customs Tariff Act, 1975 - interest under Section 27A of the Customs Act, 1962 on delayed refunds of SAD - alleged mismatches or deficiencies in invoices or documents - HELD THAT:- In Union of India and others Vs. B.T.Patil & Sons, Belgaum (Construction) Private Limited [2024 (2) TMI 324 - SUPREME COURT], involving refund of duty drawback, the Hon'ble Supreme Court held that 'under sub-section (1) of Section 75-A of the Customs Act, where duty drawback is not paid within a period of three months from the date of filing of claim, the claimant would be entitled to interest in addition to the amount of drawback. This section provides that the interest would be at the rate fixed under Section 27-A from the date after expiry of the said period of three months till the payment of such drawback. If we look at Section 27-A, the interest rate prescribed thereunder at the relevant point of time was not below ten per cent and not exceeding thirty per cent per annum.'
The Petitioners are entitled to interest u/s 27A of the Customs Act, 1962 from the date of the expiry of three months from the date of filing of the refund application.
Conclusion - i) The Petitioners are entitled to refund of SAD paid under Notification No.102/2007-Cus., subject to fulfillment of statutory conditions, which they have complied with. ii) The Petitioners are entitled to interest under Section 27A of the Customs Act, 1962 on delayed refunds, payable from three months after filing of refund applications until actual payment.
Petition allowed.
1. Whether the vehicle used for transporting goods alleged to be smuggled can be confiscated under the Customs Act, 1962, when the owner/transport operator has no knowledge or involvement in the smuggling activity.
2. Whether the redemption fine imposed in lieu of confiscation of the vehicle is justified under the circumstances.
3. Whether penalty under Section 112 of the Customs Act, 1962 can be imposed on the appellant, the vehicle owner and transporter, in absence of evidence of his involvement or knowledge of the smuggling.
Issue 1: Confiscation of the Vehicle
The relevant legal framework includes Section 111 and Section 125 of the Customs Act, 1962, which empower authorities to confiscate goods and conveyances used in smuggling, and to impose redemption fines in lieu of confiscation. Section 112 provides for penalty on persons involved in smuggling or customs offences.
Precedents generally hold that confiscation of a vehicle used in smuggling is justified if the owner or driver is complicit or has knowledge of the illegal act. Mere ownership or possession of the vehicle is insufficient to warrant confiscation if the vehicle was used without the owner's knowledge or consent.
The Court's interpretation emphasized the absence of any evidence on record indicating that the appellant had knowledge or involvement in the smuggling of goods. The appellant was acting as a transporter, carrying goods on receipt of transportation charges, and the vehicle was under the custody of the driver who allegedly used it without the appellant's knowledge.
Key findings include the fact that the vehicle was intercepted carrying Vietnamese Black Pepper and Arhar smuggled from Nepal, but no evidence linked the appellant to the smuggling activity beyond ownership and transportation.
The Court applied the law to these facts by holding that confiscation of the vehicle was not warranted as the appellant was not complicit. The competing argument by the Revenue that the vehicle itself was liable for confiscation was rejected due to lack of evidence of the appellant's involvement.
The conclusion was that the vehicle could not be confiscated under the Customs Act in these circumstances.
Issue 2: Redemption Fine in Lieu of Confiscation
Section 125 of the Customs Act allows for imposition of a redemption fine as an alternative to confiscation. The fine is generally imposed on the owner or person in possession of the vehicle.
Given the Court's finding that confiscation was not justified, the redemption fine imposed in lieu thereof was also considered unwarranted.
The Court reasoned that since the vehicle could not be confiscated, the redemption fine imposed as a substitute was liable to be set aside.
Issue 3: Penalty under Section 112 of the Customs Act
Section 112 penalizes persons involved in smuggling or customs offences. The penalty is imposed on those who have knowledge or collusion in the offence.
The appellant contended that he had no knowledge or motive to carry smuggled goods and was merely a transporter receiving transportation charges. There was no evidence to establish collusion or involvement in smuggling.
The Court found no proof that the appellant played any role in the smuggling offence beyond transportation, and thus the penalty under Section 112 was not sustainable.
The Revenue's argument that the penalty was justified because the vehicle was used in smuggling was rejected due to absence of evidence against the appellant personally.
The conclusion was that the penalty imposed on the appellant under Section 112 should be set aside.
Significant Holdings
The Court held:
"I also find that there is no evidence available on record to indicate that the appellant was having knowledge that the goods in question were smuggled into the country. Thus, I find that the appellant cannot be held responsible for the act of transportation of the said goods."
"Considering the fact that there is no evidence available on record to substantiate the allegation that the appellant is also involved in the alleged offence, I hold that the truck carrying the said goods cannot be confiscated. Consequently, the redemption fine imposed in lieu of such confiscation is liable to be set aside."
"I further observe that there is no proof that the appellant had played any role in the alleged offence, to warrant imposition of penalty on him under Section 112 of the Customs Act. Therefore, the penalty imposed on the appellant under Section 112 of the Act is also liable to be set aside."
These holdings establish the principle that mere ownership or possession of a vehicle used in smuggling is insufficient for confiscation or penalty unless there is evidence of knowledge or involvement in the offence.
The final determinations were:
Smuggling - vehicle used for transporting goods - owner/transport operator has no knowledge or involvement in the smuggling activity - Confiscation - redemption fine - penalty - HELD THAT:- In this case, the Officers of the DRI had intercepted the said Vehicle bearing Registration No. NL-01AA-5448 near Bettiah (Bihar), which was carrying 3,975 kgs. of Vietnamese Black Pepper and 17,021 kgs. of Arhar. It is a fact that the appellant has been carrying the goods in his capacity as a transporter, on receipt of transportation charges.
It is also found that there is no evidence available on record to indicate that the appellant was having knowledge that the goods in question were smuggled into the country. Thus, the appellant cannot be held responsible for the act of transportation of the said goods.
Considering the fact that there is no evidence available on record to substantiate the allegation that the appellant is also involved in the alleged offence, the truck carrying the said goods cannot be confiscated. Consequently, the redemption fine imposed in lieu of such confiscation is liable to be set aside.
It is further observed that there is no proof that the appellant had played any role in the alleged offence, to warrant imposition of penalty on him under Section 112 of the Customs Act. Therefore, the penalty imposed on the appellant under Section 112 of the Act is also liable to be set aside.
Conclusion - i) Confiscation of the vehicle was set aside. ii) Redemption fine imposed in lieu of confiscation was set aside. iii) Penalty under Section 112 of the Customs Act imposed on the appellant was set aside.
Appeal disposed off.
Smuggling - vehicle used for transporting goods - owner/transport operator has no knowledge or involvement in the smuggling activity - Confiscation - redemption fine - penalty - HELD THAT:- In this case, the Officers of the DRI had intercepted the said Vehicle bearing Registration No. NL-01AA-5448 near Bettiah (Bihar), which was carrying 3,975 kgs. of Vietnamese Black Pepper and 17,021 kgs. of Arhar. It is a fact that the appellant has been carrying the goods in his capacity as a transporter, on receipt of transportation charges.
It is also found that there is no evidence available on record to indicate that the appellant was having knowledge that the goods in question were smuggled into the country. Thus, the appellant cannot be held responsible for the act of transportation of the said goods.
Considering the fact that there is no evidence available on record to substantiate the allegation that the appellant is also involved in the alleged offence, the truck carrying the said goods cannot be confiscated. Consequently, the redemption fine imposed in lieu of such confiscation is liable to be set aside.
It is further observed that there is no proof that the appellant had played any role in the alleged offence, to warrant imposition of penalty on him under Section 112 of the Customs Act. Therefore, the penalty imposed on the appellant under Section 112 of the Act is also liable to be set aside.
Conclusion - i) Confiscation of the vehicle was set aside. ii) Redemption fine imposed in lieu of confiscation was set aside. iii) Penalty under Section 112 of the Customs Act imposed on the appellant was set aside.
Appeal disposed off.
The principal issue is whether the extended period of limitation under section 28(4) of the Customs Act could be invoked in the facts of the case, which requires establishing that the duty was not levied or paid due to collusion, willful mis-statement, or suppression of facts by the importer or its agent. Related issues include whether there was suppression or mis-declaration of value with intent to evade anti-dumping duty, and consequentially, whether confiscation and penalties under sections 111(m), 112, 114A, and 114AA of the Customs Act were justified.
Regarding the invocation of the extended limitation period under section 28(4), the Tribunal examined the statutory framework. Section 28(1) mandates issuance of a show cause notice within one year from the relevant date for recovery of duties not levied or paid, except where there is collusion, willful mis-statement, or suppression of facts, in which case section 28(4) extends the limitation to five years. The Tribunal emphasized that mere incorrect valuation or difference of opinion does not suffice to invoke the extended period; there must be deliberate intent to evade duty. The show cause notice must explicitly allege such intent, and the adjudicating authority must examine the assessee's reply addressing these allegations.
In this case, the imported goods were melamine tableware, subject to anti-dumping duty notifications that imposed duty when the landed value was below a specified threshold. The appellant declared a higher FOB price than the threshold, resulting in no anti-dumping duty liability. The department alleged that this was a deliberate overvaluation to evade duty. However, the appellant filed Bills of Entry containing full particulars, including the relevant anti-dumping duty notifications, and the goods were examined and cleared by customs officers, whose names and signatures appeared on the Bills of Entry. Furthermore, the department conducted a search on the appellant's premises and recorded statements of the director in 2015, after which no further inquiry or evidence emerged before issuance of the show cause notice in 2018.
The Tribunal found that since the department was aware of all relevant facts by the time of the search and statements in 2015, the issuance of the show cause notice after two and a half years without any new material was unjustified to invoke the extended limitation. The Tribunal held that the show cause notice's allegation of deliberate overvaluation was based on assumptions and did not amount to suppression of facts with intent to evade duty. The appellant's bona fide belief in the correctness of its valuation was supported by the fact that the goods were examined and cleared by customs officers, and that the appellant disclosed the applicable anti-dumping duty notification in the Bills of Entry.
The Tribunal relied on authoritative precedents, including a Supreme Court decision holding that if an assessee bona fide believes it is correctly discharging duty, a later judicial finding of error does not render the belief mala fide or justify invocation of extended limitation. The Tribunal also referred to a Division Bench decision emphasizing that suppression of facts requires mens rea, and mere difference of opinion or erroneous self-assessment does not constitute willful suppression. The Tribunal concluded that the extended period of limitation under section 28(4) was incorrectly invoked.
On the question of penalty and confiscation, the department's case was based on the alleged mis-declaration of value to evade duty. The Tribunal found that since there was no suppression or mis-declaration with intent, penalties under sections 112, 114A, and 114AA of the Customs Act could not be imposed either on the appellant company or its director. The Tribunal held that a bona fide but incorrect declaration does not attract penal consequences. Similarly, confiscation under section 111(m) was not justified as the goods were not liable to confiscation in the absence of suppression or evasion.
The Tribunal also examined the department's re-determination of assessable value under rule 5 of the Customs Valuation Rules, which was challenged by the appellant. However, the principal focus of the judgment was on the limitation and penalty issues, and the Tribunal's conclusion on the extended limitation period undermined the basis for re-determination and consequential demands.
In summary, the Tribunal held that:
The Tribunal set aside the order of the Principal Commissioner, allowing the appeals with consequential relief.
Key verbatim excerpts preserving crucial legal reasoning include:
"It has to be remembered that mere suppression of facts is not enough. There has to be a deliberate attempt to evade payment of customs duty. The show cause notice must specifically deal with this aspect and the adjudicating authority is also obliged to examine this aspect in the light of the facts stated by the assessee in reply to the show cause notice."
"Merely because the value declared by the appellant has not been found to be correct, it cannot be said that the appellant had suppressed material facts from the department."
"We are in full agreement with the finding of the Tribunal that during the period in dispute it was holding a bona fide belief that it was correctly discharging its duty liability. The mere fact that the belief was ultimately found to be wrong by the judgment of this Court does not render such belief of the assessee a mala fide belief particularly when such a belief was emanating from the view taken by a Division Bench of Tribunal."
"Suppression of facts has also been held through a series of judicial pronouncements to mean not mere omission but an act of suppression with an intent. In other words, without an intent being established, extended period of limitation cannot be invoked."
"As there has been no mis-declaration of the value of goods by the appellant, penalty under section 114A and section 112 (a) and (b) of the Customs Act could not have been imposed on the appellant."
"Penalty under sections 112 and 114AA of the Customs Act could not, therefore, have been imposed upon Arjinder Singh Gulati."
Anti-dumping duty - Extended Period of limitation - section 28(4) of the Customs Act, 1962 - suppression of facts or not - levy of penalty on Director.
HELD THAT:- The Principal Commissioner, instead of examining the reply submitted by the appellant, proceeded to hold that the that the extended period of limitation was correctly invoked for the reason that the value declared by the appellant has not been found to be correct and acceptable and, therefore, the appellant suppressed facts with a clear motive of evading payment of anti-dumping duty.
This finding recorded by the Principal Commissioner completely ignores the defence taken by the appellant. The appellant had clearly pointed out that nothing had been concealed in the Bills of Entry and after minute examination of the details mentioned in the Bills of Entry and also the examination of goods, the officers of the customs had cleared the goods. In fact the Notification under which anti-dumping duty was leviable was also mentioned by the appellant - Merely because the value declared by the appellant has not been found to be correct, it cannot be said that the appellant had suppressed material facts from the department.
It may be pertinent to refer to the decision of the Supreme Court in Commissioner of C. Ex. & Customs vs. Reliance Industries Ltd. [2023 (7) TMI 196 - SUPREME COURT]. The Supreme Court held that if an assessee bonafide believes that it was correctly discharging duty, then merely because the belief is ultimately found to be wrong by a judgment would not render such a belief of the assessee to be malafide. If a dispute relates to interpretation of legal provisions, it would be totally unjustified to invoke the extended period of limitation. The Supreme Court further held that in any scheme of self-assessment, it is the responsibility of the assessee to determine the liability correctly and this determination is required to be made on the basis of his own judgment and in a bonafide manner.
It cannot, therefore, be alleged that the appellant had suppressed the value of the goods, much less suppressed it with an intention to evade payment of customs duty - The inevitable conclusion, therefore, that follows from the above discussion is that the extended period of limitation contemplated under section 28(4) of the Customs Act was incorrectly invoked.
Levy of penalty on Director - HELD THAT:- Penalty has been imposed upon Director for making incorrect declaration of value of the goods in import clearance. As noted above, the declaration of the value of goods was a bonafide declaration and merely because it is ultimately found to be incorrect will not mean that the valuation was with a bad motive not declared correctly. Penalty under sections 112 and 114AA of the Customs Act could not, therefore, have been imposed upon the director.
Conclusion - i) The extended period of limitation under section 28(4) of the Customs Act cannot be invoked merely on the basis of an alleged incorrect valuation without concrete evidence of deliberate suppression or evasion. ii) Penalties under sections 112, 114A, and 114AA could not be imposed in the absence of willful mis-declaration or suppression. iii) Confiscation of goods was not justified as the goods were not liable to confiscation under the circumstances.
The impugned order is set aside - appeal allowed.
Anti-dumping duty - Extended Period of limitation - section 28(4) of the Customs Act, 1962 - suppression of facts or not - levy of penalty on Director.
HELD THAT:- The Principal Commissioner, instead of examining the reply submitted by the appellant, proceeded to hold that the that the extended period of limitation was correctly invoked for the reason that the value declared by the appellant has not been found to be correct and acceptable and, therefore, the appellant suppressed facts with a clear motive of evading payment of anti-dumping duty.
This finding recorded by the Principal Commissioner completely ignores the defence taken by the appellant. The appellant had clearly pointed out that nothing had been concealed in the Bills of Entry and after minute examination of the details mentioned in the Bills of Entry and also the examination of goods, the officers of the customs had cleared the goods. In fact the Notification under which anti-dumping duty was leviable was also mentioned by the appellant - Merely because the value declared by the appellant has not been found to be correct, it cannot be said that the appellant had suppressed material facts from the department.
It may be pertinent to refer to the decision of the Supreme Court in Commissioner of C. Ex. & Customs vs. Reliance Industries Ltd. [2023 (7) TMI 196 - SUPREME COURT]. The Supreme Court held that if an assessee bonafide believes that it was correctly discharging duty, then merely because the belief is ultimately found to be wrong by a judgment would not render such a belief of the assessee to be malafide. If a dispute relates to interpretation of legal provisions, it would be totally unjustified to invoke the extended period of limitation. The Supreme Court further held that in any scheme of self-assessment, it is the responsibility of the assessee to determine the liability correctly and this determination is required to be made on the basis of his own judgment and in a bonafide manner.
It cannot, therefore, be alleged that the appellant had suppressed the value of the goods, much less suppressed it with an intention to evade payment of customs duty - The inevitable conclusion, therefore, that follows from the above discussion is that the extended period of limitation contemplated under section 28(4) of the Customs Act was incorrectly invoked.
Levy of penalty on Director - HELD THAT:- Penalty has been imposed upon Director for making incorrect declaration of value of the goods in import clearance. As noted above, the declaration of the value of goods was a bonafide declaration and merely because it is ultimately found to be incorrect will not mean that the valuation was with a bad motive not declared correctly. Penalty under sections 112 and 114AA of the Customs Act could not, therefore, have been imposed upon the director.
Conclusion - i) The extended period of limitation under section 28(4) of the Customs Act cannot be invoked merely on the basis of an alleged incorrect valuation without concrete evidence of deliberate suppression or evasion. ii) Penalties under sections 112, 114A, and 114AA could not be imposed in the absence of willful mis-declaration or suppression. iii) Confiscation of goods was not justified as the goods were not liable to confiscation under the circumstances.
The impugned order is set aside - appeal allowed.
The core legal questions considered by the Tribunal in this appeal are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Applicability of MRP-based assessment under Section 4A of the CEA, 1944 to goods declared as "not for retail sale" and meant for industrial consumers
Relevant legal framework and precedents: Section 4A of the CEA, 1944 prescribes levy of additional duty of customs (CVD) on imported goods based on Maximum Retail Price (MRP) when goods are notified in the official gazette. Notification No.49/2008-CE governs the assessment procedure. The Standards of Weights and Measures Act, 1976 and the Legal Metrology Act, 2009, along with the Legal Metrology (Packaged Commodities) Rules, 2011, regulate declaration of Retail Sale Price (RSP) on pre-packed commodities intended for retail sale.
Judicial precedents include the Hon'ble Karnataka High Court judgment in EWAC Alloys Ltd. Vs. UOI, where it was held that goods meant for industrial consumers are not liable to MRP-based assessment. This Tribunal has consistently followed this principle, including in Kluber Lubrication India Pvt. Ltd. Vs. CC.
Court's interpretation and reasoning: The Tribunal noted that the appellant had clearly declared in the Bills of Entry that the goods were "not for retail sale" and packages bore the label "For industrial use only. Not for retail sale." The Tribunal emphasized that the MRP-based assessment applies only to goods intended for retail sale to ultimate consumers, not to industrial or institutional consumers.
The Tribunal analyzed the relevant provisions of the Legal Metrology (Packaged Commodities) Rules, 2011, particularly Rule 6, which mandates declaration of RSP only for packages intended for retail sale. It noted that the Rules exclude packages meant for industrial or institutional consumers, especially where the quantity exceeds 25 kg or 25 litres.
The Tribunal extensively examined the Hon'ble Karnataka High Court's interpretation of Rules 2-A and 2(p) of the Standards of Weights and Measures (Packaged Commodities) Rules, 1977, which exclude industrial and institutional consumers from the scope of retail package rules. The Court rejected the Revenue's attempt to distinguish the EWAC Alloys Ltd. case on the ground that the appellant is an importer rather than a manufacturer, holding that the mode of sale through dealers or distributors does not convert industrial packages into retail packages.
Key evidence and findings: The appellant's employees' statements confirmed that the goods were sold only to industrial consumers, either directly or through distributors, and not to retail consumers. There was no allegation or evidence that the goods were sold in retail contrary to the declarations.
Application of law to facts: Since the goods were clearly meant for industrial use and not for retail sale, the MRP-based assessment under Section 4A of the CEA, 1944 was not applicable. The Tribunal held that the Legal Metrology Rules and the CEA provisions do not require RSP declaration or MRP-based duty on goods sold exclusively to industrial consumers.
Treatment of competing arguments: The Revenue argued that since the appellant was an importer and not an industrial consumer, the goods attracted the Legal Metrology Rules and MRP-based assessment. The Tribunal rejected this, clarifying that the Rules exclude industrial and institutional consumers regardless of whether the goods are imported or domestically manufactured. The Tribunal also disagreed with the Revenue's interpretation of the Karnataka High Court judgment and held that the legislative intent is to protect individual retail consumers, not industrial or institutional buyers.
Conclusion: The Tribunal concluded that the goods imported and declared as "not for retail sale" and sold exclusively to industrial consumers are not liable to additional duty of customs under Section 4A of the CEA, 1944, and the impugned demand was unsustainable.
Issue 2: Applicability of Legal Metrology (Packaged Commodities) Rules, 2011 to goods meant for industrial or institutional consumers
Relevant legal framework and precedents: Rule 6 of the Legal Metrology (Packaged Commodities) Rules, 2011 requires declaration of RSP on packages intended for retail sale. Rule 2-A excludes packages meant for industrial or institutional consumers from the applicability of these provisions. The explanation to Rule 2-A defines "industrial consumer" and "institutional consumer" as buyers who purchase directly from manufacturers/packers for use in industry or service sectors.
The Karnataka High Court's detailed analysis in EWAC Alloys Ltd. clarified that the Rules are intended to protect individual retail consumers and do not apply to industrial or institutional consumers, even if goods are sold through distributors or stockists.
Court's interpretation and reasoning: The Tribunal emphasized that the legislative intent behind the Legal Metrology Rules is to protect ultimate retail consumers and not industrial or institutional consumers. It held that the exclusion of industrial and institutional consumers from the scope of Rule 6 is explicit and must be respected. The Tribunal rejected the Revenue's contention that the meaning of "industrial consumer" in Rule 2-A should be limited to direct purchase from manufacturers only, observing that practical commercial realities necessitate the use of distributors for sales to industrial consumers.
Key evidence and findings: The appellant's consistent declaration that goods were for industrial use only and the absence of any evidence of retail sale supported the applicability of the exclusion under the Legal Metrology Rules.
Application of law to facts: The Tribunal applied the legal framework to hold that the Legal Metrology Rules do not mandate RSP declaration on packages meant for industrial consumers, and hence the MRP-based assessment cannot be invoked.
Treatment of competing arguments: The Revenue's reliance on a Bombay High Court judgment was critically examined and found unpersuasive, as it failed to appreciate the distinction between Rule 2-A and Rule 2(p) and the legislative intent behind the exclusions.
Conclusion: The Tribunal concluded that the Legal Metrology (Packaged Commodities) Rules, 2011 do not apply to goods imported and sold exclusively to industrial or institutional consumers, and therefore, the demand based on these Rules was untenable.
Issue 3: Limitation and absence of suppression or mis-declaration
Relevant legal framework and precedents: The appellant contended that part of the demand was barred by limitation as there was no suppression or mis-declaration with intent to evade duty. Precedents cited include judgments of the Supreme Court and this Tribunal, which establish that limitation bars demands where no fraud or suppression is found.
Court's interpretation and reasoning: Although this issue was raised, the Tribunal's primary focus was on the substantive applicability of the MRP-based assessment and Legal Metrology Rules. The absence of any allegation or evidence of suppression or mis-declaration was noted, reinforcing the appellant's position.
Key evidence and findings: The appellant's disclosure in the Bills of Entry and employees' statements negated any intent to evade duty.
Application of law to facts: Since no suppression was found, the limitation period would apply, barring any demand beyond the prescribed period.
Treatment of competing arguments: The Revenue did not dispute the absence of suppression but maintained the substantive demand. The Tribunal did not find it necessary to delve deeper into limitation given the primary finding on substantive law.
Conclusion: The Tribunal implicitly accepted that limitation would bar any demand where no suppression or mis-declaration is established.
3. SIGNIFICANT HOLDINGS
The Tribunal's crucial legal reasoning is encapsulated in the following verbatim excerpt from the judgment:
"Therefore, a harmonious reading of these provisions, keeping in mind the object with which the Act is passed, it is reasonable to arrive at the conclusion that the meaning assigned to industrial consumer and institutional consumer in the explanation 2-A cannot be attributed to the meaning of those consumers in proviso to Rule 2(p). Rule 2(p) and Rule 2-A operate in distinct and separate fields. Therefore, the object is very clear. This Act is meant only for an individual consumer or a group of individuals who purchase packaged commodities from a retail dealer. To protect their interest, this Act and Rules are enacted and compliance of Rule 6 was made mandatory. The proviso contained in the definition of 'retail package' as per Rule 2(p) defines the ultimate consumer, which shall not include industrial or institutional consumers. Therefore, it is clear that the protection under this Act is confined only to individuals and persons who are eking out livelihood by self-employment and not to institutional and industrial consumers or consumers who purchase goods in large quantities. Therefore, requirement of Rule 6 is not required to be complied with by a manufacturer who sells his packaged goods to an industrial or institutional consumer through a stockist."
Core principles established include:
Final determinations on each issue are:
Calculation of Customs Duty - lubricants and lubrication preparations imported by the appellant, when specifically mentioned in the Bills of Entry as “Not for retail sale” and meant for industrial consumers - assessment to additional duty of customs (CVD) following the MRP based assessment prescribed under Section 4A of the CEA, 1944 read with relevant notification - HELD THAT:- The undisputed facts are that the appellant at the time of import itself has categorically mentioned in the Bill of Entry that the goods are not for retail sale. On the packages also, it has been clearly mentioned that the goods are meant for industrial use only; not for retail sale. In such circumstances, even if the goods are sold by the importer to industrial consumers/ institutional consumers or through their distributors, the provisions of MRP based assessment is not applicable. This issue is no more res integra and considered by this Tribunal in the case of Kluber Lubrication India Pvt., Ltd. Vs. CC [2025 (3) TMI 277 - CESTAT BANGALORE]. Taking note of the principles of law on the subject and also the judgment of the Hon’ble Karnataka High Court in the case of EWAC Alloys Ltd. [2011 (9) TMI 688 - KARNATAKA HIGH COURT], this Tribunal observed that 'it is clear from the evidences on record that all the goods were cleared/sold to industrial consumers directly or through their distributors/stockists by the appellant. Since, all the imported goods in dispute were cleared to industrial consumers only, revision of RSP declared at the time of import will also have no significance; hence, the demand on this count cannot be sustained.'
Conclusion - i) The goods imported and declared as "not for retail sale" and sold exclusively to industrial consumers are not liable to additional duty of customs under Section 4A of the CEA, 1944. ii) The Legal Metrology (Packaged Commodities) Rules, 2011 do not mandate RSP declaration or MRP-based assessment on such goods.
The impugned order confirming the demand of additional duty of customs is set aside - appeal allowed.
Calculation of Customs Duty - lubricants and lubrication preparations imported by the appellant, when specifically mentioned in the Bills of Entry as “Not for retail sale” and meant for industrial consumers - assessment to additional duty of customs (CVD) following the MRP based assessment prescribed under Section 4A of the CEA, 1944 read with relevant notification - HELD THAT:- The undisputed facts are that the appellant at the time of import itself has categorically mentioned in the Bill of Entry that the goods are not for retail sale. On the packages also, it has been clearly mentioned that the goods are meant for industrial use only; not for retail sale. In such circumstances, even if the goods are sold by the importer to industrial consumers/ institutional consumers or through their distributors, the provisions of MRP based assessment is not applicable. This issue is no more res integra and considered by this Tribunal in the case of Kluber Lubrication India Pvt., Ltd. Vs. CC [2025 (3) TMI 277 - CESTAT BANGALORE]. Taking note of the principles of law on the subject and also the judgment of the Hon’ble Karnataka High Court in the case of EWAC Alloys Ltd. [2011 (9) TMI 688 - KARNATAKA HIGH COURT], this Tribunal observed that 'it is clear from the evidences on record that all the goods were cleared/sold to industrial consumers directly or through their distributors/stockists by the appellant. Since, all the imported goods in dispute were cleared to industrial consumers only, revision of RSP declared at the time of import will also have no significance; hence, the demand on this count cannot be sustained.'
Conclusion - i) The goods imported and declared as "not for retail sale" and sold exclusively to industrial consumers are not liable to additional duty of customs under Section 4A of the CEA, 1944. ii) The Legal Metrology (Packaged Commodities) Rules, 2011 do not mandate RSP declaration or MRP-based assessment on such goods.
The impugned order confirming the demand of additional duty of customs is set aside - appeal allowed.
The core legal questions considered by the Tribunal in this appeal are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Applicability of Revised Tariff Value Notification Not Uploaded or Gazetted at Relevant Time
Relevant Legal Framework and Precedents: The Customs Tariff Act, 1975 and Customs Act, 1962 govern the assessment and levy of customs duty. Notifications issued under these Acts specify tariff values for valuation of imported goods. The principle of natural justice and legal certainty requires that notifications imposing or increasing duty must be brought to the knowledge of the public, generally by publication in the Official Gazette or uploading on the official Customs website, before they can be applied.
The Tribunal relied heavily on its earlier decision in Bank of Nova Scotia's case, where it was held that a notification is effective only from the date it is published or brought to public notice by Gazette notification or other official means such as uploading on the Customs website. Unless the notification explicitly states otherwise, it cannot be applied retrospectively or without public knowledge.
Court's Interpretation and Reasoning: The Tribunal observed that the revised tariff value notification dated 26.04.2013 was neither uploaded on the CBEC website nor published in the Gazette on that date. Therefore, it was not brought to the public domain at the time the Bill of Entry dated 26.04.2013 was filed and cleared. The appellant had adopted the tariff value of USD 449 per 10 grams, which was valid up to 25.04.2013, in good faith.
The Tribunal emphasized that since the imports were cleared under the Risk Management System (RMS) with self-assessment, the system itself would have applied the revised tariff value if it were effective. The fact that the system did not apply the revised tariff value indicated that the notification was not effective at that time.
Key Evidence and Findings: The appellant demonstrated that the notification increasing tariff value to USD 472 per 10 grams was not accessible on the official Customs website or Gazette on 26.04.2013. The appellant had paid duty based on the then available tariff value of USD 449 per 10 grams. The Department's audit objection was based on applying the revised tariff value retrospectively, which was not publicly available.
Application of Law to Facts: Applying the settled legal principle from the Bank of Nova Scotia case, the Tribunal held that the revised tariff value notification could not be applied to imports cleared on 26.04.2013. The notification's effectiveness was contingent upon its publication or public availability, which was lacking.
Treatment of Competing Arguments: The Department argued for application of the revised tariff value notification dated 26.04.2013 to recover differential duty. The Tribunal rejected this on the ground that the notification was not brought to public notice as required. The appellant's argument that the notification was not available on the CBEC website or Gazette was accepted as legally valid.
Conclusion: The Tribunal concluded that the revised tariff value notification dated 26.04.2013 was not effective on the date of import clearance and hence could not be applied for duty assessment on the Bill of Entry dated 26.04.2013.
Issue 2: Validity of Demand for Differential Duty, Interest, and Penalty
Relevant Legal Framework and Precedents: Section 114A of the Customs Act, 1962, provides for imposition of penalty in cases of duty evasion or short payment. The demand for differential duty arises if the correct tariff value is higher than the value declared by the importer. However, the demand must be based on legally effective notifications and proper valuation principles.
Court's Interpretation and Reasoning: Since the revised tariff value notification was found ineffective at the relevant time, the demand for differential duty based on that notification was not sustainable. Consequently, the penalty imposed under Section 114A for short payment of duty was also not justified.
Key Evidence and Findings: The appellant had paid duty based on the tariff value available and applicable at the time of clearance. The short payment alleged by the Department was premised on applying a notification that was not in force at the material time.
Application of Law to Facts: The Tribunal applied the legal principle that penalty and interest can only be imposed if the duty demand is valid. Since the demand was quashed, the penalty and interest related thereto were also set aside, except for a minor amount of Rs.12,807/- which the appellant did not contest.
Treatment of Competing Arguments: The Department maintained the correctness of the demand and penalty. The Tribunal, relying on the principle of legal certainty and prior precedent, rejected the Department's insistence on the revised tariff value and upheld the appellant's defense.
Conclusion: The Tribunal modified the impugned order by setting aside the duty demand of Rs.7,74,560/-, along with interest and penalty, except for the uncontested minor amount.
Issue 3: Applicability of Tariff Value for Bill of Entry dated 10.04.2012
Relevant Legal Framework and Precedents: The valuation of imported goods under Customs law is governed by the Customs Tariff Act and related notifications specifying tariff values. The tariff value applicable is that which is in force on the date of filing of the Bill of Entry.
Court's Interpretation and Reasoning: The appellant had paid duty on ad valorem basis based on transaction value for the Bill of Entry dated 10.04.2012. The Department contended that tariff value as per Notification No. 30/2012 dated 30.03.2012 should have been applied. However, the appellant argued that the notification was not available on the CBEC website or Gazette at the time of payment and clearance.
Key Evidence and Findings: The appellant's submission that the notification was not publicly available at the relevant time was accepted. The Tribunal's reasoning on the necessity of public availability of notifications applies equally here.
Application of Law to Facts: The tariff value notification not being publicly available at the relevant time, the appellant's payment on transaction value basis was held valid.
Treatment of Competing Arguments: The Department's contention was rejected on the ground of non-publication of the notification.
Conclusion: The Tribunal upheld the appellant's valuation and duty payment for the Bill of Entry dated 10.04.2012.
3. SIGNIFICANT HOLDINGS
The Tribunal, relying on the principle that a Customs notification becomes effective only upon publication or public availability, held:
"It is now a settled law that a notification would be effective from the date of publication or when it is brought to the notice of people by way of offer for sale of notification/gazette or by way of any other means like uploading on Official Website etc. On all these parameters, unless otherwise specifically indicated in the notification itself in exercise of relevant statutory power by the Competent Authority, the existing/old notifications could be considered as effective on the date on which Bill of Entries were filed."
The Tribunal further observed:
"Moreover, this is a case of RMS clearance and self-assessment where the system itself would have applied revised tariff Value, which admittedly was not done in the present case."
Accordingly, the Tribunal concluded that the demand for differential duty, interest, and penalty based on the revised tariff value notification not brought to public notice was unsustainable and modified the impugned order by setting aside the demand except for a minor uncontested amount.
The core principles established include:
Valuation of imported goods - whether the revised tariff value could be applied to the imports against Bill of Entry No. 9967123 dated 26.04.2013 and No.50/2013-Customs (N.T) dated 26.04.2013 which was not uploaded on the website and brought on public domain by Gazette notification on the said date? - HELD THAT:- The said issue is no more res integra and addressed by the Hyderabad Bench of this Tribunal in Bank of Nova Scotia’s case [2024 (11) TMI 1468 - CESTAT HYDERABAD], wherein it is observed that 'Moreover, this is a case of RMS clearance and self-assessment where the system itself would have applied revised tariff Value, which admittedly was not done in the present case. In fact, the revised Tariff rate was available in system with effect from 01.06.2013 and that is why the present appellant finally had to pay revised rate for import on and after 01.06.2013. Accordingly, in view of the settled law position cited supra, there is no merit in Department's insistence on demanding duty as per the revised tariff rate in respect of these 3 Bill of Entries.'
The appellant did not contest the amount of Rs.12,807/- being insignificant. Consequently, the impugned order is modified to the extent of setting aside the duty of Rs.7,74,560/- with interest and penalty.
Conclusion - The revised tariff value notification dated 26.04.2013 was not effective on the date of import clearance and hence could not be applied for duty assessment on the Bill of Entry dated 26.04.2013.
Appeal allowed in part.
Valuation of imported goods - whether the revised tariff value could be applied to the imports against Bill of Entry No. 9967123 dated 26.04.2013 and No.50/2013-Customs (N.T) dated 26.04.2013 which was not uploaded on the website and brought on public domain by Gazette notification on the said date? - HELD THAT:- The said issue is no more res integra and addressed by the Hyderabad Bench of this Tribunal in Bank of Nova Scotia’s case [2024 (11) TMI 1468 - CESTAT HYDERABAD], wherein it is observed that 'Moreover, this is a case of RMS clearance and self-assessment where the system itself would have applied revised tariff Value, which admittedly was not done in the present case. In fact, the revised Tariff rate was available in system with effect from 01.06.2013 and that is why the present appellant finally had to pay revised rate for import on and after 01.06.2013. Accordingly, in view of the settled law position cited supra, there is no merit in Department's insistence on demanding duty as per the revised tariff rate in respect of these 3 Bill of Entries.'
The appellant did not contest the amount of Rs.12,807/- being insignificant. Consequently, the impugned order is modified to the extent of setting aside the duty of Rs.7,74,560/- with interest and penalty.
Conclusion - The revised tariff value notification dated 26.04.2013 was not effective on the date of import clearance and hence could not be applied for duty assessment on the Bill of Entry dated 26.04.2013.
Appeal allowed in part.
The core legal questions considered by the Tribunal were:
(a) Whether a Preference Shareholder has individually enforceable statutory rights under Sub Section (3) of Section 55 of the Companies Act, 2013, that can be invoked before the National Company Law Tribunal (NCLT) in a Company Petition.
(b) Whether the existence of a binding Shareholders Subscription Agreement containing an arbitration clause precludes the Preference Shareholder from initiating proceedings under Section 55(3) before the NCLT, requiring the shareholder instead to seek remedies through arbitration as per the contractual terms.
(c) Whether the Appellant's claim that the Shareholders Agreement was flagrantly disregarded could render the NCLT proceedings maintainable despite the arbitration clause and statutory restrictions.
(d) The extent to which the Appellant, as a Preference Shareholder, is entitled to invoke the jurisdiction of the NCLT or the Appellate Tribunal under Section 421 of the Companies Act, 2013, in light of established precedents regarding shareholder locus standi.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (a): Enforceability of Statutory Rights by a Preference Shareholder under Section 55(3) of the Companies Act, 2013
Relevant legal framework and precedents: Section 55(3) of the Companies Act, 2013, provides a statutory mechanism for enforcement of rights attached to preference shares. However, the Tribunal referred to a larger Bench precedent which clarified that shareholders, including preference shareholders, do not possess individually enforceable statutory rights under this provision to initiate proceedings before the NCLT. The precedent cited was from a recent ruling which held that shareholders are not "aggrieved parties" under the Code and thus lack locus standi to file appeals or petitions under the Companies Act.
Court's interpretation and reasoning: The Court held that the Appellant, in the capacity of a Preference Shareholder, does not possess grafted statutory enforceable rights under Section 55(3) that can be enforced before the NCLT. The Tribunal emphasized that the statutory framework does not confer on preference shareholders a direct cause of action before the NCLT for the reliefs sought.
Key evidence and findings: The admitted status of the Appellant as a Preference Shareholder was uncontested. The Tribunal found no statutory provision or precedent supporting the maintainability of the Company Petition initiated by the Appellant under Section 55(3).
Application of law to facts: Applying the legal principle that shareholders do not have individual statutory rights enforceable before NCLT, the Tribunal concluded that the Company Petition was not maintainable on this ground.
Treatment of competing arguments: The Appellant argued that the petition was maintainable due to violation of rights. The Tribunal rejected this, noting that such issues must be addressed through the appropriate forum agreed upon contractually, not through Section 55(3) proceedings.
Conclusion: The Tribunal dismissed the petition on the ground that the Appellant lacked statutory enforceable rights under Section 55(3) of the Companies Act, 2013.
Issue (b): Effect of the Arbitration Clause in the Shareholders Subscription Agreement on Maintainability of NCLT Proceedings
Relevant legal framework and precedents: The Shareholders Subscription Agreement dated 26.12.2008 contained an arbitration clause (Clauses 13.1 and 13.2) which mandated arbitration as the exclusive forum for dispute resolution arising from the agreement. Under Indian law, arbitration clauses are binding and preclude parties from initiating parallel proceedings in courts or tribunals.
Court's interpretation and reasoning: The Tribunal held that since the parties were governed by the Shareholders Agreement containing an arbitration clause, the Appellant was obliged to seek remedy through arbitration. The existence of this agreement and clause was a bar to the maintainability of the Company Petition before the NCLT.
Key evidence and findings: The Shareholders Subscription Agreement was an admitted document. The Tribunal noted that the Appellant's rights, if any, were protected under the arbitration mechanism provided therein.
Application of law to facts: The Tribunal applied the principle that parties bound by an arbitration agreement must resort to arbitration for dispute resolution, and cannot bypass this by invoking statutory forums prematurely.
Treatment of competing arguments: The Appellant contended that the Agreement was flagrantly disregarded, implying that arbitration might not be a viable remedy. The Tribunal clarified that any such challenge to the Agreement's terms must be raised within the arbitration forum, not before the NCLT.
Conclusion: The Tribunal concluded that the Company Petition was not maintainable due to the binding arbitration clause, and the Appellant must invoke the agreed forum for redressal.
Issue (c): Whether Alleged Violation of Shareholders Agreement Could Render NCLT Proceedings Maintainable
Relevant legal framework and precedents: Contractual disputes arising from Shareholders Agreements are generally subject to the dispute resolution mechanism stipulated therein. Courts and tribunals have consistently held that allegations of contract violation must be adjudicated in the forum agreed by the parties, especially when arbitration clauses exist.
Court's interpretation and reasoning: The Tribunal emphasized that the question of whether the Shareholders Agreement was violated would be a matter exclusively for the arbitration forum. The NCLT or Appellate Tribunal cannot entertain such disputes in the presence of an arbitration agreement.
Key evidence and findings: The Tribunal found no basis to entertain the Appellant's factual assertions regarding flagrant disregard of the Agreement outside the agreed arbitration forum.
Application of law to facts: The Tribunal refrained from examining the merits of the alleged violations, leaving all such issues open for determination in arbitration or other appropriate forums.
Treatment of competing arguments: The Appellant's argument that the Agreement was violated was acknowledged but held to be irrelevant for the maintainability of the present petition before the NCLT.
Conclusion: The Tribunal held that alleged violations of the Shareholders Agreement do not confer jurisdiction on the NCLT or Appellate Tribunal to entertain the petition, which must be pursued through arbitration.
Issue (d): Locus Standi of Preference Shareholder to Invoke Appellate Jurisdiction under Section 421 of the Companies Act, 2013
Relevant legal framework and precedents: Section 421 of the Companies Act, 2013, provides for appeals against orders of the NCLT. However, established precedent clarifies that shareholders, including preference shareholders, do not qualify as "aggrieved parties" under the Code and thus lack locus standi to file appeals or petitions under the Companies Act.
Court's interpretation and reasoning: The Tribunal relied on a recent authoritative ruling which held that a shareholder is not an aggrieved party entitled to invoke appellate jurisdiction under the Companies Act. This principle was applied to dismiss the present appeal.
Key evidence and findings: The Tribunal noted the Appellant's admitted status as a Preference Shareholder and found no statutory or judicial support for his locus to appeal.
Application of law to facts: Applying the precedent, the Tribunal concluded that the Appellant's appeal was not maintainable and was liable to be dismissed.
Treatment of competing arguments: The Appellant's submissions on maintainability were considered but found insufficient to
Challenge to proceedings which were held under Sub Section 3 of Section 55 of the Companies Act, 2013 - Preference Shareholder has individually enforceable statutory rights under Sub Section (3) of Section 55 of the Companies Act, 2013 or not - HELD THAT:- The Forum of the learned NCLT and the consequentially preference of the Appeal before this Tribunal under Section 421 of the Companies Act, 2013, would not be available to him in the exclusive admitted status of being a “Preference Shareholder’’, as Shareholders being investors, have no right, the issue which has been settled by the larger Bench, in Clarion Health Food LLP v. Goli Vada Pav Pvt. Ltd., through Interim Resolution Professional [2024 (11) TMI 1050 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI] where it was held that 'we are of the view that the appellant being a shareholder of the company is not the “aggrieved party” as per the provisions of the Code. The appellant has no locus to file this appeal and the same is not maintainable. Accordingly, the appeal is dismissed.'
Hence, the findings, which has been recorded by the learned Adjudicating Authority do not suffer any apparent legal vices, which may call for an interference by this Appellate Tribunal in the exercises of its Appellate Jurisdiction under Section 421 of the Companies Act, 2013.
Conclusion - Exclusively, because of the fact that the present proceedings at the behest of the “Preference Shareholder’’, would not be maintainable, as having no sustainable and legally enforceable rights.
Appeal dismissed.
Challenge to proceedings which were held under Sub Section 3 of Section 55 of the Companies Act, 2013 - Preference Shareholder has individually enforceable statutory rights under Sub Section (3) of Section 55 of the Companies Act, 2013 or not - HELD THAT:- The Forum of the learned NCLT and the consequentially preference of the Appeal before this Tribunal under Section 421 of the Companies Act, 2013, would not be available to him in the exclusive admitted status of being a “Preference Shareholder’’, as Shareholders being investors, have no right, the issue which has been settled by the larger Bench, in Clarion Health Food LLP v. Goli Vada Pav Pvt. Ltd., through Interim Resolution Professional [2024 (11) TMI 1050 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI] where it was held that 'we are of the view that the appellant being a shareholder of the company is not the “aggrieved party” as per the provisions of the Code. The appellant has no locus to file this appeal and the same is not maintainable. Accordingly, the appeal is dismissed.'
Hence, the findings, which has been recorded by the learned Adjudicating Authority do not suffer any apparent legal vices, which may call for an interference by this Appellate Tribunal in the exercises of its Appellate Jurisdiction under Section 421 of the Companies Act, 2013.
Conclusion - Exclusively, because of the fact that the present proceedings at the behest of the “Preference Shareholder’’, would not be maintainable, as having no sustainable and legally enforceable rights.
Appeal dismissed.
1. Whether the petitioner, as the successful purchaser of a corporate debtor's industrial unit in liquidation under the Insolvency and Bankruptcy Code, 2016 (IBC 16), is liable to pay the outstanding electricity dues of the previous owner to the electricity distribution company before obtaining a new electricity connection.
2. Whether the electricity distribution company (respondents) can demand payment of arrears of electricity dues from the petitioner as a condition precedent to providing a fresh electricity connection, notwithstanding the liquidation and sale of the corporate debtor's assets under IBC 16.
3. Whether the provisions of the Electricity Act, 2003, and related regulations override or are overridden by the IBC 16 in the context of recovery of operational dues during liquidation.
4. Whether the petitioner's remedy for recovery of the amount paid under protest lies under writ jurisdiction or requires a civil suit, considering the nature of dispute and factual issues involved.
Issue-wise Detailed Analysis:
Issue 1 & 2: Liability of the purchaser of a liquidated company's assets for previous owner's electricity dues and entitlement of electricity connection
The legal framework revolves primarily around the Insolvency and Bankruptcy Code, 2016, especially Sections 33 (liquidation), 34 (appointment of liquidator), 36 (sale of liquidation estate), 53 (waterfall mechanism for distribution of proceeds), and 238 (overriding effect of IBC). The Electricity Act, 2003, and its provisions on recovery of dues and grant of electricity connections also form part of the competing legal framework.
The petitioner purchased the industrial unit through a liquidation sale conducted by the liquidator under IBC 16 after the National Company Law Tribunal ordered liquidation of the corporate debtor. The petitioner paid the entire sale consideration and obtained possession and a sale certificate. Subsequently, the petitioner applied for a new high-tension electricity connection but was denied on the ground of outstanding electricity dues of the previous owner. The petitioner paid a part of the dues under protest to obtain the connection, reserving the right to claim refund.
The Court referred extensively to the Supreme Court's authoritative pronouncements, particularly in Paschimanchal Vidyut Vitran Nigam Ltd. v. Raman Ispat Pvt. Ltd., which clarified the interplay between operational creditors' claims and the IBC liquidation process. The judgment emphasized that operational creditors, including electricity distribution companies, are entitled to recover their dues from the liquidation estate through the liquidator and in accordance with the waterfall mechanism under Section 53 of IBC.
Section 53 prescribes a strict order of priority for distribution of proceeds from the sale of liquidation assets, with operational creditors ranked accordingly. The electricity dues of the corporate debtor constitute an operational debt and must be claimed and paid through the liquidation process. The electricity distribution company's right to recover dues is thus limited to the liquidation estate and cannot be enforced directly against the purchaser of the assets post-liquidation.
The Court also examined the question of creation of a statutory charge over the assets for electricity dues, as contemplated under the Electricity Act and supply agreements. It relied on the Supreme Court's ruling in K.C. Ninan v. Kerala SEB, which held that electricity arrears do not automatically become a charge on the premises and that liability of a transferee depends on statutory provisions or regulations authorizing recovery from subsequent purchasers. However, even if a charge exists, the IBC's overriding provisions prevail, and dues must be recovered through the liquidation process.
The Court further distinguished the respondents' reliance on pre-IBC judgments which upheld the electricity company's right to recover arrears from subsequent purchasers. It held that those decisions are no longer applicable post-IBC enactment due to Section 238, which provides that IBC provisions override any inconsistent laws, including the Electricity Act, 2003.
The Court also cited the ABG Shipyard Liquidator case, where the Supreme Court held that once moratorium under IBC is in place, authorities like Customs cannot initiate recovery outside the IBC process, reinforcing the principle that recovery of dues must be through the IBC liquidation mechanism.
In sum, the Court concluded that the respondents could not insist on payment of electricity arrears directly from the petitioner as a condition for granting a new electricity connection. The dues are to be recovered through the liquidator under the waterfall mechanism prescribed by IBC 16. The petitioner's payment under protest is therefore liable to be refunded.
Issue 3: Overriding effect of IBC 16 over Electricity Act, 2003
The Court emphasized Section 238 of IBC, which states that IBC provisions prevail notwithstanding anything inconsistent in other laws. It rejected the respondents' argument that statutory provisions under the Electricity Act, such as Sections 49 and 50, empower them to recover arrears from the petitioner directly. The Court held that the Electricity Act's provisions cannot override the IBC's comprehensive insolvency and liquidation framework.
The Court also clarified that the Apex Court's decision in Southern Power Distribution Company of Andhra Pradesh Ltd. confirmed that IBC's overriding effect applies even when other statutes contain non obstante clauses. This principle was reinforced by reference to other Supreme Court decisions, including those relating to Customs and Tea Acts, which held that IBC overrides sector-specific laws in insolvency matters.
Issue 4: Maintainability of writ petition and alternate remedies
The respondents contended that the petitioner had an alternate efficacious remedy and that the writ petition was not maintainable, suggesting that a civil suit was the appropriate forum for recovery claims involving factual disputes.
The Court rejected this contention, noting that the dispute was purely legal, relating to the interpretation of IBC provisions vis-`a-vis the Electricity Act. The amount paid by the petitioner was undisputed; only entitlement to refund was questioned. Since the legal position was settled by Supreme Court precedent, the Court found no justification to require the petitioner to pursue alternate remedies. The writ petition was therefore maintainable.
Significant Holdings:
"The provisions of IBC 2016 have overriding effect over other laws hence, notwithstanding anything inconsistent contained in any other law, including the Electricity Act, 2003, the provisions of the Code shall prevail."
"The respondents cannot insist on payment of arrears which have to be paid in terms of the waterfall mechanism for grant of an electricity connection. The remedy of respondents is under Section 53 of the IBC 16. Its dues have to be paid in the manner prescribed in the Resolution Plan as approved by the adjudicating authority."
"Electricity arrears do not automatically become a charge over the premises. Such an action is permissible only where the statutory conditions of supply authorise the recovery of outstanding electricity dues from a subsequent purchaser claiming fresh connection of electricity, or if there is an express provision of law providing for creation of a statutory charge upon the transferee."
"Section 238 IBC overrides the provisions of the Electricity Act, 2003 despite the latter containing two specific provisions which open with non obstante clauses (i.e. Sections 173 and 174)."
"The demand made by the respondents from the petitioner for payment of outstanding dues of the previous owner was hence wholly unjustified and the amount paid by the petitioner is liable to be refunded to it."
Final determinations:
- The petitioner, as purchaser of the corporate debtor's assets in liquidation, is not liable to pay the previous owner's outstanding electricity dues directly to the electricity distribution company.
- The electricity distribution company's claim for arrears must be made through the liquidator and paid in accordance with the waterfall mechanism under Section 53 of IBC 16.
- The Electricity Act, 2003 provisions do not override the IBC 16 in this context due to Section 238's overriding effect.
- The petitioner's writ petition for refund of amounts paid under protest is maintainable, and the respondents are directed to refund the amount with interest.
Liability of petitioner to pay the outstanding arrears of electricity dues of the earlier owner - Refund of electricity dues of the previous owner to the petitioner which had been deposited by it - provisions of the Electricity Act, 2003, and related regulations override or are overridden by the IBC 16 in the context of recovery of operational dues during liquidation - HELD THAT:- The issue as raised in this petition as to whether in view of IBC 16 the petitioner would be liable to pay the outstanding arrears of electricity dues of the earlier owner, namely, M/s. Dhanlakshmi Solvex Pvt. Ltd. has already been answered in Paschimanchal Vidyut Vitran Nigam Ltd. v. Rarman Ispat Private Limited and another [2023 (7) TMI 831 - SUPREME COURT] in which it has been held that 'The repeated reference of lowering of priority of debts to the government, on account of statutory tax, or other dues payable to the Central Government or the State Government, or amounts payable into the Consolidated Fund on account of either government, in the various reports which preceded the enactment of IBC, as well as its Preamble, means that these dues are distinct and have to be treated as separate from those owed to secured creditors.'
In view of the authoritative pronouncement of the Apex Court as aforesaid, the respondents cannot insist on payment of arrears which have to be paid in terms of the waterfall mechanism for grant of an electricity connection. The remedy of respondents is under Section 53 of the IBC 16. Its dues have to be paid in the manner prescribed in the Resolution Plan as approved by the adjudicating authority. The demand made by it from the petitioner for payment of outstanding dues of the previous owner was hence wholly unjustified and the amount paid by the petitioner is liable to be refunded to it.
Though it is further contended that a writ petition for claim of recovery is not maintainable, but from the facts of the case, it is observed that the amount in question is not disputed and it is only the entitlement of the petitioner for recovering the same from the respondents which is disputed. This dispute is based purely upon the interpretation of the provisions of law which upon interpretation as aforesaid have been found in favour of the petitioner. This contention of the respondents also does not hold ground.
Conclusion - i) The petitioner, as purchaser of the corporate debtor's assets in liquidation, is not liable to pay the previous owner's outstanding electricity dues directly to the electricity distribution company. ii) The Electricity Act, 2003 provisions do not override the IBC 16 in this context due to Section 238's overriding effect.
The respondents are directed to refund the amount of Rs. 55,29,000/- to the petitioner and release the bank guarantee of remaining 50% amount it along with interest at the rate of 6% per annum with effect from the date of payment by petitioner i.e.27.10.2021 upto the date of payment to it. In case payment is not made within the aforesaid period of two months, this amount shall carry interest at the rate of 12% - petition allowed.
Liability of petitioner to pay the outstanding arrears of electricity dues of the earlier owner - Refund of electricity dues of the previous owner to the petitioner which had been deposited by it - provisions of the Electricity Act, 2003, and related regulations override or are overridden by the IBC 16 in the context of recovery of operational dues during liquidation - HELD THAT:- The issue as raised in this petition as to whether in view of IBC 16 the petitioner would be liable to pay the outstanding arrears of electricity dues of the earlier owner, namely, M/s. Dhanlakshmi Solvex Pvt. Ltd. has already been answered in Paschimanchal Vidyut Vitran Nigam Ltd. v. Rarman Ispat Private Limited and another [2023 (7) TMI 831 - SUPREME COURT] in which it has been held that 'The repeated reference of lowering of priority of debts to the government, on account of statutory tax, or other dues payable to the Central Government or the State Government, or amounts payable into the Consolidated Fund on account of either government, in the various reports which preceded the enactment of IBC, as well as its Preamble, means that these dues are distinct and have to be treated as separate from those owed to secured creditors.'
In view of the authoritative pronouncement of the Apex Court as aforesaid, the respondents cannot insist on payment of arrears which have to be paid in terms of the waterfall mechanism for grant of an electricity connection. The remedy of respondents is under Section 53 of the IBC 16. Its dues have to be paid in the manner prescribed in the Resolution Plan as approved by the adjudicating authority. The demand made by it from the petitioner for payment of outstanding dues of the previous owner was hence wholly unjustified and the amount paid by the petitioner is liable to be refunded to it.
Though it is further contended that a writ petition for claim of recovery is not maintainable, but from the facts of the case, it is observed that the amount in question is not disputed and it is only the entitlement of the petitioner for recovering the same from the respondents which is disputed. This dispute is based purely upon the interpretation of the provisions of law which upon interpretation as aforesaid have been found in favour of the petitioner. This contention of the respondents also does not hold ground.
Conclusion - i) The petitioner, as purchaser of the corporate debtor's assets in liquidation, is not liable to pay the previous owner's outstanding electricity dues directly to the electricity distribution company. ii) The Electricity Act, 2003 provisions do not override the IBC 16 in this context due to Section 238's overriding effect.
The respondents are directed to refund the amount of Rs. 55,29,000/- to the petitioner and release the bank guarantee of remaining 50% amount it along with interest at the rate of 6% per annum with effect from the date of payment by petitioner i.e.27.10.2021 upto the date of payment to it. In case payment is not made within the aforesaid period of two months, this amount shall carry interest at the rate of 12% - petition allowed.
The core legal questions considered by the Appellate Tribunal under SAFEMA in the appeal filed by the Enforcement Directorate (ED) against the Adjudicating Authority's order declining confirmation of the Provisional Attachment Order (PAO) No. 05/2017 are as follows:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Authority of Joint Director to issue PAO in absence of Deputy Director
Legal framework and precedents: Section 5 of PMLA, 2002 empowers the Director or any officer not below the rank of Deputy Director authorized by the Director to provisionally attach properties. Both Joint Director and Deputy Director are recognized ranks within ED.
Court's interpretation and reasoning: The Tribunal held that the Joint Director, being a higher rank than Deputy Director, is competent to issue a PAO, especially when the Deputy Director is unavailable due to training or other reasons. The subsequent filing of the OC by the Deputy Director, who was the investigating officer, does not invalidate the attachment. The Tribunal rejected the Adjudicating Authority's hyper-technical interpretation that the same officer must issue the PAO and file the OC, emphasizing that such technicalities should not defeat substantive justice.
Key evidence and findings: The Joint Director issued PAO No. 05/2017 dated 28.07.2017 while the Deputy Director was on training. The Deputy Director filed the OC within 30 days of PAO issuance after resuming duties.
Application of law to facts: The Tribunal applied a purposive interpretation of Section 5, recognizing administrative realities and the need to avoid procedural impediments that could frustrate enforcement actions.
Treatment of competing arguments: The respondents argued that only the officer who issues the PAO can file the OC, but the Tribunal found this to be an incorrect and overly technical reading.
Conclusion: The Joint Director was validly empowered to issue the PAO, and the subsequent OC filed by the Deputy Director did not vitiate the proceedings.
Issue 2: Sufficiency of documents before Joint Director to form reasonable belief
Legal framework and precedents: Section 5(1) of PMLA requires the authorized officer to have 'reason to believe' that the property is proceeds of crime. The standard for 'reason to believe' is lower than proof beyond reasonable doubt. Precedents such as BK Shrestha v. Union of India emphasize that sufficiency of reasons to believe is not subject to detailed judicial scrutiny.
Court's interpretation and reasoning: The Tribunal found that the FIR, ECIR, bank statements, statements of witnesses recorded under Section 50 PMLA, and other material placed before the Joint Director were sufficient to form a reasonable belief. The Tribunal noted that the allegations in the FIR and corroborative evidence prima facie showed involvement of respondents in scheduled offences generating proceeds of crime.
Key evidence and findings: Evidence included FIR No. 12/2010, statements of employees and accomplices, bank account cash deposits exceeding Rs. 503 crore, and charge sheets filed by CBI and other agencies.
Application of law to facts: The Tribunal applied the 'reason to believe' standard, which requires a prudent and reasonable person to form such belief on the material before him, not requiring proof beyond doubt.
Treatment of competing arguments: Respondents contended that the documents were insufficient and the PAO should be set aside. The Tribunal rejected this, holding that the material was sufficient to justify attachment.
Conclusion: The documents before the Joint Director were sufficient to form reasonable belief for issuing the PAO.
Issue 3: Reliance on documents not placed before Joint Director at PAO issuance
Legal framework and precedents: Investigation is a continuing process under PMLA and evidence may be gathered after PAO issuance but before filing the OC. There is no statutory bar on relying on such additional evidence to strengthen the prosecution's case.
Court's interpretation and reasoning: The Tribunal held that the Adjudicating Authority erred in disregarding documents not placed before the Joint Director at the time of PAO issuance. The additional documents in the OC were to update the Authority on the progress of investigation and establishment of mens rea. The Tribunal emphasized that excluding such evidence would hinder fair investigation and justice.
Key evidence and findings: Additional documents included statements under Section 50 PMLA and correspondence clarifying license details.
Application of law to facts: The Tribunal applied the principle that the investigation and evidence collection are ongoing and not limited to a snapshot at the time of PAO.
Treatment of competing arguments: The respondents argued that only documents before the Joint Director at PAO issuance are relevant. The Tribunal rejected this narrow approach.
Conclusion: Documents gathered after PAO issuance but before filing OC can be relied upon by the Adjudicating Authority.
Issue 4: Validity of PAO in absence of chargesheet at time of attachment (pre-2013 amendment)
Legal framework and precedents: Prior to the 2013 amendment, Section 5(1)(b) of PMLA required that the person whose property is sought to be attached must be charged with a scheduled offence. However, the second proviso to Section 5(1) allows attachment if the officer has reason to believe that non-attachment would frustrate proceedings.
Court's interpretation and reasoning: The Tribunal held that the proviso is an exception to the main clause and authorizes attachment even before chargesheet filing, provided reasons are recorded. The charge sheets dated 02.06.2010 and 18.07.2010 filed by the LEA included the respondents as accused. The Tribunal rejected the respondents' argument that no chargesheet was filed against them.
Key evidence and findings: Copies of charge sheets and their English translations were provided to the respondents. The FIR and charge sheets implicated the respondents in scheduled offences.
Application of law to facts: The Tribunal applied the proviso to uphold the attachment despite delay in chargesheet filing and the timing of PAO issuance.
Treatment of competing arguments: Respondents relied on a judgment limiting the proviso's application and argued violation of Article 20 protections. The Tribunal found these arguments unpersuasive given the charge sheets and ongoing investigation.
Conclusion: The PAO was validly issued despite delay in chargesheet filing, under the proviso to Section 5(1) of PMLA.
Issue 5: Effect of delay of over seven years between ECIR registration and PAO issuance
Legal framework and precedents: PMLA does not prescribe any time limit for issuance of PAO after ECIR registration. Delay alone is not a ground to set aside attachment if there is reason to believe alienation of property may occur.
Court's interpretation and reasoning: The Tribunal observed that the delay was due to non-cooperation and non-appearance of respondents before the Investigating Officer. The Tribunal held that a person cannot benefit from his own default. The apprehension that respondents might alienate properties justified attachment even after delay.
Key evidence and findings: Respondents' non-cooperation and failure to appear during investigation documented. The complexity of money laundering investigations acknowledged.
Application of law to facts: The Tribunal applied the principle that delay does not negate the reason to believe when non-cooperation and risk of property alienation exist.
Treatment of competing arguments: Respondents argued delay vitiated reason to believe. The Tribunal rejected this argument.
Conclusion: Delay of over seven years did not invalidate the PAO.
Issue 6: Opportunity to respondents to rebut presumption before PAO
Legal framework and precedents: Section 24 of PMLA creates a presumption that property involved in money laundering is proceeds of crime, which the person can rebut. However, the Act does not mandate a prior hearing before provisional attachment.
Court's interpretation and reasoning: The Tribunal held that no prior opportunity to rebut the presumption is required before passing PAO. The respondents were given opportunity during adjudication proceedings and could contest the attachment.
Key evidence and findings: No evidence that respondents were denied opportunity during adjudication. The PAO is a provisional measure to prevent alienation.
Application of law to facts: The Tribunal applied the statutory scheme balancing the need for prompt attachment with procedural fairness.
Treatment of competing arguments: Respondents argued violation of natural justice. The Tribunal rejected this as inconsistent with PMLA provisions.
Conclusion: No prior opportunity to rebut presumption is required before PAO issuance.
3. SIGNIFICANT HOLDINGS
"The view taken by Ld. Adjudicating Authority with respect to the interpretation of Sub-Section 5 of Section 5 of PMLA, 2002 that the officer who attaches the properties has to file the OC, is a wrong interpretation of the law. Such technicalities should not be the basis for dismissing the OC, which is otherwise based on proper investigation and sufficient evidences."
"The 'reason to believe' is apparent on record from the said allegations, in the mind of the authorized officer/ Joint Director for passing the Provisional Attachment Order. The standard to form 'reason to believe' for provisional attachment cannot be equated with standard for conviction of the culprits."
"Investigation is a continuing process and it cannot be compartmentalized in the before or after the PAO, therefore, evidences gathered after the PAO cannot be discarded by the Ld. Adjudicating Authority."
"There is no time limit for passing the PAO after recording the ECIR. Thus, delay of seven year is no ground to set aside the PAO. Moreover, the delay has occurred on account of non- cooperation and non-appearance of the Respondents before the Investigating Officer of the ED."
"No doubt filing of chargesheet is one of the conditions for provisionally attaching the property as per Clause 5(1)(b) of PMLA, 2002. However, the second proviso to Section 5(1) of PMLA is an exception to clause 5(1)(b), which clearly provides that any property of any person may be attached if the authorized person has reason to believe that if such property is not attached immediately, the non-attachment of the property is likely to frustrate any proceeding under PMLA."
"The ends of justice should not be allowed to be sacrificed at the altar of mere technicalities even when the case is proved to the hilt and the accused is found otherwise guilty."
Final determinations:
Money Laundering - provisional attachment of properties - illegal manufacture of large stock of Indian Made Foreign Liquor (IMFL) - conspiracy - power of Joint Director of ED to provisionally attach the properties, in absence of Deputy Director, ED - documents placed before the Joint Director were not sufficient to form ‘reasonable belief’ for issuing PAO or not - documents not placed before the Joint Director at the time of passing the PAO can be relied upon while filing Original Complaint before the Adjudicating Authority or not - non- filing of chargesheet by Police - no reason to believe that the defendants would alienate the properties, seeing the fact that PAO was passed seven years after the recording of ECIR - no opportunity was provided to Respondent Pramod Tandel to rebut the presumption, before passing the PAO.
Whether Joint Director of ED is empowered to provisionally attach the properties, in absence of Deputy Director, ED? - HELD THAT:- The fact that complaint was filed by Deputy Director when he came back from the training is also no ground to set aside the PAO, as the said Deputy Director was in fact the investigating officer of the case. The view taken by Ld. Adjudicating Authority with respect to the interpretation of Sub-Section 5 of Section 5 of PMLA, 2002 that the officer who attaches the properties has to file the OC, is a wrong interpretation of the law. Such technicalities should not be the basis for dismissing the OC, which is otherwise based on proper investigation and sufficient evidences. Moreover, in the present case, the Joint Director who issued the PAO was acting on behalf of the Deputy Director in his absence, which is merely an administrative exercise and hence is valid. Therefore, there was no reason for not confirming the OC filed by the Deputy Director, instead of the Joint Director, who issued the PAO, in the interest of justice, which should not be sacrificed at the altar of mere technicalities, seeing the fact that no prejudice is caused to the Respondents - the issue is decided against the Respondents and in favour of the Appellant ED.
Whether the documents placed before the Joint Director were not sufficient to form ‘reasonable belief’ for issuing PAO? - HELD THAT:- The allegations prima facie reflects the involvement of respondents in commission of crime, in the manner as stated therein, and thereby, generated huge proceeds of crime. The allegation mentioned in the said FIR is a sufficient ground for initiating the attachment proceedings, after recording of ECIR. The ‘reason to believe’ is apparent on record from the said allegations, in the mind of the authorized officer/ Joint Director for passing the Provisional Attachment Order. The standard to form ‘reason to believe’ for provisional attachment cannot be equated with standard for conviction of the culprits.
Whether the documents not placed before the Joint Director at the time of passing the PAO cannot be relied upon while filing Original Complaint before the Adjudicating Authority? - HELD THAT:- Since investigation is a continuing process and it cannot be compartmentalized in the before or after the PAO, therefore, evidences gathered after the PAO cannot be discarded by the Ld. Adjudicating Authority. Moreover, in the present case, enough and substantial material was available, which includes the record of balance sheet from the pen drive, bank statements and the corresponding statements of various witnesses taken under Section 50 of PMLA, which corroborate the finding that the respondents were involved in the scheduled offences - There is no provision in PMLA or any other law that the additional evidence collected by the investigation agency cannot be placed before the Adjudicating Authority to strengthen the case of prosecution. The approach adopted by Ld. Adjudicating Authority is clearly against the principles of fair investigation to reach at the depth of the truth, in the interest of justice, equity and good conscience. The pedantic approach adopted by Ld. Adjudicating Authority is likely to give unjust advantage to the criminals/culprits and the persons holding the proceeds of crime. Accordingly, issue no. (iii) is decided in favour of appellant ED and against the Respondents.
Whether the PAO was rightly set aside by Ld. AA on account of non- filing of chargesheet by Police (as PAO is silent regarding filing of chargesheet in FIR No. 12/2010) as per the provision before the Amendment of 2013? - Whether there was no reason to believe that the defendants would alienate the properties, seeing the fact that PAO was passed seven years after the recording of ECIR? - Whether no opportunity was provided to Respondent Pramod Tandel to rebut the presumption, before passing the PAO? - HELD THAT:- The second proviso to Section 5(1) of PMLA is an exception to clause 5(1)(b), which clearly provides that any property of any person may be attached if the authorized person has reason to believe that if such property is not attached immediately, the non-attachment of the property is likely to frustrate any proceeding under PMLA.
Seeing the fact that ED has already recorded the ECIR and initiated the investigation, there is every apprehension that the concerned noticee/defendant will dispose of the properties under apprehension of attachment before passing of attachment order, in absence of any explanation on his part to rebut the presumption u/s 24 of PMLA that the said properties are not proceeds of crime and are untainted. There is no time limit for passing the PAO after recording the ECIR. Thus, delay of seven year is no ground to set aside the PAO. Moreover, the delay has occurred on account of non- cooperation and non-appearance of the Respondents before the Investigating Officer of the ED. A person cannot get any benefit on account of his own default, on the ground of delay, in absence of any cogent and reliable explanation on his part that the said properties are not proceeds of crime and are untainted - the issues are decided in favour of the appellant ED and against the Respondents.
Conclusion - i) The Joint Director was competent to issue the PAO in absence of Deputy Director, and the subsequent filing of OC by the Deputy Director is valid. ii) The material before the Joint Director sufficed to form reasonable belief under Section 5 of PMLA for provisional attachment. iii) Documents gathered after PAO issuance but before filing OC can be relied upon by the Adjudicating Authority. iv) The PAO was validly issued despite delay and absence of chargesheet at the time of attachment, under the proviso to Section 5(1) of PMLA. v) The delay of over seven years did not invalidate the PAO, especially due to respondents' non-cooperation. vi) No prior opportunity is required before PAO issuance to rebut presumption under Section 24 of PMLA.
The impugned order passed by the Adjudicating Authority is hereby set aside and the attachment of the properties by appellant ED is hereby confirmed - appeal allowed.
Money Laundering - provisional attachment of properties - illegal manufacture of large stock of Indian Made Foreign Liquor (IMFL) - conspiracy - power of Joint Director of ED to provisionally attach the properties, in absence of Deputy Director, ED - documents placed before the Joint Director were not sufficient to form ‘reasonable belief’ for issuing PAO or not - documents not placed before the Joint Director at the time of passing the PAO can be relied upon while filing Original Complaint before the Adjudicating Authority or not - non- filing of chargesheet by Police - no reason to believe that the defendants would alienate the properties, seeing the fact that PAO was passed seven years after the recording of ECIR - no opportunity was provided to Respondent Pramod Tandel to rebut the presumption, before passing the PAO.
Whether Joint Director of ED is empowered to provisionally attach the properties, in absence of Deputy Director, ED? - HELD THAT:- The fact that complaint was filed by Deputy Director when he came back from the training is also no ground to set aside the PAO, as the said Deputy Director was in fact the investigating officer of the case. The view taken by Ld. Adjudicating Authority with respect to the interpretation of Sub-Section 5 of Section 5 of PMLA, 2002 that the officer who attaches the properties has to file the OC, is a wrong interpretation of the law. Such technicalities should not be the basis for dismissing the OC, which is otherwise based on proper investigation and sufficient evidences. Moreover, in the present case, the Joint Director who issued the PAO was acting on behalf of the Deputy Director in his absence, which is merely an administrative exercise and hence is valid. Therefore, there was no reason for not confirming the OC filed by the Deputy Director, instead of the Joint Director, who issued the PAO, in the interest of justice, which should not be sacrificed at the altar of mere technicalities, seeing the fact that no prejudice is caused to the Respondents - the issue is decided against the Respondents and in favour of the Appellant ED.
Whether the documents placed before the Joint Director were not sufficient to form ‘reasonable belief’ for issuing PAO? - HELD THAT:- The allegations prima facie reflects the involvement of respondents in commission of crime, in the manner as stated therein, and thereby, generated huge proceeds of crime. The allegation mentioned in the said FIR is a sufficient ground for initiating the attachment proceedings, after recording of ECIR. The ‘reason to believe’ is apparent on record from the said allegations, in the mind of the authorized officer/ Joint Director for passing the Provisional Attachment Order. The standard to form ‘reason to believe’ for provisional attachment cannot be equated with standard for conviction of the culprits.
Whether the documents not placed before the Joint Director at the time of passing the PAO cannot be relied upon while filing Original Complaint before the Adjudicating Authority? - HELD THAT:- Since investigation is a continuing process and it cannot be compartmentalized in the before or after the PAO, therefore, evidences gathered after the PAO cannot be discarded by the Ld. Adjudicating Authority. Moreover, in the present case, enough and substantial material was available, which includes the record of balance sheet from the pen drive, bank statements and the corresponding statements of various witnesses taken under Section 50 of PMLA, which corroborate the finding that the respondents were involved in the scheduled offences - There is no provision in PMLA or any other law that the additional evidence collected by the investigation agency cannot be placed before the Adjudicating Authority to strengthen the case of prosecution. The approach adopted by Ld. Adjudicating Authority is clearly against the principles of fair investigation to reach at the depth of the truth, in the interest of justice, equity and good conscience. The pedantic approach adopted by Ld. Adjudicating Authority is likely to give unjust advantage to the criminals/culprits and the persons holding the proceeds of crime. Accordingly, issue no. (iii) is decided in favour of appellant ED and against the Respondents.
Whether the PAO was rightly set aside by Ld. AA on account of non- filing of chargesheet by Police (as PAO is silent regarding filing of chargesheet in FIR No. 12/2010) as per the provision before the Amendment of 2013? - Whether there was no reason to believe that the defendants would alienate the properties, seeing the fact that PAO was passed seven years after the recording of ECIR? - Whether no opportunity was provided to Respondent Pramod Tandel to rebut the presumption, before passing the PAO? - HELD THAT:- The second proviso to Section 5(1) of PMLA is an exception to clause 5(1)(b), which clearly provides that any property of any person may be attached if the authorized person has reason to believe that if such property is not attached immediately, the non-attachment of the property is likely to frustrate any proceeding under PMLA.
Seeing the fact that ED has already recorded the ECIR and initiated the investigation, there is every apprehension that the concerned noticee/defendant will dispose of the properties under apprehension of attachment before passing of attachment order, in absence of any explanation on his part to rebut the presumption u/s 24 of PMLA that the said properties are not proceeds of crime and are untainted. There is no time limit for passing the PAO after recording the ECIR. Thus, delay of seven year is no ground to set aside the PAO. Moreover, the delay has occurred on account of non- cooperation and non-appearance of the Respondents before the Investigating Officer of the ED. A person cannot get any benefit on account of his own default, on the ground of delay, in absence of any cogent and reliable explanation on his part that the said properties are not proceeds of crime and are untainted - the issues are decided in favour of the appellant ED and against the Respondents.
Conclusion - i) The Joint Director was competent to issue the PAO in absence of Deputy Director, and the subsequent filing of OC by the Deputy Director is valid. ii) The material before the Joint Director sufficed to form reasonable belief under Section 5 of PMLA for provisional attachment. iii) Documents gathered after PAO issuance but before filing OC can be relied upon by the Adjudicating Authority. iv) The PAO was validly issued despite delay and absence of chargesheet at the time of attachment, under the proviso to Section 5(1) of PMLA. v) The delay of over seven years did not invalidate the PAO, especially due to respondents' non-cooperation. vi) No prior opportunity is required before PAO issuance to rebut presumption under Section 24 of PMLA.
The impugned order passed by the Adjudicating Authority is hereby set aside and the attachment of the properties by appellant ED is hereby confirmed - appeal allowed.
(i) Whether the attachment of properties under PMLA can be confirmed or must be set aside in the absence of any prosecution complaint filed under the Act at the time of confirmation;
(ii) Whether the attachment should be set aside for non-filing of the prosecution complaint within 90 days from the date of the order confirming the attachment;
(iii) Whether the attachment should be set aside on the ground that the appellants are not named as accused in the predicate offence under which the money laundering investigation is based.
Issues (i) and (ii) are interrelated and pertain to the procedural requirements and timelines for confirming attachment orders and filing prosecution complaints under Section 8(3)(a) of the PMLA, as well as the effect of amendments to this provision. Issue (iii) concerns the scope of attachment powers vis-`a-vis the identity of the person holding the property and their status as accused in the predicate offence.
Issue-wise detailed analysis:
Issue (i) & (ii): Attachment in absence of prosecution complaint and timeline for filing complaint
The Tribunal examined the provisions of Section 8(3)(a) of the PMLA, both prior to and after the amendment effective from 19.04.2018. The pre-amendment provision did not prescribe any time limit for filing the prosecution complaint after confirmation of attachment by the Adjudicating Authority. The 2018 amendment introduced a requirement to file the prosecution complaint within 90 days, subsequently extended to 365 days by a later amendment effective 20.03.2019.
The appellants argued that since no prosecution complaint was pending at the time of confirmation of the attachment order dated 12.03.2018, the attachment was invalid under the pre-amended law. They contended that the absence of a prosecution complaint meant the attachment could not be sustained.
The Tribunal rejected this contention, reasoning that the absence of a time limit for filing the prosecution complaint prior to the amendment cannot be interpreted as a requirement that the complaint must be pending before confirmation of attachment. Such an interpretation would defeat the object of the PMLA, which is to prevent transfer or alienation of properties suspected to be proceeds of crime during investigation. The Tribunal emphasized that immediate attachment is necessary to preserve the properties for eventual confiscation if conviction occurs.
Further, the Tribunal noted that the 90-day timeline for filing prosecution complaints commenced only from the date of the amendment (19.04.2018). In the present case, the prosecution complaint was filed on 13.06.2019, well within the extended timeline. Therefore, the attachment did not lapse.
The Tribunal also observed that once the prosecution complaint is filed, the properties attached become case properties under the control of the Special Judge, who can dispose of them as per law after trial conclusion.
Thus, the Tribunal concluded that the attachment was valid despite the absence of a prosecution complaint at the time of confirmation, and that the complaint was filed within the statutory timeline post-amendment. Accordingly, issues (i) and (ii) were decided against the appellants and in favor of the Enforcement Directorate (ED).
Issue (iii): Attachment of property held by persons not named as accused in the predicate offence
The appellants contended that since they were not named as accused in the predicate offence charge sheet filed by the Central Bureau of Investigation (CBI) on 29.08.2014, the attachment of properties held by them was impermissible.
The Tribunal referred to the authoritative Supreme Court judgment in Vijay Madanlal Choudhary and Ors. v. Union of India and Ors., which clarified the scope of attachment under PMLA. The Court held that Section 5(1) of the PMLA is not limited to accused persons named in the predicate offence. It applies broadly to any person involved in any process or activity connected with the proceeds of crime. The Court emphasized that the objective of the PMLA is to attach and confiscate proceeds of crime regardless of who holds them.
The Tribunal quoted the Supreme Court's reasoning: "The sweep of Section 5(1) is not limited to the Accused named in the criminal activity relating to a scheduled offence. It would apply to any person (not necessarily being Accused in the scheduled offence), if he is involved in any process or activity connected with the proceeds of crime." Further, "The objectives of enacting the 2002 Act was the attachment and confiscation of proceeds of crime which is the quintessence so as to combat the evil of money-laundering."
Applying this legal principle, the Tribunal held that attachment of property in the hands of any person possessing proceeds of crime is permissible even if that person is not an accused in the predicate offence. Therefore, the appellants' argument on this ground was rejected.
Significant holdings include the following verbatim excerpts of crucial legal reasoning:
"The sweep of Section 5(1) is not limited to the Accused named in the criminal activity relating to a scheduled offence. It would apply to any person (not necessarily being Accused in the scheduled offence), if he is involved in any process or activity connected with the proceeds of crime."
"The objectives of enacting the 2002 Act was the attachment and confiscation of proceeds of crime which is the quintessence so as to combat the evil of money-laundering. The second proviso, therefore, addresses the broad objectives of the 2002 Act to reach the proceeds of crime in whosoever's name they are kept or by whosoever they are held."
Core principles established:
Final determinations on each issue:
The appeals were dismissed as devoid of merit, with a clarification that the decision does not prejudice the rights of any party during the criminal trial. The Tribunal's order preserves the integrity of attachment proceedings under PMLA, reinforcing the legislative intent to effectively combat money laundering by securing proceeds of crime irrespective of procedural stages or the identity of the property holder vis-`a-vis the predicate offence.
Money Laundering - provisional attachment order - absence of any prosecution complaint under PMLA - non-filing of the prosecution complaint within 90 days from the date of passing of the order by the Adjudicating Authority - appellants are not named as accused in the predicate offence.
Whether the attachment needs to be set aside, in absence of any prosecution complaint under PMLA? - Whether the attachment needs to be set aside for not filing the prosecution complaint within 90 days from the date of passing of the order by the Adjudicating Authority on 12.03.2018? - HELD THAT:- After going through the pre-amended and post-amended provision of Section 8(3)(a) (w.e.f. 19.04.2018), it is opined that before amendment there was no time limit for filing the prosecution complaint and the provision of filing the prosecution complaint within 90 days was inserted only after amendment w.e.f. 19.04.2018, which was again amended to file prosecution complaint within 365 days w.e.f. 20.03.2019.
The restriction of completing the investigation and filing the prosecution complaint within 90 days was inserted in Section 8(3)(a) w.e.f. 19.04.2018. Thus, the time starts running for filing the prosecution complaint from 19.04.2018 and not from the date of passing of the impugned order dated 12.03.2018. In the present case, the prosecution complaint is filed by ED on 13.06.2019 i.e. on 55th day from 19.04.2018. Accordingly, attachment does not lapse.
Even otherwise, after the filing of the prosecution complaint, the properties relied upon by Respondent ED for the purpose of confiscation, in case of conviction, becomes case property of the said case and hence, after the filing of prosecution complaint, it is the prerogative of the Ld. Special Judge of PMLA Court to dispose of the property after conclusion of trial in the prosecution complaint, as per law - issued decided in favour of Respondent ED and against the Appellants.
Whether the attachment needs to be set aside as the appellants are not named as accused in the predicate offence? - HELD THAT:- The law on this issue now stands settled by the landmark judgment of the Hon’ble Supreme Court in the case of Vijay Madanlal Choudhary and Ors. v. Union of India [2022 (7) TMI 1316 - SUPREME COURT (LB)] where it was held that 'We find force in the stand taken by the Union of India that the objectives of enacting the 2002 Act was the attachment and confiscation of proceeds of crime which is the quintessence so as to combat the evil of money-laundering. The second proviso, therefore, addresses the broad objectives of the 2002 Act to reach the proceeds of crime in whosoever's name they are kept or by whosoever they are held.'
Therefore, the property in the hands of any person in possession of proceeds of crime can be attached even if he is not accused of the offence of money-laundering - the issue is accordingly decided in favour of the Respondent ED and against the Appellants.
Conclusion - i) The attachment was valid despite no prosecution complaint pending at the time of confirmation. ii) The prosecution complaint was filed within the statutory timeline post-amendment; hence, attachment did not lapse. iii) Attachment of properties held by persons not named as accused in the predicate offence is permissible under PMLA.
Appeal dismissed.
Money Laundering - provisional attachment order - absence of any prosecution complaint under PMLA - non-filing of the prosecution complaint within 90 days from the date of passing of the order by the Adjudicating Authority - appellants are not named as accused in the predicate offence.
Whether the attachment needs to be set aside, in absence of any prosecution complaint under PMLA? - Whether the attachment needs to be set aside for not filing the prosecution complaint within 90 days from the date of passing of the order by the Adjudicating Authority on 12.03.2018? - HELD THAT:- After going through the pre-amended and post-amended provision of Section 8(3)(a) (w.e.f. 19.04.2018), it is opined that before amendment there was no time limit for filing the prosecution complaint and the provision of filing the prosecution complaint within 90 days was inserted only after amendment w.e.f. 19.04.2018, which was again amended to file prosecution complaint within 365 days w.e.f. 20.03.2019.
The restriction of completing the investigation and filing the prosecution complaint within 90 days was inserted in Section 8(3)(a) w.e.f. 19.04.2018. Thus, the time starts running for filing the prosecution complaint from 19.04.2018 and not from the date of passing of the impugned order dated 12.03.2018. In the present case, the prosecution complaint is filed by ED on 13.06.2019 i.e. on 55th day from 19.04.2018. Accordingly, attachment does not lapse.
Even otherwise, after the filing of the prosecution complaint, the properties relied upon by Respondent ED for the purpose of confiscation, in case of conviction, becomes case property of the said case and hence, after the filing of prosecution complaint, it is the prerogative of the Ld. Special Judge of PMLA Court to dispose of the property after conclusion of trial in the prosecution complaint, as per law - issued decided in favour of Respondent ED and against the Appellants.
Whether the attachment needs to be set aside as the appellants are not named as accused in the predicate offence? - HELD THAT:- The law on this issue now stands settled by the landmark judgment of the Hon’ble Supreme Court in the case of Vijay Madanlal Choudhary and Ors. v. Union of India [2022 (7) TMI 1316 - SUPREME COURT (LB)] where it was held that 'We find force in the stand taken by the Union of India that the objectives of enacting the 2002 Act was the attachment and confiscation of proceeds of crime which is the quintessence so as to combat the evil of money-laundering. The second proviso, therefore, addresses the broad objectives of the 2002 Act to reach the proceeds of crime in whosoever's name they are kept or by whosoever they are held.'
Therefore, the property in the hands of any person in possession of proceeds of crime can be attached even if he is not accused of the offence of money-laundering - the issue is accordingly decided in favour of the Respondent ED and against the Appellants.
Conclusion - i) The attachment was valid despite no prosecution complaint pending at the time of confirmation. ii) The prosecution complaint was filed within the statutory timeline post-amendment; hence, attachment did not lapse. iii) Attachment of properties held by persons not named as accused in the predicate offence is permissible under PMLA.
Appeal dismissed.
The core legal question considered in this appeal is whether the Commissioner (Appeals) had the jurisdiction and authority to condone the delay in filing the appeal beyond the prescribed statutory period under Section 85(3A) of the Finance Act, 1994, as amended by the Finance Bill, 2012, particularly when the appeal was filed after more than one year from the receipt of the original order. The issue also involves the interpretation of the limitation period and the scope of the power to condone delay granted to the Commissioner (Appeals) under the proviso to Section 85(3A).
2. ISSUE-WISE DETAILED ANALYSIS
Issue: Jurisdiction and power of the Commissioner (Appeals) to condone delay beyond the prescribed period under Section 85(3A) of the Finance Act, 1994
Relevant legal framework and precedents: Section 85(3A) of the Finance Act, 1994, as inserted by the Finance Bill, 2012, mandates that an appeal relating to service tax, interest, or penalty must be filed within two months from the date of receipt of the order of the adjudicating authority. The proviso to this subsection empowers the Commissioner (Appeals) to condone delay for a further period of one month if satisfied that the appellant was prevented by sufficient cause from filing the appeal within the initial two-month period.
The Supreme Court decision in M/s Singh Enterprises [2008 (221) E.L.T. 163 (SC)] was heavily relied upon by the Court. That decision interpreted the analogous provisions under Section 35 of the Central Excise Act, 1944, which similarly prescribed a limitation period of sixty days with a further condonation period of thirty days. The Supreme Court held that the appellate authority's power to condone delay is strictly limited to the additional period specified in the statute and cannot be extended beyond it. The Court emphasized that the statutory limitation periods and the condonation window are exhaustive and exclude the application of Section 5 of the Limitation Act, 1963, which generally allows extension of limitation on sufficient cause.
Court's interpretation and reasoning: The Tribunal noted that the appeal in the present case was filed after more than one year from the receipt of the original order, which is well beyond the two-month period prescribed under Section 85(3A) and the one-month condonation period allowed under the proviso. The Tribunal observed that the Commissioner (Appeals) correctly dismissed the appeal on the ground of limitation, as the appellant failed to file the appeal within the prescribed period or the condonation period.
Relying on the Supreme Court's ruling in M/s Singh Enterprises, the Tribunal reiterated the principle that the appellate authority's power to condone delay is statutorily circumscribed and cannot be extended beyond the prescribed limit. The Tribunal rejected any argument that the general provisions of the Limitation Act could be invoked to extend the limitation period beyond the statutory cap. It was held that permitting such an extension would render the specific statutory provisions meaningless.
Key evidence and findings: The appellant had filed the appeal after more than a year from the date of receipt of the original order. The appellant's explanation for the delay was that the business was practically closed for a period and that the appeal was handed over to a consultant immediately after receipt of the order. The Tribunal found this explanation insufficient and not constituting "sufficient cause" under the statute.
Application of law to facts: Applying the statutory provision and the binding Supreme Court precedent, the Tribunal found that the appeal was barred by limitation. The statutory scheme clearly limits the condonation of delay to one month beyond the two-month filing period. Since the appeal was filed beyond this period, the Commissioner (Appeals) had no jurisdiction to entertain the appeal, and the dismissal was legally justified.
Treatment of competing arguments: The appellant's reliance on the general provisions of the Limitation Act and other decisions where courts condoned delay was rejected. The Tribunal distinguished such decisions on the ground that the statute in question expressly excludes the application of Section 5 of the Limitation Act by prescribing a specific limitation and condonation period. The Tribunal also noted that the appellant's explanation did not amount to sufficient cause as contemplated by the statute or the precedent.
Conclusions: The Tribunal concluded that the appeal was rightly dismissed by the Commissioner (Appeals) on the ground of limitation. The power to condone delay is strictly limited and cannot be extended beyond the statutory period. The appeal filed after more than a year was barred and not maintainable.
3. SIGNIFICANT HOLDINGS
The Tribunal preserved the crucial legal reasoning from the Supreme Court's decision in M/s Singh Enterprises, stating:
"The proviso to sub-section (1) of Section 35 makes the position crystal clear that the appellate authority has no power to allow the appeal to be presented beyond the period of 30 days. The language used makes the position clear that the legislature intended the appellate authority to entertain the appeal by condoning delay only upto 30 days after the expiry of 60 days which is the normal period for preferring appeal. Therefore, there is complete exclusion of Section 5 of the Limitation Act."
Core principles established include:
Final determination:
The appeal filed beyond the prescribed limitation period and condonation window was rightly dismissed by the Commissioner (Appeals). The Tribunal upheld the dismissal and found no merit in the appeal, thereby affirming the strict interpretation of limitation provisions under the Finance Act, 1994.
Power to condone delay - Jurisdiction of Commissioner (Appeals) to condone the delay in filing the appeal beyond the prescribed statutory period under Section 85(3A) of the Finance Act, 1994 - HELD THAT:- In the present case the appeal has been filed as observed by the Commissioner (Appeal) after more than expiry of period of 90 days after the receipt of the order of original authority.
In terms of Section 85 (3A) of the Finance Act, 1994, it is observed that the appeal was to be filed before the Commissioner (Appeal) within two months of the date of the receipt of the order in original by the appellant. As per the proviso Commissioner (Appeal) has been granted the power to condone delay of one month in filing the appeal on sufficient cause being shown - In the present case appeal was filed before the Commissioner (Appeal) after more than a year from the date of receipt of order in original. Hence Commissioner (Appeal) has rightly held that appeal was filed beyond the prescribed period of limitation and has dismissed the same on this ground alone.
This issue is squarely covered by the decision of Hon’ble Supreme Court in the case of M/s Singh Enterprises [2007 (12) TMI 11 - SUPREME COURT], wherein it has been held that Commissioner (Appeals) could not condone the delay beyond the 30 days in filing the appeal before him.
Conclusion - The appeal filed beyond the prescribed limitation period and condonation window rightly dismissed by the Commissioner (Appeals).
There are no merits in this appeal filed by the appellant - appeal dismissed.
Power to condone delay - Jurisdiction of Commissioner (Appeals) to condone the delay in filing the appeal beyond the prescribed statutory period under Section 85(3A) of the Finance Act, 1994 - HELD THAT:- In the present case the appeal has been filed as observed by the Commissioner (Appeal) after more than expiry of period of 90 days after the receipt of the order of original authority.
In terms of Section 85 (3A) of the Finance Act, 1994, it is observed that the appeal was to be filed before the Commissioner (Appeal) within two months of the date of the receipt of the order in original by the appellant. As per the proviso Commissioner (Appeal) has been granted the power to condone delay of one month in filing the appeal on sufficient cause being shown - In the present case appeal was filed before the Commissioner (Appeal) after more than a year from the date of receipt of order in original. Hence Commissioner (Appeal) has rightly held that appeal was filed beyond the prescribed period of limitation and has dismissed the same on this ground alone.
This issue is squarely covered by the decision of Hon’ble Supreme Court in the case of M/s Singh Enterprises [2007 (12) TMI 11 - SUPREME COURT], wherein it has been held that Commissioner (Appeals) could not condone the delay beyond the 30 days in filing the appeal before him.
Conclusion - The appeal filed beyond the prescribed limitation period and condonation window rightly dismissed by the Commissioner (Appeals).
There are no merits in this appeal filed by the appellant - appeal dismissed.
The core legal questions considered by the Tribunal in these appeals are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Taxability of Commission Paid to Foreign Agents for Services Rendered Outside India
Legal Framework and Precedents: Section 66A of the Finance Act, 1994, as amended w.e.f. 18.04.2006, imposes service tax on services provided by a person outside India and received by a person in India, treating the recipient as the provider for tax purposes (Reverse Charge Mechanism). Rule 3 of the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006, further clarifies the scope of services taxable under this provision. The Hon'ble Delhi High Court in Orient Crafts Ltd vs. UOI (2006) held that no service tax can be levied on services rendered and received outside India. CBEC Circular dated 19.04.2006 reiterates that only services received in India are taxable under Section 66A.
Court's Interpretation and Reasoning: The Tribunal noted that all authorities below, including the adjudicating authority and Commissioner (Appeals), had recorded clear findings that the services were both rendered and received entirely outside India. The Revenue did not challenge these findings. The Tribunal held that Rule 3(iii) of the 2006 Rules requires services to be received in India to be taxable, which was absent here. Thus, the services rendered and received abroad cannot be brought under the tax net in India.
Key Evidence and Findings: The foreign agents procured purchase orders outside India, dispatched goods to foreign customers, and received payments abroad. The Indian appellant paid commission to these agents for services rendered outside India. The findings of fact by the authorities below that services were rendered and received abroad were undisputed and unchallenged by Revenue.
Application of Law to Facts: Since the services were neither performed nor received in India, the Reverse Charge Mechanism under Section 66A and Rule 3(iii) cannot be invoked. The Tribunal relied on statutory provisions and judicial precedent to conclude that taxing such services would exceed territorial jurisdiction.
Treatment of Competing Arguments: The Revenue argued that the services were received and utilized in India and hence taxable. The Tribunal rejected this, relying on factual findings and legal provisions requiring receipt of service in India. The appellant's reliance on Orient Crafts Ltd and CBEC Circular was accepted, while Revenue's reliance on earlier decisions was distinguished on facts and temporal applicability.
Conclusion: Services rendered and received entirely outside India are not taxable under Section 66A or related rules. The demand of service tax on commission paid to foreign agents for such services is unsustainable and set aside.
Issue 2: Applicability and Interpretation of Rule 3(iii) of Taxation of Services Rules, 2006
Legal Framework: Rule 3(iii) applies to services provided from outside India and received in India. The sub-rule does not contain deeming provisions akin to sub-rule (ii) which treats certain partly performed services as performed in India.
Court's Reasoning: The Tribunal emphasized that Rule 3(iii) requires receipt of service in India, which was absent. Unlike sub-rule (ii), sub-rule (iii) lacks any deeming fiction to tax services performed entirely outside India. Therefore, the services in question cannot be taxed under this rule.
Application to Facts: The foreign agents' services were rendered and received outside India, thus Rule 3(iii) cannot be invoked to bring them within Indian tax jurisdiction.
Conclusion: Rule 3(iii) does not support taxation of services not received in India; hence, the demand under this provision is invalid.
Issue 3: Limitation for Raising Demand and Penalties
Legal Framework and Precedents: The limitation period for service tax demands is prescribed under the Finance Act and allied rules. The Hon'ble Supreme Court in Nizam Sugar Factory vs. Collector of CE, A.P., held that extended limitation cannot be invoked for subsequent show cause notices if there is no suppression. The Nirlon Ltd decision reinforced that CENVAT credit availability negates intent to evade tax, barring extended limitation.
Court's Reasoning: The Tribunal found that the department was aware of the appellant's activities since 2006 and had earlier sought to tax the same services under a different category but dropped the proceedings. The present demands are for the same services under a different head, thus the department had full knowledge and no suppression or intent to evade tax was established.
Application to Facts: The show cause notices were issued beyond the normal limitation period and related to failure to disclose, not suppression. The Tribunal set aside demands and penalties raised beyond limitation.
Conclusion: The demands and penalties raised beyond the limitation period are barred and set aside.
Issue 4: Revenue Neutrality and CENVAT Credit Availability on Reverse Charge Service Tax
Legal Framework: Rule 3(1)(ixa) of the CENVAT Credit Rules, 2004 (inserted retrospectively from 18.04.2006) allows CENVAT credit for service tax paid under Section 66A. The Trade Notice dated 11.09.2008 clarifies this position.
Court's Reasoning and Findings: The Tribunal held that the demand of service tax on reverse charge basis is fully CENVATABLE, ensuring revenue neutrality to the appellant. The appellant itself is both the service recipient and the person liable to pay tax, so no revenue loss occurs.
Conclusion: The reverse charge service tax demand, if valid, is fully creditable; therefore, the revenue neutrality principle applies.
Issue 5: Binding Nature of Findings of Fact that Services Were Rendered and Received Outside India
Court's Reasoning: The Tribunal noted that the Revenue did not challenge the factual findings by the adjudicating authority and Commissioner (Appeals) that services were rendered and received outside India. These findings are binding and conclusive for the purpose of taxability under the Finance Act and rules.
Conclusion: Undisputed findings that services were rendered and received abroad preclude taxation under Indian service tax law.
3. SIGNIFICANT HOLDINGS
"It cannot be said that services are received abroad though they are certainly performed outside India."
"Rule 3(iii) of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 contemplates receiving of services in India, which is clearly absent in the present case."
"No service tax at all can be levied on services rendered and received outside India."
"Where services are admittedly and unquestionably performed/rendered outside India, they cannot be lawfully treated to have been performed in India and therefore, they are outside the tax fold."
"Extended period of limitation cannot be invoked for the subsequent show cause notice in absence of suppression or intent to evade tax."
"Demand of service tax being on reverse charge basis is without dispute fully CENVATABLE."
Final determinations:
Taxability - reverse charge mechanism - commission paid by Indian companies to foreign agents for services rendered entirely outside India - contention of the Revenue is that the said services rendered by the overseas agents are received and utilized in India whereas, the contention of the appellant is that the services are rendered and received abroad - Revenue neutrality - time limitation - penalty - HELD THAT:- It is found that both the authorities below, while passing the Orders-in-Original and Orders-in-Appeal, have recorded clear findings that the services have been rendered and received at the same time and entirely outside India. The said findings have not been questioned by the Revenue by filing any appeal against the orders of both the authorities.
It is found that once there are clear cut findings of fact that the services have been rendered entirely outside India, the same cannot be taxed in India by invoking the Rule 3(iii) of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006, because the said rule in its opening portion contemplates receiving of services in India, which is clearly absent in the present case.
On going through the provisions of Section 66A, Rule 2(1)(d)(iv) and Section 68(2), it is found that the Reverse Charge Mechanism was introduced w.e.f. 18.04.2006 but in the present case, the said provision is not applicable because it is a clear cut finding that the impugned services have been performed/rendered entirely outside India and the same cannot be taxed in India under the provisions of Reverse Charge Mechanism. It that even is also found that the deeming provisions as contemplated under Rule 3(ii) not applicable in the present case in view of the clear cut findings that services were received entirely outside India.
Hon’ble Delhi High Court in the case of Orient Crafts Ltd [2006 (9) TMI 2 - DELHI HIGH COURT], has clearly held that no service tax at all can be levied on services rendered and received outside India. By following the ratio of the said decision and also considering the CBEC’s Circular dated 19.04.2006, the appellant is not liable to service tax under reverse charge basis; therefore, to this extent, we set aside the demand.
Revenue neutrality - HELD THAT:- It is found that in the appellant’s own case, revenue neutrality is applicable qua the same assessee on account of reverse charge basis and not towards any other party. It is also found that demand of service tax being on reverse charge basis is without dispute fully CENVATABLE in view of Rule 3(1)(ixa) of CENVAT Credit Rules, 2004 inserted on 08.04.2011 with retrospective effect from 18.04.2006 which clearly provides that the service tax leviable under Section 66A of the Finance Act, is CENVATABLE.
Time Limitation - penalty - HELD THAT:- Once the service tax leviable under Section 66A, is CENVATABLE, then the question of intent to evade the tax does not arise and extended period of limitation cannot be invoked as held by the Hon’ble Supreme Court in the case of Nirlon Limited vs. Commr of CE, Mumbai [2015 (5) TMI 101 - SUPREME COURT] - it cannot be said that the department was not having any knowledge rather the department had complete knowledge as early as September 2006 and therefore, the question of suppression in the facts and circumstances of the present case, does not arise.
Further, in the case of Nizam Sugar Factory [2006 (4) TMI 127 - SUPREME COURT], the Hon’ble Apex Court has clearly held that extended period of limitation cannot be invoked for the subsequent show cause notice.
The demand for extended period as well as penalty set aside.
Conclusion - i) The service tax demand on commission paid to foreign agents for services rendered and received outside India is set aside as unsustainable on merits. ii) The demand and penalties raised beyond the limitation period are set aside. iii) The Reverse Charge Mechanism provisions do not apply to services not received in India. iv) The CENVAT credit is available on service tax paid under Section 66A, ensuring revenue neutrality.
The impugned orders are not sustainable on merits as well as on limitation - Appeal allowed.
Taxability - reverse charge mechanism - commission paid by Indian companies to foreign agents for services rendered entirely outside India - contention of the Revenue is that the said services rendered by the overseas agents are received and utilized in India whereas, the contention of the appellant is that the services are rendered and received abroad - Revenue neutrality - time limitation - penalty - HELD THAT:- It is found that both the authorities below, while passing the Orders-in-Original and Orders-in-Appeal, have recorded clear findings that the services have been rendered and received at the same time and entirely outside India. The said findings have not been questioned by the Revenue by filing any appeal against the orders of both the authorities.
It is found that once there are clear cut findings of fact that the services have been rendered entirely outside India, the same cannot be taxed in India by invoking the Rule 3(iii) of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006, because the said rule in its opening portion contemplates receiving of services in India, which is clearly absent in the present case.
On going through the provisions of Section 66A, Rule 2(1)(d)(iv) and Section 68(2), it is found that the Reverse Charge Mechanism was introduced w.e.f. 18.04.2006 but in the present case, the said provision is not applicable because it is a clear cut finding that the impugned services have been performed/rendered entirely outside India and the same cannot be taxed in India under the provisions of Reverse Charge Mechanism. It that even is also found that the deeming provisions as contemplated under Rule 3(ii) not applicable in the present case in view of the clear cut findings that services were received entirely outside India.
Hon’ble Delhi High Court in the case of Orient Crafts Ltd [2006 (9) TMI 2 - DELHI HIGH COURT], has clearly held that no service tax at all can be levied on services rendered and received outside India. By following the ratio of the said decision and also considering the CBEC’s Circular dated 19.04.2006, the appellant is not liable to service tax under reverse charge basis; therefore, to this extent, we set aside the demand.
Revenue neutrality - HELD THAT:- It is found that in the appellant’s own case, revenue neutrality is applicable qua the same assessee on account of reverse charge basis and not towards any other party. It is also found that demand of service tax being on reverse charge basis is without dispute fully CENVATABLE in view of Rule 3(1)(ixa) of CENVAT Credit Rules, 2004 inserted on 08.04.2011 with retrospective effect from 18.04.2006 which clearly provides that the service tax leviable under Section 66A of the Finance Act, is CENVATABLE.
Time Limitation - penalty - HELD THAT:- Once the service tax leviable under Section 66A, is CENVATABLE, then the question of intent to evade the tax does not arise and extended period of limitation cannot be invoked as held by the Hon’ble Supreme Court in the case of Nirlon Limited vs. Commr of CE, Mumbai [2015 (5) TMI 101 - SUPREME COURT] - it cannot be said that the department was not having any knowledge rather the department had complete knowledge as early as September 2006 and therefore, the question of suppression in the facts and circumstances of the present case, does not arise.
Further, in the case of Nizam Sugar Factory [2006 (4) TMI 127 - SUPREME COURT], the Hon’ble Apex Court has clearly held that extended period of limitation cannot be invoked for the subsequent show cause notice.
The demand for extended period as well as penalty set aside.
Conclusion - i) The service tax demand on commission paid to foreign agents for services rendered and received outside India is set aside as unsustainable on merits. ii) The demand and penalties raised beyond the limitation period are set aside. iii) The Reverse Charge Mechanism provisions do not apply to services not received in India. iv) The CENVAT credit is available on service tax paid under Section 66A, ensuring revenue neutrality.
The impugned orders are not sustainable on merits as well as on limitation - Appeal allowed.
(1) Whether the adjudicating authority correctly applied Notification No. 39/2012-ST regarding eligibility for rebate of Swachh Bharat Cess (SBC) paid on input services used in export of services;
(2) Whether the claims for rebate filed by the appellant were within the prescribed limitation period;
(3) Whether the appellant's services fall within the category of "intermediary services" or qualify as Business Auxiliary Services/Business Support Services eligible for rebate;
(4) Whether the appellant complied with condition 2(e) of Notification No. 39/2012-ST, particularly regarding non-availment of Cenvat Credit on inputs/input services for which rebate is claimed;
(5) Whether the Commissioner (Appeals) was justified in remanding the matter to the adjudicating authority for re-examination of these issues;
(6) Whether the department was entitled to raise new grounds of appeal that were not part of the original proceedings;
(7) The legal effect of prior judicial precedents and orders binding on the authorities in relation to the appellant's service classification and rebate claims.
Issue-wise Detailed Analysis:
1. Applicability of Notification No. 39/2012-ST and Eligibility for Rebate of SBC
The relevant legal framework comprises Notification No. 39/2012-ST dated 20.06.2012 (as amended), which provides for rebate of Swachh Bharat Cess paid on input services used in export of output services, subject to conditions including non-availment of Cenvat Credit on such inputs.
The adjudicating authority had examined documentary evidence and found that the appellant complied with the conditions of the Notification, including export of services, payment of duty/tax, and non-availment of Cenvat Credit on the input services for which rebate was claimed. This was supported by prior Tribunal rulings affirming the appellant's export of Business Auxiliary and Business Support Services as a BPO.
Despite these findings, the Commissioner (Appeals) remanded the matter for re-examination, alleging that the original order did not consider the applicability of the Notification. The appellant contended this was erroneous and ignored settled facts and law.
The Tribunal emphasized that the original authority had indeed examined and recorded findings on these issues, supported by documentary evidence, and that the remand was therefore unjustified.
2. Limitation Period for Filing Rebate Claims
The department challenged the rebate claims for the period February 2016 to March 2016 as time-barred. The relevant legal provision is Section 118 of the Central Excise Act, 1944, which prescribes limitation periods for refund claims.
The appellant submitted that the claims were filed on 02.02.2017, within the limitation period, relying on the Tribunal's Larger Bench decision in a precedent case which clarified that the limitation period begins from the end of the quarter to which the refund pertains, and for export of services, the relevant date is the quarter-end in which the Foreign Inward Remittance Certificate (FIRC) is received.
The Commissioner (Appeals) had remanded the matter citing non-examination of limitation, but the Tribunal found that the original order had considered and confirmed timely filing of claims, rendering the remand unsustainable.
3. Classification of Services: Intermediary vs. Business Auxiliary/Support Services
The department contended that the appellant's services were intermediary services, which would affect rebate eligibility. The appellant relied on prior Tribunal orders and judicial precedents holding that their services constitute Business Auxiliary and Business Support Services, not intermediary services.
The original adjudicating authority had recognized the appellant's services as non-intermediary, consistent with the CBEC Education Guide (2012) which clarifies that call centres providing services on their own account are not intermediaries.
The Commissioner (Appeals) remanded the matter for re-examination of this classification, but the Tribunal noted that this issue was conclusively decided in the appellant's favour in earlier appeals, and remanding it violated judicial discipline and binding precedents.
4. Compliance with Condition 2(e) of Notification No. 39/2012-ST Regarding Cenvat Credit
Condition 2(e) prohibits rebate claims on inputs/input services for which Cenvat Credit has been availed. The appellant asserted full compliance, stating no Cenvat Credit was claimed on the SBC component, supported by documentary evidence.
The appellant also relied on the recent Delhi High Court ruling which held that Swachh Bharat Cess is not part of Cenvat Credit under the Cenvat Credit Rules, 2004, thereby entitling them to rebate on SBC even if Cenvat Credit was availed on other components.
The Commissioner (Appeals) had questioned credit eligibility, but the Tribunal found that the original authority had properly examined this and that the denial of rebate on SBC was unsustainable.
5. Treatment of Department's Appeal Raising New Grounds
The department raised new grounds in its appeal that were not part of the original show cause notice or deficiency memos. The appellant contended that the department cannot improve its case at the appellate stage by introducing new allegations.
The Tribunal relied on binding Supreme Court precedents holding that issues not raised in the original proceedings cannot be entertained later by the Revenue. The Commissioner (Appeals) erred in remanding the matter instead of rejecting the department's appeal on this basis.
6. Binding Effect of Prior Judicial Precedents and Orders
The appellant relied on prior Tribunal and appellate orders conclusively holding the nature of their services and rebate eligibility. The Tribunal reiterated the principle that lower authorities must follow binding orders unless stayed or overruled by a higher court.
The Commissioner (Appeals) ignored these binding precedents and remanded settled issues, which the Tribunal found to be a violation of judicial discipline and thus unsustainable.
7. Nexus Between Input Services and Exported Output Services
The appellant claimed rebate on various input services such as air travel agent services, event management, catering, rent-a-cab, and miscellaneous services. The original authority had accepted the nexus between these input services and the exported output services, supported by prior orders.
The Commissioner (Appeals) remanded the matter without providing specific findings for each denied service. The Tribunal found this lack of reasoning contrary to settled principles requiring reasoned decisions and held that the nexus was satisfactorily established.
Conclusions on Issues:
The Tribunal concluded that the impugned order remanding the matter was not sustainable in law. The original adjudicating authority had duly considered and recorded findings on all core issues, including applicability of the Notification, limitation, classification of services, compliance with Cenvat Credit conditions, and nexus of input services.
The department's attempt to raise new grounds at the appellate stage was impermissible. The Commissioner (Appeals) failed to engage with the merits and binding precedents, resulting in an arbitrary and unjustified remand.
The Tribunal set aside the impugned order and allowed the appellant's appeal with consequential relief as per law.
Significant Holdings:
"We find that the learned Commissioner (Appeals) has remanded the matter without considering the fact that the Order-in-Original had already established compliance with the conditions under Notification No. 39/2012-ST, including export of services, payment of duty/tax, and non-availment of CENVAT Credit."
"The Tribunal in the appellant's own cases... has conclusively held that the appellant exports Business Support Services and Business Auxiliary Services as a BPO. Despite that, the learned Commissioner (Appeals) has questioned the nature of services, violating judicial discipline."
"It is a settled law that an issue which is not involved in the show cause notice, the same cannot be raised later by the Revenue."
"Swachh Bharat Cess is not a part of Cenvat Credit under the Cenvat Credit Rules."
"If the Cenvat Credit has not been questioned at the time of availing, then it cannot be questioned at the time of refund."
"For export of services, the relevant date for limitation is the end of the quarter in which FIRC is received."
"The appellant's services fall under the category of Business Auxiliary Services and Business Support Services and do not fall under the category of 'intermediary services'."
"The impugned order, remanding the matter to the original authority, is not sustainable in law; therefore, we set aside the same and allow the appeal of the appellant with consequential relief, if any, as per law."
Rejection of Swachh Bharat Cess (SBC) rebate - export of services or not - applicability of N/N. 39/2012-ST - issue of limitation stated as unexamined - classification of services as 'intermediary,' required examination or not - Credit eligibility required further verification or not.
Applicability of N/N. 39/2012-ST - HELD THAT:- The learned Commissioner (Appeals) has remanded the matter without considering the fact that the Order-in- Original had already established compliance with the conditions under Notification No. 39/2012-ST, including export of services, payment of duty/tax, and non-availment of CENVAT Credit. It is also found that the original authority had examined this issue on the basis of documentary evidence but despite that, the learned Commissioner (Appeals) ignored the findings of the original authority and still remanded the matter without justification.
The Tribunal in the appellant’s own case TECNOVATE ESOLUTIONS PVT. LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, DELHI [2018 (8) TMI 695 - CESTAT NEW DELHI], has conclusively held that the appellant exports Business Support Services and Business Auxiliary Services as a BPO.
Entitlement of the appellant to the rebate of SBC - HELD THAT:- This issue is already settled by the Hon’ble Delhi High Court in the case of ExxonMobil Services and Technology Pvt Ltd vs. Union of India [2024 (12) TMI 941 - DELHI HIGH COURT], wherein it has been categorically held that Swachh Bharat Cess is not a part of Cenvat Credit under the Cenvat Credit Rules. Further, the original authority had itself noted that no Cenvat Credit was availed on inputs and input services on which the rebate was claimed, specifically in respect of the Swachh Bharat Cess component. Therefore, the denial of rebate on SBC is not sustainable in law.
Compliance with condition 2(e) of the Notification No. 39/2012-ST dated 20.06.2012 - HELD THAT:- The appellant has not claimed any rebate on SBC component of Cenvat, and the condition stands satisfied.
Denial of rebate on the ground of nexus - HELD THAT:- The input services involved in the present case, have been used in exporting the services under Rule 6A(2) of the Service Tax Rules, 1994 and in various decisions, it has been consistently held that if the Cenvat Credit has not been questioned at the time of availing, then it cannot be questioned at the time of refund.
Time limitation - HELD THAT:- For the period February 2016 to March 2016, the rebate was filed on 02.02.2017, which is well within the limitation period as held in the case of CCE vs. Span Infotech India Pvt Ltd [2018 (2) TMI 946 - CESTAT BANGALORE - LB], wherein it has been clarified that for export of services, the relevant date is the end of the quarter in which FIRC is received.
Intermediary services - HELD THAT:- The Tribunal in the appellant’s own case for the earlier period in TECNOVATE ESOLUTIONS PVT. LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, DELHI [2018 (8) TMI 695 - CESTAT NEW DELHI], which was decided in appellant’s favour, has held that the appellant had provided export of service. Moreover, the original authority clearly held that the appellant’s services fall under the category of Business Auxiliary Services and Business Support Services and do not fall under the category of ‘intermediary services’.
Conclusion - i) Swachh Bharat Cess is not a part of Cenvat Credit under the Cenvat Credit Rules. ii) If the Cenvat Credit has not been questioned at the time of availing, then it cannot be questioned at the time of refund. iii) For export of services, the relevant date for limitation is the end of the quarter in which FIRC is received. iv) The appellant's services fall under the category of Business Auxiliary Services and Business Support Services and do not fall under the category of 'intermediary services'.
The impugned order, remanding the matter to the original authority, is not sustainable in law - Appeal allowed.
Rejection of Swachh Bharat Cess (SBC) rebate - export of services or not - applicability of N/N. 39/2012-ST - issue of limitation stated as unexamined - classification of services as 'intermediary,' required examination or not - Credit eligibility required further verification or not.
Applicability of N/N. 39/2012-ST - HELD THAT:- The learned Commissioner (Appeals) has remanded the matter without considering the fact that the Order-in- Original had already established compliance with the conditions under Notification No. 39/2012-ST, including export of services, payment of duty/tax, and non-availment of CENVAT Credit. It is also found that the original authority had examined this issue on the basis of documentary evidence but despite that, the learned Commissioner (Appeals) ignored the findings of the original authority and still remanded the matter without justification.
The Tribunal in the appellant’s own case TECNOVATE ESOLUTIONS PVT. LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, DELHI [2018 (8) TMI 695 - CESTAT NEW DELHI], has conclusively held that the appellant exports Business Support Services and Business Auxiliary Services as a BPO.
Entitlement of the appellant to the rebate of SBC - HELD THAT:- This issue is already settled by the Hon’ble Delhi High Court in the case of ExxonMobil Services and Technology Pvt Ltd vs. Union of India [2024 (12) TMI 941 - DELHI HIGH COURT], wherein it has been categorically held that Swachh Bharat Cess is not a part of Cenvat Credit under the Cenvat Credit Rules. Further, the original authority had itself noted that no Cenvat Credit was availed on inputs and input services on which the rebate was claimed, specifically in respect of the Swachh Bharat Cess component. Therefore, the denial of rebate on SBC is not sustainable in law.
Compliance with condition 2(e) of the Notification No. 39/2012-ST dated 20.06.2012 - HELD THAT:- The appellant has not claimed any rebate on SBC component of Cenvat, and the condition stands satisfied.
Denial of rebate on the ground of nexus - HELD THAT:- The input services involved in the present case, have been used in exporting the services under Rule 6A(2) of the Service Tax Rules, 1994 and in various decisions, it has been consistently held that if the Cenvat Credit has not been questioned at the time of availing, then it cannot be questioned at the time of refund.
Time limitation - HELD THAT:- For the period February 2016 to March 2016, the rebate was filed on 02.02.2017, which is well within the limitation period as held in the case of CCE vs. Span Infotech India Pvt Ltd [2018 (2) TMI 946 - CESTAT BANGALORE - LB], wherein it has been clarified that for export of services, the relevant date is the end of the quarter in which FIRC is received.
Intermediary services - HELD THAT:- The Tribunal in the appellant’s own case for the earlier period in TECNOVATE ESOLUTIONS PVT. LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, DELHI [2018 (8) TMI 695 - CESTAT NEW DELHI], which was decided in appellant’s favour, has held that the appellant had provided export of service. Moreover, the original authority clearly held that the appellant’s services fall under the category of Business Auxiliary Services and Business Support Services and do not fall under the category of ‘intermediary services’.
Conclusion - i) Swachh Bharat Cess is not a part of Cenvat Credit under the Cenvat Credit Rules. ii) If the Cenvat Credit has not been questioned at the time of availing, then it cannot be questioned at the time of refund. iii) For export of services, the relevant date for limitation is the end of the quarter in which FIRC is received. iv) The appellant's services fall under the category of Business Auxiliary Services and Business Support Services and do not fall under the category of 'intermediary services'.
The impugned order, remanding the matter to the original authority, is not sustainable in law - Appeal allowed.
The core legal questions considered by the Tribunal were:
Issue-wise Detailed Analysis
1. Classification of Services Rendered: Works Contract vs. Commercial or Industrial Construction Services
Legal Framework and Precedents: The Finance Act, 1994, defines various taxable services, including commercial or industrial construction services under Section 65(105)(zzq). The concept of works contract services was introduced only w.e.f. 01.07.2007. Prior to this date, works contracts were not separately taxable. The Tribunal has consistently held that works contract services are distinct from commercial or industrial construction services and cannot be taxed under the latter category.
Court's Interpretation and Reasoning: The Tribunal examined the contracts entered into by the appellant, particularly those with Power Grid Corporation and others, and found that these were works contracts in nature. The Department had sought to tax these contracts under commercial or industrial construction services, which was contrary to settled law and the legislative framework.
Key Evidence and Findings: The appellant produced documentary evidence demonstrating the nature of the contracts as works contracts. The Tribunal referred to a recent decision of the same Bench (Final Order No.60190/2023 dated 12.07.2023) wherein a similar demand under commercial or industrial construction service was set aside.
Application of Law to Facts: Since the contracts were works contracts and the concept was introduced only from 01.07.2007, any demand prior to this date was not sustainable. Further, even after 01.07.2007, works contract services are distinct and cannot be taxed under commercial or industrial construction services.
Treatment of Competing Arguments: The Department's contention that these contracts were taxable under commercial or industrial construction was rejected. The Tribunal relied on the appellant's documentary evidence and consistent judicial precedents.
Conclusion: The demand of service tax under commercial or industrial construction services was unsustainable as the appellant's services were works contracts.
2. Invocation of Extended Period of Limitation under Section 73 of the Finance Act, 1994
Legal Framework: Section 73 allows for recovery of service tax beyond the normal limitation period if there is willful mis-statement or suppression of facts. Section 73(3) provides for reasonable cause exceptions.
Court's Interpretation and Reasoning: The appellant claimed delay in deposit due to hospitalization following a severe accident, which constituted reasonable cause under Section 73(3). The Tribunal found that the appellant had deposited the tax along with interest before issuance of the show cause notice.
Key Evidence and Findings: Medical evidence of hospitalization and timing of tax payment before show cause notice were considered.
Application of Law to Facts: The Tribunal held that the delay was not due to willful suppression or mis-statement but due to reasonable cause, hence extended limitation could not be invoked.
Treatment of Competing Arguments: The Department relied on the extended limitation period but failed to establish willful suppression.
Conclusion: The invocation of extended period of limitation was not justified in the facts of the case.
3. Imposition of Penalties under Sections 76, 77, and 78
Legal Framework: Penalties under these sections are imposed for failure to pay service tax, suppression of facts, or failure to comply with provisions of the Act.
Court's Interpretation and Reasoning: The appellant's counsel argued that penalty was not warranted as the delay was due to reasonable cause and the appellant had shown the tax payable in its books of accounts, negating any willful mis-statement or suppression.
Key Evidence and Findings: The appellant's books of accounts reflected the tax liability, and the appellant had paid the tax with interest before the show cause notice.
Application of Law to Facts: The Tribunal agreed that penalty under Section 76 was rightly dropped by the Commissioner (Appeals), and no penalty should be imposed for the reasons stated.
Treatment of Competing Arguments: The Department sought penalties but failed to prove intentional default or suppression.
Conclusion: Penalties were not justified given the circumstances and the appellant's conduct.
4. Taxability of Services Provided to Specific Entities (Power Grid Corporation, Mayor World School)
Legal Framework and Precedents: Taxability depends on the nature of construction. Construction for residential purposes or educational institutions is generally not taxable under commercial or industrial construction services.
Court's Interpretation and Reasoning: The Tribunal found that the construction for Power Grid Corporation was for transit camps used for residential purposes near the Indo-Pak border and thus not commercial or industrial construction. Similarly, construction for Mayor World School was for an educational institute, which falls outside taxable commercial or industrial construction.
Key Evidence and Findings: The appellant's submissions and reliance on precedents such as Rattan Das Gupta & Co. Vs CCE, Jaipur were noted.
Application of Law to Facts: The Tribunal applied the principle that construction for residential or educational purposes is not taxable as commercial or industrial construction.
Treatment of Competing Arguments: The Department did not rebut the nature of the constructions effectively.
Conclusion: Services rendered in these cases were not taxable under commercial or industrial construction services.
5. Entitlement to Benefit under Section 80
Legal Framework: Section 80 provides relief for tax already paid along with interest before issuance of show cause notice.
Court's Interpretation and Reasoning: The appellant claimed entitlement to this benefit as tax and interest were paid prior to the show cause notice.
Key Evidence and Findings: Payment records showed tax and interest paid before notice issuance.
Application of Law to Facts: The Tribunal found merit in this submission, though the final order primarily focused on classification and limitation issues.
Treatment of Competing Arguments: The Department did not contest this point strongly.
Conclusion: The appellant was entitled to the benefit under Section 80 for tax and interest paid prior to show cause notice.
Significant Holdings
The Tribunal held that:
"It is a settled law that the activity of works contract cannot be taxed under the category of commercial or industrial construction/ construction of residential complex even after 01.07.2007 as the services under the works contract service is totally different from that of commercial or industrial construction."
Further, the Tribunal emphasized that:
"The appellant could not deposit the service tax on account of his severe accident but later on, he deposited the same along with interest before the issuance of show cause notice."
And finally:
"The ratio of said decision is squarely applicable in the present case therefore by following the same, we set aside the impugned order by allowing the appeal of the appellant with consequential relief, if any, as per law."
Core principles established include the clear distinction between works contract services and commercial or industrial construction services for taxation purposes, the applicability of reasonable cause exceptions under Section 73(3) for delay in payment, and the entitlement to relief under Section 80 where tax and interest are paid before show cause notice.
On each issue, the Tribunal concluded in favor of the appellant: the demand under commercial or industrial construction services was unsustainable; extended limitation was improperly invoked; penalties were unjustified; certain services were not taxable; and the appellant was entitled to benefit under Section 80. Consequently, the appeal was allowed with consequential relief.
Failure to pay Service Tax on the services provided under the category of Commercial or Industrial Construction Services - demand of service tax under the category of commercial or industrial construction services against the appellant who had rendered services characterized as works contracts - recovery alongwith interest and penalty - invocation of extended period of limitation - HELD THAT:- In this case, the appellant could not deposit the service tax on account of his severe accident but later on, he deposited the same along with interest before the issuance of show cause notice. Further, it is found that the contract entered into by the appellant with the Power Grid Corporation and other parties are works contract in nature whereas the Department has sought to tax them under commercial or industrial construction/ construction of residential complex.
Learned Counsel has placed on record documents which clearly shows that the contract involves in the present case are works contract which cannot be taxed prior to 01.07.2007 as the concept of works contract was introduced w.e.f. 01.07.2007 in the Finance Act, 1994.
It is also a settled law that the activity of works contract cannot be taxed under the category of commercial or industrial construction/ construction of residential complex even after 01.07.2007 as the services under the works contract service is totally different from that of commercial or industrial construction.
The identical issue was considered by this Bench in M/S SAB INDUSTRIES LIMITED VERSUS COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX, CHANDIGARH-I [2023 (7) TMI 483 - CESTAT CHANDIGARH] wherein the demand raised by the Department under the category of commercial or industrial construction service was set aside without considering other grounds raised by the appellant. The ratio of said decision is squarely applicable in the present case.
Conclusion - The demand under commercial or industrial construction services is unsustainable, extended limitation is improperly invoked, penalties are unjustified.
The impugned order set aside - appeal allowed.
Failure to pay Service Tax on the services provided under the category of Commercial or Industrial Construction Services - demand of service tax under the category of commercial or industrial construction services against the appellant who had rendered services characterized as works contracts - recovery alongwith interest and penalty - invocation of extended period of limitation - HELD THAT:- In this case, the appellant could not deposit the service tax on account of his severe accident but later on, he deposited the same along with interest before the issuance of show cause notice. Further, it is found that the contract entered into by the appellant with the Power Grid Corporation and other parties are works contract in nature whereas the Department has sought to tax them under commercial or industrial construction/ construction of residential complex.
Learned Counsel has placed on record documents which clearly shows that the contract involves in the present case are works contract which cannot be taxed prior to 01.07.2007 as the concept of works contract was introduced w.e.f. 01.07.2007 in the Finance Act, 1994.
It is also a settled law that the activity of works contract cannot be taxed under the category of commercial or industrial construction/ construction of residential complex even after 01.07.2007 as the services under the works contract service is totally different from that of commercial or industrial construction.
The identical issue was considered by this Bench in M/S SAB INDUSTRIES LIMITED VERSUS COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX, CHANDIGARH-I [2023 (7) TMI 483 - CESTAT CHANDIGARH] wherein the demand raised by the Department under the category of commercial or industrial construction service was set aside without considering other grounds raised by the appellant. The ratio of said decision is squarely applicable in the present case.
Conclusion - The demand under commercial or industrial construction services is unsustainable, extended limitation is improperly invoked, penalties are unjustified.
The impugned order set aside - appeal allowed.
- Whether the demand of Service Tax raised against the appellant on the basis of information received from the Income Tax Department (Form 26AS) without conducting a proper investigation is sustainable.
- Whether the appellant, engaged in providing transportation services as a goods transport agency, is liable to pay Service Tax or whether the liability lies on the service recipient under the reverse charge mechanism as per Notification No. 30/2012-S.T. dated 20.06.2012.
- Whether the Show Cause Notice issued on 22.10.2021 for the period April 2016 to June 2017 is barred by limitation or time barred.
- Whether the appellant suppressed facts from the Department, justifying invocation of extended period of limitation and imposition of penalty.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Validity of Service Tax Demand Based on Form 26AS Without Investigation
Relevant Legal Framework and Precedents: The Tribunal referred to the principle that demand of Service Tax cannot be raised solely on the basis of information such as Form 26AS received from the Income Tax Department without conducting a proper investigation or verification. The appellant relied on a precedent where it was held that TDS information alone cannot be the basis for Service Tax demand.
Court's Interpretation and Reasoning: The Tribunal observed that the demand was raised purely on the basis of Form 26AS, which indicated receipt of amounts towards services but no payment of Service Tax. However, the Revenue failed to conduct any independent investigation or verification before issuing the Show Cause Notice and confirming the demand. The Tribunal emphasized that such a demand without investigation is not sustainable.
Key Evidence and Findings: The primary evidence was the Form 26AS information from the Income Tax Department indicating TDS deductions. No further documents or investigation reports were produced to substantiate the demand.
Application of Law to Facts: The Tribunal applied the principle that mere information from the Income Tax Department is insufficient to establish liability for Service Tax without corroborative investigation.
Treatment of Competing Arguments: The Revenue argued that the information from Form 26AS was adequate to raise demand. The Tribunal rejected this, holding that investigation is mandatory.
Conclusion: The demand raised solely on the basis of Form 26AS without investigation is not sustainable.
Issue 2: Liability under Reverse Charge Mechanism for Goods Transport Agency Services
Relevant Legal Framework and Precedents: Notification No. 30/2012-S.T. dated 20.06.2012 mandates that in the case of goods transport agency services, the service recipient is liable to pay Service Tax under reverse charge mechanism. The appellant relied on this statutory provision and a certificate from the service recipient confirming payment of Service Tax.
Court's Interpretation and Reasoning: The Tribunal noted that the appellant provided transportation services as a goods transport agency to M/s. Tata Motors Limited, which had paid the Service Tax under the reverse charge mechanism. The Tribunal held that since the service recipient discharged the Service Tax liability, the appellant was not liable to pay Service Tax on such services.
Key Evidence and Findings: A certificate issued by the service recipient confirming payment of Service Tax under reverse charge was considered crucial evidence.
Application of Law to Facts: The Tribunal applied the reverse charge mechanism provisions and concluded that the appellant's liability was discharged by the service recipient.
Treatment of Competing Arguments: The appellant contended non-liability based on the reverse charge mechanism. The Revenue did not produce evidence to counter the certificate or reverse charge applicability.
Conclusion: No Service Tax liability arises on the appellant as the service recipient has already paid the tax under reverse charge.
Issue 3: Limitation Period for Issuance of Show Cause Notice
Relevant Legal Framework and Precedents: The limitation period for issuance of Show Cause Notice is governed by the relevant Service Tax laws and rules. Extended period of limitation can be invoked only if suppression or fraud is established.
Court's Interpretation and Reasoning: The Tribunal found that the Show Cause Notice was issued on 22.10.2021 for the period April 2016 to June 2017, which prima facie appeared time barred. However, the Revenue alleged suppression of facts to justify extended limitation. The Tribunal noted that the source of information (Form 26AS) was available with the Revenue since 2016-17 and no suppression was established.
Key Evidence and Findings: No evidence was produced by the Revenue to show that the appellant suppressed facts or committed fraud.
Application of Law to Facts: Since no suppression or fraud was established, the extended period of limitation could not be invoked.
Treatment of Competing Arguments: The appellant argued the delay rendered the notice time barred. The Revenue argued otherwise but failed to prove suppression.
Conclusion: The Show Cause Notice was issued beyond the limitation period and the extended period is not invokable.
Issue 4: Imposition of Penalty
Relevant Legal Framework and Precedents: Penalty under Service Tax laws is imposable only if there is wilful suppression or failure to pay tax despite liability.
Court's Interpretation and Reasoning: Since the Tribunal held that no Service Tax liability existed on the appellant and no suppression was established, penalty was not sustainable.
Key Evidence and Findings: Absence of evidence of suppression or wilful non-payment.
Application of Law to Facts: No penalty can be imposed in absence of liability or suppression.
Treatment of Competing Arguments: The appellant denied suppression and liability; the Revenue failed to prove otherwise.
Conclusion: Penalty imposed on the appellant is not sustainable.
3. SIGNIFICANT HOLDINGS
"We find that in this case, the demand of Service Tax has been raised against the appellant on the basis of Form 26AS received from the Income Tax Department... without conducting investigation, no demand can be raised against an appellant."
"In terms of Notification No. 30/2012-S.T. dated 20.06.2012, the service recipient has paid the Service Tax under reverse charge mechanism... we hold that no demand is sustainable against the appellant."
"There is no basis in the Show Cause Notice for the allegation with regard to suppression of facts from the Department... Thus, we hold that the extended period of limitation is not invokable against the appellant."
"Consequently, no penalty is imposable on the appellant."
The Tribunal conclusively determined that the Service Tax demand, interest, and penalty confirmed against the appellant were unsustainable as the appellant was not liable to pay Service Tax under the reverse charge mechanism, the demand was raised without proper investigation, and the Show Cause Notice was issued beyond the limitation period without any suppression of facts. Accordingly, the impugned order was set aside and the appeal was allowed with consequential relief.
Non-payment of service tax - failure to provide relevant documents - assessment done on the basis of 'best judgement assessment' - suppression of facts or not - extended period of limitation - penalty - HELD THAT:- In this case, the demand of Service Tax has been raised against the appellant on the basis of Form 26AS received from the Income Tax Department, as per which it is alleged that the appellant has provided services, but not paid any Service Tax for the said services. The period involved in this case is from April, 2016 to June, 2017 and the Show Cause Notice has been issued on 22nd October, 2021. There is no basis in the Show Cause Notice for the allegation with regard to suppression of facts from the Department. In fact, the source from where the Revenue got the information, was available with them since 2016-17 itself. Thus, it cannot be alleged that the appellant had suppressed the facts of providing the said services and not paying Service Tax. Therefore, the extended period of limitation is not invokable against the appellant.
The impugned demand has been raised on the basis of Form 26AS provided by the Income Tax Department. In this regard, without conducting investigation, no demand can be raised against an appellant.
The appellant was engaged in the activity of providing transportation service, as a goods transport agency, for which the service recipient was required to pay Service Tax under reverse charge mechanism, which has already been paid by the service recipient viz. M/s. Tata Motors Ltd., in this case - no demand is sustainable against the appellant. Consequently, no penalty is imposable on the appellant.
The impugned order is set aside - appeal allowed.
Non-payment of service tax - failure to provide relevant documents - assessment done on the basis of 'best judgement assessment' - suppression of facts or not - extended period of limitation - penalty - HELD THAT:- In this case, the demand of Service Tax has been raised against the appellant on the basis of Form 26AS received from the Income Tax Department, as per which it is alleged that the appellant has provided services, but not paid any Service Tax for the said services. The period involved in this case is from April, 2016 to June, 2017 and the Show Cause Notice has been issued on 22nd October, 2021. There is no basis in the Show Cause Notice for the allegation with regard to suppression of facts from the Department. In fact, the source from where the Revenue got the information, was available with them since 2016-17 itself. Thus, it cannot be alleged that the appellant had suppressed the facts of providing the said services and not paying Service Tax. Therefore, the extended period of limitation is not invokable against the appellant.
The impugned demand has been raised on the basis of Form 26AS provided by the Income Tax Department. In this regard, without conducting investigation, no demand can be raised against an appellant.
The appellant was engaged in the activity of providing transportation service, as a goods transport agency, for which the service recipient was required to pay Service Tax under reverse charge mechanism, which has already been paid by the service recipient viz. M/s. Tata Motors Ltd., in this case - no demand is sustainable against the appellant. Consequently, no penalty is imposable on the appellant.
The impugned order is set aside - appeal allowed.
- Whether the appeals against demands raised prior to the approval of the Resolution Plan under the Insolvency and Bankruptcy Code, 2016 (IBC) survive or stand abated once the Resolution Plan is approved by the National Company Law Tribunal (NCLT).
- Whether claims, including statutory dues and refund claims, not included in the approved Resolution Plan can be pursued or continued after such approval.
- Whether the appeal pertaining to a refund claim, pursued by the Corporate Debtor post-approval of the Resolution Plan and managed under the Monitoring Committee, can be entertained or must also be abated.
- The effect of the Supreme Court's ruling in Ghanashyam Mishra and Sons Pvt. Ltd. vs Edelweiss Asset Reconstruction Company Ltd. & Ors. on the continuation of proceedings post-Resolution Plan approval.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Survival of Appeals Post-Approval of Resolution Plan
Relevant Legal Framework and Precedents: The primary legal framework is Section 31(1) of the Insolvency and Bankruptcy Code, 2016, which governs the approval of Resolution Plans by the Adjudicating Authority (NCLT). The Supreme Court's decision in Ghanashyam Mishra and Sons Pvt. Ltd. (Civil Appeal No.8129 of 2019) is pivotal, wherein the Court clarified that upon approval of a Resolution Plan, all claims not included in the plan stand extinguished and no proceedings can be initiated or continued in respect of such claims.
Court's Interpretation and Reasoning: The Tribunal noted that the Resolution Plan was approved by the NCLT, an uncontested fact between the parties. Citing the Supreme Court's ruling, the Tribunal emphasized that the approval of the Resolution Plan freezes all claims included therein and extinguishes all others not part of the plan. The Tribunal observed that this principle applies equally to the present appeals arising from demands predating the Resolution Plan's approval.
Key Evidence and Findings: The order of the NCLT approving the Resolution Plan was examined and found valid and binding. Both parties agreed on the approval's existence, though they differed on its finality and effects.
Application of Law to Facts: Applying the Supreme Court's ruling, the Tribunal held that the appeals challenging demands that were not part of the Resolution Plan could not survive. The legal effect of the approval is that such claims are extinguished, and proceedings challenging them must cease.
Treatment of Competing Arguments: The appellant contended that the appeals should not abate because the Resolution Professional had sought to withdraw and a new Resolution Professional was being appointed, implying a lack of finality. The Tribunal rejected this, emphasizing the binding nature of the Resolution Plan approval and the Supreme Court's clear directive that no proceedings can continue thereafter.
Conclusion: The appeals against demands not included in the approved Resolution Plan stand abated and cannot be pursued further.
Issue 2: Continuation of Appeals Pertaining to Refund Claims Post-Resolution Plan Approval
Relevant Legal Framework and Precedents: Section 31(1) of IBC and the Supreme Court decisions in Ghanashyam Mishra and Sons Pvt. Ltd. and Swiss Ribbons Private Limited and Anr. vs Union of India (2019) 4 SCC 17. The latter case underscores the objective of maximizing the value of the Corporate Debtor's assets during insolvency resolution.
Court's Interpretation and Reasoning: The appellant argued that the refund claim appeal should be entertained because it aimed to enhance the Corporate Debtor's assets, consistent with the objectives of the IBC and the Resolution Plan's provisions (specifically clause 4.5.3). The appellant emphasized that the Corporate Debtor was managed by a Monitoring Committee under the Resolution Plan, which was pursuing the refund claim for the benefit of the Corporate Debtor's estate.
Key Evidence and Findings: The Tribunal examined the Resolution Plan's clause allowing the Corporate Debtor to pursue claims beneficial to its assets. However, it also considered the Supreme Court's categorical holding that once the Resolution Plan is approved, the Corporate Debtor's original identity ceases, and all claims not included in the plan stand extinguished.
Application of Law to Facts: The Tribunal found that the Supreme Court's ruling applies equally to refund claims. The Corporate Debtor cannot continue litigation post-approval simply because it might benefit from a refund. The extinguishment of claims under Section 31(1) is absolute and applies to any person, including the Corporate Debtor and its successors or committees managing its affairs.
Treatment of Competing Arguments: The appellant's reliance on Swiss Ribbons and the argument for asset maximization was acknowledged but found insufficient to override the binding effect of the Resolution Plan approval. The Tribunal emphasized that allowing such claims to continue would contradict the IBC's objective of providing finality and certainty to insolvency proceedings.
Conclusion: Appeals pertaining to refund claims, even if pursued by the Monitoring Committee under the Resolution Plan, cannot be entertained after the plan's approval and must be abated.
Issue 3: Effect of Resolution Plan Approval on Corporate Debtor's Identity and Liabilities
Relevant Legal Framework and Precedents: Section 31(1) of IBC and the Supreme Court's analysis in Ghanashyam Mishra and Sons Pvt. Ltd. and Swiss Ribbons Private Limited.
Court's Interpretation and Reasoning: The Tribunal highlighted that the Supreme Court has held that upon approval of the Resolution Plan, the Corporate Debtor's original identity ceases to exist. The liabilities not included in the plan are extinguished, and the Corporate Debtor cannot be burdened with statutory liabilities or continue litigation related to such liabilities.
Key Evidence and Findings: The Tribunal noted that the Corporate Debtor's management by a Monitoring Committee or Resolution Professional post-approval does not revive or preserve claims extinguished by the plan. The legal personality and liabilities of the Corporate Debtor are effectively transformed by the Resolution Plan's approval.
Application of Law to Facts: The Tribunal applied this principle to reject the appellant's attempt to continue litigation on refund claims, emphasizing that the Corporate Debtor's status and liabilities are fixed and cannot be selectively revived.
Treatment of Competing Arguments: The appellant's argument that pursuing refund claims benefits the Corporate Debtor's successors was considered but found inconsistent with the statutory scheme and Supreme Court's rulings.
Conclusion: The Corporate Debtor's identity and liabilities are conclusively altered upon Resolution Plan approval, precluding continuation of claims or appeals not included in the plan.
3. SIGNIFICANT HOLDINGS
- "Once a resolution plan is duly approved by the Adjudicating Authority under subsection (1) of Section 31, the claims as provided in the resolution plan shall stand frozen and will be binding on the Corporate Debtor and its employees, members, creditors, including the Central Government, and State Government or any local authority, guarantors and other stakeholders. On the date of approval of resolution plan by the Adjudicating Authority, all such claims, which are not part of resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not part of the resolution plan."
- "2019 amendment to Section 31 of the I&B Code is clarificatory and declaratory in nature and therefore will be effective from the date on which I&B Code has come into effect."
- "Consequently all the dues including the statutory dues owed to the Central Government, any State Government or any local authority, if not part of the resolution plan, shall stand extinguished and no proceedings in respect of such dues for the period prior to the date on which the Adjudicating Authority grants its approval under Section 31 could be continued."
- The Corporate Debtor's original identity ceases upon approval of the Resolution Plan, and liabilities not included in the plan are extinguished, precluding continuation of litigation, whether for demands or refunds.
- The objective of maximization of value of assets under the IBC does not permit continuation of claims or appeals extinguished by the Resolution Plan approval.
- Final determinations: Appeals challenging demands or claims not included in the approved Resolution Plan stand abated and cannot be pursued or continued. Even refund claims pursued post-approval by the Corporate Debtor or its Monitoring Committee cannot survive. The appeals before the Tribunal are accordingly disposed of.
Validity of Refund Claim prior to the approval of the Resolution Plan under the Insolvency and Bankruptcy Code, 2016 (IBC) - Appellant claim that though the demand raised got abated on approved the Resolution Plan but refund claim survives - HELD THAT:- The Hon’ble Apex Court in Ghanashyam Mishra and Sons Pvt. Ltd. [2021 (4) TMI 613 - SUPREME COURT] has covered the situation where an appeal of identical nature is sought to be pursued since, as contended by the Ld. Special Counsel, paragraph (i) of the conclusion specifically refers to ‘any person’. This apart, once the Resolution Plan is approved in terms of Section 31(1) of IBC, the original identity of the Corporate Debtor ceases to exist. Moreover, while upholding the objectives of IBC, the Hon’ble Apex Court in Ghanashyam Mishra and in Swiss Ribbons Private Limited [2019 (1) TMI 1508 - SUPREME COURT] has categorically held that the liabilities of a Corporate Debtor should not discourage a bonafide successor. No doubt, the maximization of value of assets is viewed as only to benefit such successor but however, once the original identity is lost along with statutory liabilities, such Corporate Debtor cannot choose to stake a claim just because it had litigated its claim regarding refund, the allowability or otherwise of such claim is a different matter altogether.
Conclusion - The status of Corporate Debtor does not alter depending on whether an appeal pertains to a demand or refund; any litigation cannot be initiated and if initiated, cannot continue as categorically held by the Hon’ble Apex Court in Ghanashyam Mishra.
There are no merit in the Appellant-Assessee’s contention and therefore the same is not entertainable - appeal closed.
Validity of Refund Claim prior to the approval of the Resolution Plan under the Insolvency and Bankruptcy Code, 2016 (IBC) - Appellant claim that though the demand raised got abated on approved the Resolution Plan but refund claim survives - HELD THAT:- The Hon’ble Apex Court in Ghanashyam Mishra and Sons Pvt. Ltd. [2021 (4) TMI 613 - SUPREME COURT] has covered the situation where an appeal of identical nature is sought to be pursued since, as contended by the Ld. Special Counsel, paragraph (i) of the conclusion specifically refers to ‘any person’. This apart, once the Resolution Plan is approved in terms of Section 31(1) of IBC, the original identity of the Corporate Debtor ceases to exist. Moreover, while upholding the objectives of IBC, the Hon’ble Apex Court in Ghanashyam Mishra and in Swiss Ribbons Private Limited [2019 (1) TMI 1508 - SUPREME COURT] has categorically held that the liabilities of a Corporate Debtor should not discourage a bonafide successor. No doubt, the maximization of value of assets is viewed as only to benefit such successor but however, once the original identity is lost along with statutory liabilities, such Corporate Debtor cannot choose to stake a claim just because it had litigated its claim regarding refund, the allowability or otherwise of such claim is a different matter altogether.
Conclusion - The status of Corporate Debtor does not alter depending on whether an appeal pertains to a demand or refund; any litigation cannot be initiated and if initiated, cannot continue as categorically held by the Hon’ble Apex Court in Ghanashyam Mishra.
There are no merit in the Appellant-Assessee’s contention and therefore the same is not entertainable - appeal closed.
Abatement of appeal or continuation of proceedings - Resolution Plan approved - ppellant argued that the appeal should be treated as "abated" since the NCLT had approved the Resolution Plan and appointed a Resolution Professional - HELD THAT:- The order of NCLT perused, now that the Resolution Plan stands accepted which is undisputed by both the parties, the present appeal would not survive as ruled by the Hon’ble Apex Court in Ghanashyam Mishra and Sons Pvt. Ltd. Vs Edelweiss Asset Reconstruction Company Ltd. & Ors. [2021 (4) TMI 613 - SUPREME COURT] which decision has been followed by various CESTAT Benches across India.
Once the Resolution Plan is approved by the Adjudicating Authority under Section 31 (1) of Insolvency and Bankruptcy Code, 2016 (IBC) then ‘no person will be entitled to initiate or continue any proceedings in respect to a claim which is not part of the resolution plan’. That means even the present proceedings cannot be continued as held in Ghanashyam Mishra and Sons Pvt. Ltd.
The appeal stands closed/disposed of accordingly.
Abatement of appeal or continuation of proceedings - Resolution Plan approved - ppellant argued that the appeal should be treated as "abated" since the NCLT had approved the Resolution Plan and appointed a Resolution Professional - HELD THAT:- The order of NCLT perused, now that the Resolution Plan stands accepted which is undisputed by both the parties, the present appeal would not survive as ruled by the Hon’ble Apex Court in Ghanashyam Mishra and Sons Pvt. Ltd. Vs Edelweiss Asset Reconstruction Company Ltd. & Ors. [2021 (4) TMI 613 - SUPREME COURT] which decision has been followed by various CESTAT Benches across India.
Once the Resolution Plan is approved by the Adjudicating Authority under Section 31 (1) of Insolvency and Bankruptcy Code, 2016 (IBC) then ‘no person will be entitled to initiate or continue any proceedings in respect to a claim which is not part of the resolution plan’. That means even the present proceedings cannot be continued as held in Ghanashyam Mishra and Sons Pvt. Ltd.
The appeal stands closed/disposed of accordingly.
The factual matrix reveals that the appellants engaged in fabrication of large parts of wind mills during the period from 2014-15 to June 30, 2017, which were subsequently sold to a third party. The charges received by the appellants were solely for fabrication services, excluding the cost of materials supplied by the service recipient. The dispute centered on the classification of this activity for taxation purposes, specifically whether it amounted to manufacture of goods liable to central excise duty or provision of services subject to service tax.
The relevant legal framework comprised Central Excise Notification No. 12/2012-CX dated 17.03.2012, which exempted certain goods related to non-conventional energy devices, including wind operated electricity generators and their components, from excise duty. Entry No. 13 of the exemption list specifically covered "wind operated electricity generator, its components and parts thereof including rotor and wind turbine controller."
In support of their contention that the fabricated parts were excisable goods, the appellants relied on a precedent from the Tribunal's Chennai bench, which interpreted the scope of exemption under the same notification. The cited decision analyzed components such as tower, rotor, nacelle, and wind turbine controller and held them to be parts of wind operated electricity generators eligible for exemption. The decision also addressed related components like anchor rings and load spreading plates, concluding that these were integral parts of the tower assembly and thus exempt.
The Tribunal noted that the Commissioner (Appeals) had primarily focused on whether the appellants were providing a service rather than scrutinizing the scope of the exemption notification and the nature of the fabricated goods. The appellants' argument emphasized that the goods fabricated were inherently excisable but exempt under the notification, and therefore, service tax could not be levied on the fabrication work.
Upon examination, the Tribunal found that the goods fabricated by the appellants were indeed excisable goods within the meaning of the notification. The exemption rendered these goods non-liable to excise duty, and consequently, the activity of fabrication could not be treated as a taxable service. The Tribunal applied the legal principle that where goods are excisable but exempt, the activity of manufacture cannot be subjected to service tax, avoiding double taxation.
The Tribunal rejected the remand request by the Additional Commissioner (AR) and proceeded to allow the appeals, holding that the appellants' fabrication work amounted to manufacture of exempted excisable goods rather than provision of service. The appeals were allowed with consequential relief.
Significant holdings include the Tribunal's explicit affirmation that "what is excisable at the relevant time could not have been subjected to service tax," thereby establishing that fabrication of parts qualifying as exempted excisable goods falls outside the ambit of service tax. The Tribunal relied on the detailed analysis of the exemption notification and supporting precedent to conclude that the fabricated components were parts of wind operated electricity generators eligible for exemption.
This judgment underscores the principle that the classification of an activity as manufacture or service hinges on the nature of the output and the applicable statutory exemptions. It clarifies that fabrication resulting in excisable goods exempted under a notification cannot be taxed as a service, thereby preventing overlapping tax liabilities.
Nature of activity - service or manufacture - fabrication work done by the appellants - HELD THAT:- At the relevant time, the goods being fabricated by the appellants were bringing into existence what would have been normally “excisable goods” being manufactured articles liable to Central excise duty, but for the exemption as contained in 12/2012-CX which made them “exempt goods”.
The issue is answered in affirmative holding that what is excisable at the relevant time could not have been subjected to service tax, if that be so, the appeals are allowable - appeal allowed.
Nature of activity - service or manufacture - fabrication work done by the appellants - HELD THAT:- At the relevant time, the goods being fabricated by the appellants were bringing into existence what would have been normally “excisable goods” being manufactured articles liable to Central excise duty, but for the exemption as contained in 12/2012-CX which made them “exempt goods”.
The issue is answered in affirmative holding that what is excisable at the relevant time could not have been subjected to service tax, if that be so, the appeals are allowable - appeal allowed.
The core legal questions considered by the Tribunal were:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Liability of Service Tax on supply contracts involving only delivery of materials and equipment
Relevant legal framework and precedents: It is well established that supply of goods alone does not attract Service Tax. Freight and insurance charges paid to contractors may include Service Tax if applicable, but the pure supply of goods is not taxable under Service Tax law.
Court's interpretation and reasoning: The Tribunal noted that the first two contracts for each assessee were solely for supply and delivery of materials and equipment at site for rural electrification works. These contracts required procurement from approved suppliers and manufacturers, and no service component was involved beyond supply.
Key evidence and findings: The contracts explicitly described the nature of activities as supply-only, with no erection or commissioning services. The adjudicating authority had rightly dropped the Service Tax demand on these supply contracts.
Application of law to facts: Since supply of goods is outside the scope of Service Tax, no tax liability arises on these contracts.
Treatment of competing arguments: The Revenue contended that all contracts were related and hence the entire amount should be taxable under erection and commissioning services. However, the Tribunal rejected this aggregation approach for supply contracts.
Conclusions: No Service Tax is payable on contracts involving only supply of goods.
Issue 2: Applicability of Service Tax on contracts involving erection, testing, commissioning and civil construction services
Relevant legal framework and precedents: Notification No. 25/2012-S.T. dated 20.06.2012 (Entry No. 12A) exempts services provided to government/local authority/governmental authority by way of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of civil structures or any other original works meant predominantly for use other than in commerce, industry or any other business or profession.
Court's interpretation and reasoning: The Tribunal examined that the erection, testing, commissioning and civil construction services were provided under the RGGVY scheme for rural electrification, which is a government scheme aimed at providing electricity to rural areas. The services were rendered to the State Government and were meant predominantly for use other than commerce, industry, or any other business or profession.
Key evidence and findings: The contracts explicitly stated the nature of activities involving erection, testing, commissioning and civil construction of control room buildings. The rates of Service Tax applicable were specified in the work orders. The Tribunal relied on a precedent where identical issues were considered, and exemption was held applicable.
Application of law to facts: The services fall squarely within the exemption under Notification No. 25/2012-S.T. since they were provided to government authorities for rural electrification, which is not a commercial or industrial activity.
Treatment of competing arguments: The Revenue argued for levy of Service Tax on the entire amount received under the contracts, invoking the extended period of limitation. The Tribunal rejected this, emphasizing that the exemption notification applies and that the extended limitation period was not justified.
Conclusions: The erection, testing, commissioning and civil construction services provided under RGGVY are exempt from Service Tax.
Issue 3: Aggregation of contracts and invocation of extended period of limitation
Relevant legal framework and precedents: The Service Tax law requires separate consideration of taxable and non-taxable components. Extended period of limitation can be invoked only under specific circumstances such as suppression of facts or fraud.
Court's interpretation and reasoning: The Tribunal found that the contracts for supply and erection were distinct in nature and could not be aggregated for the purpose of tax liability. The invocation of extended limitation period was not justified as there was no evidence of suppression or fraud.
Key evidence and findings: The adjudicating authority had dropped demands on supply contracts but confirmed on erection contracts. The Tribunal agreed with this approach and found no merit in the Revenue's contention for aggregation or extended limitation period.
Application of law to facts: The law mandates separate treatment of supply contracts and service contracts. Extended limitation requires strong justification which was absent.
Treatment of competing arguments: The Revenue's attempt to tax the entire amount and extend limitation was rejected.
Conclusions: Aggregation of contracts for taxation and invocation of extended limitation period are not sustainable.
3. SIGNIFICANT HOLDINGS
"The activity of rural electrification is not liable to be taxed in terms of Notification No. 25/2012-S.T. dated 20.06.2012 (Entry No. 12A), wherein services provided to government/local authority/governmental authority by way of construction, erection or commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of civil structures or any other original works meant predominantly for use other than in commerce, industry or any other business or profession are exempted."
"Admittedly, the services provided by the said assessees/contractors were meant for use other than in 'commerce, industry or any other business or profession', to the State Government, under the Central Government scheme of Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY)."
"In these circumstances, we find that the services provided by the assessees are not taxable services."
"An identical issue has already been examined by this Tribunal ... wherein the same view has been expressed by this Tribunal, holding that such services provided by an assessee under the RGGVY scheme for rural electrification are exempt from levy of Service Tax in terms of Notification No. 25/2012-S.T. dated 20.06.2012 (Entry No. 12A)."
Core principles established include:
Final determinations:
Exemption from service tax - contracts awarded under the Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) for rural electrification, involving supply of materials and erection, testing, commissioning and civil construction services - applicability of N/N. 25/2012-S.T. dated 20.06.2012 (Entry No. 12A) - HELD THAT:- In this case, it is an undisputed fact that the assessees had been awarded the works under the Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) by the Energy and Power Department of the Government of Sikkim. These contracts have been awarded to the assessees/appellants for rural electrification in the State of Sikkim under the scheme of the Central Government. The activity of rural electrification is not liable to be taxed in terms of N/N. 25/2012-S.T. dated 20.06.2012 (Entry No. 12A), wherein services provided to government/local authority/governmental authority by way of construction, erection or commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of civil structures or any other original works meant predominantly for use other than in commerce, industry or any other business or profession are exempted.
Admittedly, the services provided by the said assessees/contractors were meant for use other than in 'commerce, industry or any other business or profession', to the State Government, under the Central Government scheme of Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY).
The issue is no longer res integra as an identical issue has already been examined by this Tribunal in the case of Shankar Agarwal v. Commissioner of C.Ex., Cus. & S.T., Siliguri [2025 (4) TMI 1654 - CESTAT KOLKATA] wherein the same view has been expressed by this Tribunal, holding that such services provided by an assessee under the RGGVY scheme for rural electrification are exempt from levy of Service Tax in terms of Notification No. 25/2012-S.T. dated 20.06.2012 (Entry No. 12A).
Thus, no Service Tax is payable by the assessees for the said services.
Conclusion - No Service Tax is payable on contracts solely for supply of materials and equipment. Contracts involving erection, testing, commissioning and civil construction services under the RGGVY scheme are exempt from Service Tax.
There are no merit in the appeals filed by the Revenue and hence, the same are dismissed.
Exemption from service tax - contracts awarded under the Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) for rural electrification, involving supply of materials and erection, testing, commissioning and civil construction services - applicability of N/N. 25/2012-S.T. dated 20.06.2012 (Entry No. 12A) - HELD THAT:- In this case, it is an undisputed fact that the assessees had been awarded the works under the Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) by the Energy and Power Department of the Government of Sikkim. These contracts have been awarded to the assessees/appellants for rural electrification in the State of Sikkim under the scheme of the Central Government. The activity of rural electrification is not liable to be taxed in terms of N/N. 25/2012-S.T. dated 20.06.2012 (Entry No. 12A), wherein services provided to government/local authority/governmental authority by way of construction, erection or commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of civil structures or any other original works meant predominantly for use other than in commerce, industry or any other business or profession are exempted.
Admittedly, the services provided by the said assessees/contractors were meant for use other than in 'commerce, industry or any other business or profession', to the State Government, under the Central Government scheme of Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY).
The issue is no longer res integra as an identical issue has already been examined by this Tribunal in the case of Shankar Agarwal v. Commissioner of C.Ex., Cus. & S.T., Siliguri [2025 (4) TMI 1654 - CESTAT KOLKATA] wherein the same view has been expressed by this Tribunal, holding that such services provided by an assessee under the RGGVY scheme for rural electrification are exempt from levy of Service Tax in terms of Notification No. 25/2012-S.T. dated 20.06.2012 (Entry No. 12A).
Thus, no Service Tax is payable by the assessees for the said services.
Conclusion - No Service Tax is payable on contracts solely for supply of materials and equipment. Contracts involving erection, testing, commissioning and civil construction services under the RGGVY scheme are exempt from Service Tax.
There are no merit in the appeals filed by the Revenue and hence, the same are dismissed.
The core legal questions considered by the Tribunal were:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Classification of Services Rendered - Construction Services or Works Contract Services
Relevant legal framework and precedents: The classification hinges on the definition of 'Construction Services/Commercial or Industrial Construction Services' under Section 65(30)(a) of the Finance Act. The appellant relied on the Supreme Court decision in CCE vs. L & T Ltd., which clarified that prior to 01.06.2007, composite works contracts were not liable to service tax as 'services' simpliciter. The Ministry of Finance's clarification letter C.No.B1/16/2007-TRU dated 22.05.2007 was also relevant, stating that contracts treated as works contracts for VAT/sales tax are similarly treated for service tax.
Court's interpretation and reasoning: The Tribunal examined the Master Solution Agreement dated 19.04.2003, which covered supply, installation, commissioning, and maintenance of ATMs, including site installation services. The appellant had paid VAT on the goods component and was registered for works contract with the Commercial Taxes Department. The Tribunal noted that the appellant's services were composite in nature, involving both goods and services.
The Tribunal referred to its earlier ruling in Final Order No. 610/2008, where it held that 'Automatic Teller Machine Services' as a distinct taxable service category came into effect only from 01.05.2006, and prior to that, such services could not be subjected to service tax. The Tribunal further relied on the Supreme Court's ruling in CCE & Cus., Kerala vs. L & T Ltd., which held that works contracts prior to 01.06.2007 were not liable to service tax, as the definition of taxable service under Section 65(105) referred to service contracts simpliciter and did not encompass composite works contracts.
Key evidence and findings: The appellant's registration as a works contract service provider, VAT payment records, and the nature of the Master Solution Agreement were critical. The Tribunal also considered the Ministry's clarification and prior Tribunal rulings that had set aside service tax demands on similar grounds.
Application of law to facts: Applying the Supreme Court's interpretation and the Ministry's clarification, the Tribunal concluded that the appellant's activities before 01.06.2007 were composite works contracts and not liable to service tax as construction services. The demand based on classification as 'Construction Services' was therefore unsustainable.
Treatment of competing arguments: The Revenue argued for sustaining the demand based on the activity involving construction of a new building or structure for commercial purposes and relied on the Commissioner's order. The appellant countered with judicial precedents and the composite nature of the contract involving goods and services, emphasizing that service tax on works contracts was introduced only from 01.06.2007. The Tribunal favored the appellant's position, following binding Supreme Court authority and prior Tribunal decisions.
Conclusion: The services provided were not liable to service tax as construction services for the disputed period, as they fell under composite works contracts exempt prior to 01.06.2007.
Issue 2: Invocation of Extended Period of Limitation
Relevant legal framework and precedents: The extended period of limitation under service tax law can be invoked where facts were not known to the Department. However, if facts were already known or notices issued for the same period were set aside, extended limitation cannot be invoked.
Court's interpretation and reasoning: The Tribunal noted that the appellant had already been issued notices for the earlier period, which were confirmed by the Commissioner but ultimately set aside by the Tribunal in Final Order No. 610/2008. Since the Department was aware of the material facts, the extended period of limitation could not be invoked legitimately.
Key evidence and findings: The prior notice and order records, along with the Tribunal's earlier ruling setting aside service tax demands for the same period, were crucial.
Application of law to facts: The Tribunal applied the principle that extended limitation cannot be invoked where facts are known to the Department, and previous adjudications have occurred.
Treatment of competing arguments: The appellant argued against invocation of extended limitation based on prior knowledge and adjudication; the Revenue did not specifically contest this point. The Tribunal accepted the appellant's submission.
Conclusion: The extended period of limitation was not invocable in the present case.
Issue 3: Applicability of Service Tax on Works Contract Services Prior to 01.06.2007
Relevant legal framework and precedents: The Supreme Court's ruling in CCE vs. L & T Ltd. clarified that works contract services prior to 01.06.2007 were not liable to service tax, as the definition of taxable service did not cover composite contracts involving transfer of property in goods.
Court's interpretation and reasoning: The Tribunal relied heavily on this precedent, emphasizing that the appellant's contracts were composite works contracts and thus exempt from service tax prior to 01.06.2007.
Key evidence and findings: The nature of the contract, VAT payment on goods, and the absence of a separate taxable service category prior to 01.05.2006 for ATM services were considered.
Application of law to facts: The Tribunal applied the Supreme Court's interpretation to hold that service tax liability could not be sustained for the disputed period.
Treatment of competing arguments: The Revenue's reliance on the construction service classification was rejected in light of the binding Supreme Court decision and earlier Tribunal rulings.
Conclusion: The appellant was not liable to pay service tax on works contract services prior to 01.06.2007.
3. SIGNIFICANT HOLDINGS
The Tribunal succinctly captured the legal reasoning as follows:
"A close look at the Finance Act, 1994 would show that the five taxable services referred to in the charging Section 65(105) would refer only to service contracts simpliciter and not to composite works contracts. This is clear from the very language of Section 65(105) which defines 'taxable service' as 'any service provided'. All the services referred to in the said sub-clauses are service contracts simpliciter without any other element in them, such as for example, a service contract which is a commissioning and installation, or erection, commissioning and installation contract. Further, under Section 67, as has been pointed out above, the value of a taxable service is the gross amount charged by the service provider for such service rendered by him. This would unmistakably show that what is referred to in the charging provision is the taxation of service contracts simpliciter and not composite works contracts, such as are contained on the facts of the present cases."
The core principles established include:
Final determinations on each issue were:
Classification of services - services provided by appellant to State Bank of India (SBI) for construction of ATM sites - classifiable under Construction Services/Commercial or Industrial Construction Services or not - levy of service tax prior to 01.06.2007 - HELD THAT:- The present issue is for the period from October 2004 to May 2007. The Tribunal had categorically held that the service rendered by the appellant falls under ‘Automatic Teller Machine Services’ which came into effect only from 01.05.2006. However, the Revenue proceeded to demand service tax deeming the services to be ‘construction service’ and this issue is no longer res integra in as much as the Supreme Court in the case of CCE & Cus., Kerala vs. L & T Ltd. [2015 (8) TMI 749 - SUPREME COURT] has categorically held that all works contract services prior to 01.06.2007 are not liable to service tax.
Conclusion - Since this Tribunal has clearly held that the services rendered by the appellant falls under the category of ‘Automated Teller Machines’ which came into effect only from 01.05.2006 onwards, the question of liability to service tax on ‘construction services’ cannot be sustained as the services are in the nature of works contract services, which came into existence from 01.06.2007.
The demand set aside - appeal allowed.
Classification of services - services provided by appellant to State Bank of India (SBI) for construction of ATM sites - classifiable under Construction Services/Commercial or Industrial Construction Services or not - levy of service tax prior to 01.06.2007 - HELD THAT:- The present issue is for the period from October 2004 to May 2007. The Tribunal had categorically held that the service rendered by the appellant falls under ‘Automatic Teller Machine Services’ which came into effect only from 01.05.2006. However, the Revenue proceeded to demand service tax deeming the services to be ‘construction service’ and this issue is no longer res integra in as much as the Supreme Court in the case of CCE & Cus., Kerala vs. L & T Ltd. [2015 (8) TMI 749 - SUPREME COURT] has categorically held that all works contract services prior to 01.06.2007 are not liable to service tax.
Conclusion - Since this Tribunal has clearly held that the services rendered by the appellant falls under the category of ‘Automated Teller Machines’ which came into effect only from 01.05.2006 onwards, the question of liability to service tax on ‘construction services’ cannot be sustained as the services are in the nature of works contract services, which came into existence from 01.06.2007.
The demand set aside - appeal allowed.
The core legal questions considered by the Tribunal were:
(a) Whether the appellant was liable to pay service tax at the rate of 10.2% or 12.24% on the advances received during the disputed period from April 2006 to September 2006;
(b) Whether the appellant was entitled to avail and utilize cenvat credit on input services such as film processing charges, sound engineering services, costume designer services, etc., used for rendering output services;
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Rate of Service Tax Applicable on Advances Received
Relevant Legal Framework and Precedents: The applicable provisions were Section 65(78), 65(79), and 65(105)(zb) of the Finance Act, 1994, and Rule 4A of the Service Tax Rules, 1994. Rule 4A(1) stipulates that service tax liability arises on the date of invoice or date of payment, whichever is earlier. Prior to 18.04.2006, service tax was levied at 10.2%, and from 18.04.2006 onwards, the rate was increased to 12.24%. The Point of Taxation Rules, introduced in 2011, clarify the manner of payment of service tax but were not applicable during the disputed period.
Court's Interpretation and Reasoning: The Commissioner (Appeals) held that service tax at 12.24% was applicable on payments received after 18.04.2006, even if the billing was done prior to that date. However, the Tribunal noted that this finding was made without evidence proving that payments were received after 18.04.2006. The appellant submitted detailed statements showing that service tax at 10.2% was discharged on advances received before 18.04.2006, and service tax at 12.24% was paid on payments received on or after 18.04.2006. The appellant also communicated this position to the Revenue by letter dated 10.11.2007.
Key Evidence and Findings: The appellant produced detailed tabulated data of invoices, advance amounts, dates of receipt of payments, and corresponding service tax amounts paid. This data demonstrated compliance with the applicable tax rates based on the date of receipt of advances.
Application of Law to Facts: Applying Rule 4A(1), which mandates that service tax liability arises on the date of invoice or payment, whichever is earlier, the Tribunal concluded that the appellant correctly discharged service tax at 10.2% for advances received prior to 18.04.2006 and at 12.24% for payments received thereafter.
Treatment of Competing Arguments: The Revenue's argument that tax at 12.24% was payable on payments received after 18.04.2006, regardless of invoice date, was rejected due to lack of evidence. The appellant's detailed records and prior disclosures were accepted as proof of correct tax payment.
Conclusion: The Tribunal set aside the impugned order to the extent of demand relating to service tax on advances, holding that the appellant was not liable to pay service tax at 12.24% on advances received prior to 18.04.2006 but had correctly paid at 10.2%.
Issue 2: Denial of Cenvat Credit on Input Services
Relevant Legal Framework and Precedents: The eligibility to avail cenvat credit is governed by the Cenvat Credit Rules, 2004. Input services such as film processing charges, sound engineering services, and costume designer services qualify as input services for the appellant's output service of providing photography services for T.V. commercials.
Court's Interpretation and Reasoning: The Commissioner (Appeals) denied cenvat credit on the ground that the appellant had not furnished a list of input services. However, the Tribunal observed that the Revenue had not questioned the appellant's eligibility or entitlement to cenvat credit under the Rules. The denial based solely on procedural non-compliance was found unsustainable.
Key Evidence and Findings: The appellant asserted that the input services were legitimately used for rendering taxable output services and thus qualified for cenvat credit. No substantive challenge was raised by the Revenue on the nature or use of these input services.
Application of Law to Facts: Since eligibility was not disputed and input services were clearly connected to the output service, the Tribunal held that denial of cenvat credit was not justified.
Treatment of Competing Arguments: The Revenue's argument rested on procedural grounds rather than substantive eligibility, which the Tribunal did not uphold.
Conclusion: The Tribunal set aside the denial of cenvat credit and held that the appellant was entitled to utilize cenvat credit on the input services in question.
3. SIGNIFICANT HOLDINGS
The Tribunal held:
"As per the above Rules, the liability arises on the date of invoice or date of payments whichever is earlier and in the instance case, the rate of tax on the date of receipt of advances prior to 18.04.2006 was @10.2% and the appellant had rightly discharged his liability and therefore, the impugned order to this extent needs to be set aside."
"With regard to eligibility of utilisation of cenvat credit as rightly pointed out by the appellant, the denial of cenvat credit utilisation cannot be sustained inasmuch as the eligibility has not been questioned, hence, the order confirming the same is devoid of merit."
Core principles established include:
(a) Service tax liability on advances is governed by Rule 4A of the Service Tax Rules, 1994, and the applicable rate is the rate prevailing on the date of receipt of payment or invoice, whichever is earlier;
(b) Mere procedural lapses such as non-furnishing of a list of input services do not justify denial of cenvat credit if eligibility under the Cenvat Credit Rules, 2004, is not disputed;
(c) The burden lies on the Revenue to produce evidence to support claims of incorrect payment or non-payment of service tax at the correct rate.
Final determinations were that the appellant had correctly paid service tax at 10.2% on advances received prior to 18.04.2006 and at 12.24% thereafter, and was entitled to cenvat credit on eligible input services; consequently, the impugned order confirming demand and denying credit was set aside and the appeal allowed with consequential relief.
Rate of service tax - advances received during the disputed period from April 2006 to September 2006 - taxable at the rate of 10.2% or 12.24%? - Denial of cenvat credit on various input services utilized by the appellant.
Rate of service tax - advances received during the disputed period from April 2006 to September 2006 - taxable at the rate of 10.2% or 12.24%? - HELD THAT:- As per Rule 4A of the Service Tax Rules, 1994, the liability arises on the date of invoice or date of payments whichever is earlier and in the instance case, the rate of tax on the date of receipt of advances prior to 18.04.2006 was @10.2% and the appellant had rightly discharged his liability and therefore, the impugned order to this extent needs to be set aside.
Denial of cenvat credit on various input services utilized by the appellant - HELD THAT:- With regard to eligibility of utilisation of cenvat credit as rightly pointed out by the appellant, the denial of cenvat credit utilisation cannot be sustained inasmuch as the eligibility has not been questioned, hence, the order confirming the same is devoid of merit.
Conclusion - The appellant had correctly paid service tax at 10.2% on advances received prior to 18.04.2006 and at 12.24% thereafter, and is entitled to cenvat credit on eligible input services.
The impugned order is set aside and the appeal is allowed.
Rate of service tax - advances received during the disputed period from April 2006 to September 2006 - taxable at the rate of 10.2% or 12.24%? - Denial of cenvat credit on various input services utilized by the appellant.
Rate of service tax - advances received during the disputed period from April 2006 to September 2006 - taxable at the rate of 10.2% or 12.24%? - HELD THAT:- As per Rule 4A of the Service Tax Rules, 1994, the liability arises on the date of invoice or date of payments whichever is earlier and in the instance case, the rate of tax on the date of receipt of advances prior to 18.04.2006 was @10.2% and the appellant had rightly discharged his liability and therefore, the impugned order to this extent needs to be set aside.
Denial of cenvat credit on various input services utilized by the appellant - HELD THAT:- With regard to eligibility of utilisation of cenvat credit as rightly pointed out by the appellant, the denial of cenvat credit utilisation cannot be sustained inasmuch as the eligibility has not been questioned, hence, the order confirming the same is devoid of merit.
Conclusion - The appellant had correctly paid service tax at 10.2% on advances received prior to 18.04.2006 and at 12.24% thereafter, and is entitled to cenvat credit on eligible input services.
The impugned order is set aside and the appeal is allowed.
1. Whether the service provided by the appellant under the agreement with the Mysore City Corporation for maintenance of crematorium falls within the scope of 'Management, maintenance or repair' service as defined under Section 65(105)(zzg) of the Finance Act, 1994, thereby attracting service tax liability.
2. Whether the appellant is entitled to the benefit of cum-duty (cumulative duty) basis for calculating taxable turnover and service tax payable, particularly in light of Notification No. 12/2003-ST dated 20.06.2003.
3. Whether the appellant qualifies for exemption under Notification No. 6/2005-ST dated 01.03.2005, which exempts service tax liability if the turnover of the previous year is below Rs. 4 lakhs.
4. The correctness of the demand for service tax, interest, and penalties imposed by the adjudicating authorities and the Commissioner (Appeals).
Issue 1: Classification of Service as 'Management, maintenance or repair' service
The relevant legal framework is Section 65(105)(zzg) of the Finance Act, 1994, which defines 'Management, maintenance or repair' service as a taxable service category. The Department's contention was that the appellant's activity of maintaining the crematorium falls within this category and is therefore liable to service tax.
The Adjudication Authority and subsequent appellate authorities upheld this classification. The appellant did not dispute this classification before the Tribunal, and it was accepted as an admitted fact. The Tribunal noted that the contract was indeed for maintenance of the crematorium and that the classification was appropriate.
The Court's reasoning was based on the nature of the service rendered, which involved upkeep and maintenance activities, squarely fitting within the statutory definition. No competing arguments were raised to challenge this classification.
Conclusion: The service rendered by the appellant is correctly classified as 'Management, maintenance or repair' service and is liable to service tax under the Finance Act.
Issue 2: Entitlement to Cum-Duty Benefit and Application of Notification No. 12/2003-ST
Notification No. 12/2003-ST dated 20.06.2003 provides for abatement in the taxable value of certain services by excluding the value of materials used in the course of providing the service. The appellant contended that the taxable turnover should be computed on a cum-duty basis, allowing deduction for materials consumed, thereby reducing the taxable value and service tax liability.
The Adjudication Authority, upon remand from the Commissioner (Appeals), considered the abatement and allowed deduction for material consumed, reducing the demand accordingly. The appellant argued that the benefit of cum-duty should also be allowed, which was not initially given.
The Tribunal analyzed the relevant notification and the facts regarding turnover and material consumption. It observed that the adjudicating authorities correctly applied the abatement for materials as per Notification No. 12/2003-ST but had not extended the cum-duty benefit in full.
The Tribunal held that there was no justification for denying the cum-duty benefit, and directed the lower authorities to allow the appellant the benefit of cum-duty for the relevant period.
The appellant's calculations demonstrated that applying the cum-duty basis and abatement significantly reduced the taxable turnover and service tax payable, resulting in excess tax paid and eligibility for refund.
Conclusion: The appellant is entitled to the benefit of cum-duty and abatement under Notification No. 12/2003-ST, reducing the taxable turnover and service tax liability.
Issue 3: Applicability of Exemption under Notification No. 6/2005-ST
Notification No. 6/2005-ST dated 01.03.2005 exempts service tax liability on the first Rs. 4 lakhs of turnover if the previous year's turnover is below Rs. 4 lakhs. The appellant claimed exemption for the period September 2005 to March 2006 based on this notification.
The appellant's turnover for the period September 2005 to March 2006, after applying cum-duty basis and abatement, was below Rs. 4 lakhs, making them eligible for exemption under the notification.
For the subsequent year 2006-07, the appellant admitted that the previous year's turnover exceeded Rs. 4 lakhs, disqualifying them from the exemption for that year.
The Tribunal agreed with this position and directed that the benefit of Notification No. 6/2005-ST be extended only for the period September 2005 to March 2006.
Conclusion: The appellant is entitled to exemption under Notification No. 6/2005-ST for the period September 2005 to March 2006 but not for the financial year 2006-07.
Issue 4: Legitimacy of Demand, Interest and Penalties
The Adjudication Authority had initially confirmed the demand of service tax along with interest and penalties. On remand, the demand was reduced after considering abatement, and penalties were refrained from being imposed.
The appellant challenged the demand on the basis of incorrect calculation of turnover and non-application of cum-duty benefits, resulting in excess tax paid.
The Tribunal found that while the service tax demand was justified on the admitted classification of service, the calculation of turnover and tax payable needed correction by allowing cum-duty benefits and exemption notifications.
Accordingly, the Tribunal partially allowed the appeal, directing the lower authorities to adjust the tax liability and refund excess tax paid with applicable interest, but did not reinstate penalties.
Conclusion: Demand for service tax is valid but must be recalculated after allowing cum-duty and exemption benefits. Penalties are not warranted.
Significant Holdings
The Tribunal held: "It is an admitted fact that the contract was made for maintenance of crematorium and adjudication authority rightly classified the service as falling under category of 'Management, maintenance or repair service.' However, there is no reason or justification to deny the benefit of cum duty and by allowing the same, appellant is eligible for the benefit of Notification No. 6/2005-ST dated 01.03.2005 for the period September 2005 to March 2006."
This establishes the principle that classification of service under a taxable category does not preclude entitlement to statutory abatements and exemptions, which must be duly considered to arrive at the correct tax liability.
The Tribunal's final determination was to partially allow the appeal, directing the lower authorities to extend the benefit of cum-duty and Notification No. 6/2005-ST for the relevant period, and to refund the excess tax paid with interest, while upholding the service tax liability for the period beyond exemption eligibility.
Recovery of service tax - ‘Management, maintenance or repair’ service as per Section 65 (105)(zzg) of the Finance Act, 1994 - applicability of abatement as per N/N. 12/2003-ST dated 20.06.2003 - HELD THAT:- It is an admitted fact that the contract was made for maintenance of crematorium and adjudication authority rightly classified the service as falling under category of 'Management, maintenance or repair service. However there is no reason or justification to deny the benefit of cum tax and by allowing the same, appellant is eligible for the benefit of Notification No. 6/2005-ST dated 01.03.2005 for the period September 2005 to March 2006.
Hence, the appeal is partially allowed directing the lower authority to extend the benefit of cum-duty and the benefit of Notification No. 6/2005-ST dated 01.03.2005 for the period September 2005 to March 2006.
Recovery of service tax - ‘Management, maintenance or repair’ service as per Section 65 (105)(zzg) of the Finance Act, 1994 - applicability of abatement as per N/N. 12/2003-ST dated 20.06.2003 - HELD THAT:- It is an admitted fact that the contract was made for maintenance of crematorium and adjudication authority rightly classified the service as falling under category of 'Management, maintenance or repair service. However there is no reason or justification to deny the benefit of cum tax and by allowing the same, appellant is eligible for the benefit of Notification No. 6/2005-ST dated 01.03.2005 for the period September 2005 to March 2006.
Hence, the appeal is partially allowed directing the lower authority to extend the benefit of cum-duty and the benefit of Notification No. 6/2005-ST dated 01.03.2005 for the period September 2005 to March 2006.
(i) Whether there was short payment of service tax under the category of 'Business Auxiliary Service' on reimbursements of the Banking Cash Transaction Tax (BCTT);
(ii) Whether the demand of service tax under 'Business Auxiliary Service' and 'Banking and Other Financial Services' was valid;
(iii) Whether the appellant had availed ineligible Cenvat credit;
(iv) Whether the extended period of limitation and penalties under Sections 76 and 78 of the Finance Act, 1994 were rightly invoked against the appellant.
Issue-wise Detailed Analysis
1. Short Payment of Service Tax on Reimbursement of Banking Cash Transaction Tax (BCTT) under 'Business Auxiliary Service'
The relevant legal framework includes the Finance Act, 1994, particularly the provisions relating to service tax under 'Business Auxiliary Service' (BAS), and the Export of Service Rules, 2005. The appellant contended that the BCTT was a statutory levy paid by them and subsequently reimbursed by their clients. The appellant argued that the service rendered was an export of service under the Export of Service Rules, 2005, as the ultimate service recipients were principals located in UAE, and the benefit of the service accrued outside India. Therefore, the amount reimbursed as BCTT should not be subject to service tax.
The Tribunal referred to precedents such as Muthoot Fincorp Ltd., UAE Exchange and Financial Services Ltd., and Kerala State Financial Enterprises Ltd., which held that such transactions constituted export of service and were not taxable under BAS. The Tribunal also relied on the Supreme Court judgment in Union of India Vs. Intercontinental Consultants and Technocrats Pvt. Ltd., which clarified that reimbursements of expenses prior to the amendment of Section 67 of the Finance Act, 2007, did not form part of the taxable value for service tax purposes.
The adjudicating authority's finding that the appellant had not received foreign exchange and that the reimbursement formed part of taxable value was found to be factually incorrect and legally unsustainable. The Tribunal applied the law to the facts, noting the appellant's production of foreign inward remittance certificates and the contractual arrangements indicating the service was rendered to principals abroad. The Tribunal rejected the Revenue's contention that all expenditures must form part of valuation, emphasizing the settled position that reimbursement of statutory levies like BCTT does not attract service tax prior to the relevant amendment.
Accordingly, the Tribunal concluded that there was no short payment of service tax on BCTT reimbursements under BAS.
2. Demand under 'Business Auxiliary Service' and 'Banking and Other Financial Services'
The appellant challenged the demand of service tax on income received from mutual fund-related transactions and other financial advisory services, asserting that they were not mutual fund distributors or agents and thus not liable under BAS or 'Banking and Other Financial Services'. The relevant provisions included Section 65(12) of the Finance Act, 1994, defining 'Banking and Other Financial Services', and Rule 2(1)(d)(vi) of the Service Tax Rules, 1994.
The Tribunal examined the classification of services rendered, relying on the decision in Ashok and Co. Pan Bahar Ltd. and Sunrise Traders, which held that only mutual fund distributors or agents are liable for service tax on mutual fund distribution commissions. Since the appellant was neither, the demand under BAS was not sustainable.
Regarding the demand under 'Banking and Other Financial Services', the Tribunal noted that the appellant's activities did not involve advisory or portfolio management services as defined under Section 65(12). The Tribunal observed that the Revenue failed to discharge the burden of proof to classify the appellant's receipts as taxable under this category. The Tribunal also referred to Rule 3(2)(b) of the Export of Service Rules, 2005, noting that the appellant satisfied the conditions for export of service, further negating the demand.
Thus, the Tribunal held that the demand under both categories was not justified.
3. Availment of Ineligible Cenvat Credit
The issue concerned whether the appellant was entitled to Cenvat credit on office equipment and related inputs used for providing output services. The relevant legal framework was the Cenvat Credit Rules, 2004, particularly the definition of 'capital goods' under Rule 2(a), and Circular No. 120/01/2010-ST.
The appellant argued for a purposive interpretation of the definition, highlighting that office equipment was essential for rendering output services and thus eligible for credit. The Tribunal referred to precedents such as Semco Electric Pvt. Ltd. and Red Hat India Pvt. Ltd., which supported a broad and purposive approach to eligibility for credit.
The adjudicating authority's narrow interpretation was rejected, and the Tribunal held that the appellant was entitled to the Cenvat credit claimed. The demand for recovery of ineligible credit was therefore unsustainable.
4. Invocation of Extended Period of Limitation and Penalties
The appellant contended that there was no suppression or intention to evade tax, as the issues involved were matters of interpretation and had been disputed in various decisions. The relevant provisions were Sections 73(2), 75, 76, 78, and 80 of the Finance Act, 1994.
The Tribunal noted that extended period of limitation under Section 73(2) applies only in cases of willful suppression. Since the appellant had a bona fide belief based on prevailing judicial precedents that service tax was not payable on the disputed transactions, no suppression was established. The Tribunal relied on the Supreme Court decision in Jayaprakash Industries Ltd., which held that extended limitation is not invocable where there is bona fide dispute on tax liability.
Furthermore, the Tribunal observed that penalties under Sections 76 and 78 should not be imposed when there is reasonable belief regarding non-taxability, and the adjudicating authority ought to have considered Section 80, which provides for waiver of penalties in such cases.
The Tribunal concluded that invoking extended limitation and imposing penalties were unsustainable.
Significant Holdings
"It is undisputed that the appellant herein does not charge any amount as commission or fee from the recipients of the amount. The said Western Union charges fee from the person who is situated outside India and pays WFL some amount as commission and WFL pay current appellant a part of the amount as compensation. In the whole transaction it can be seen that the services rendered by the appellant of money transfer is directly to Western Union. If that be so, it can be said that the appellant is providing the services to Western Union whose beneficiaries are outside India."
This principle established that services rendered to principals abroad, with benefit accruing outside India, constitute export of service and are not taxable under BAS.
The Tribunal reaffirmed that reimbursements of statutory levies such as BCTT prior to amendment of Section 67 of the Finance Act, 2007 do not form part of taxable value for service tax purposes.
It was held that only mutual fund distributors or agents are liable to pay service tax on mutual fund distribution commissions, and a party not registered as such cannot be taxed under BAS or 'Banking and Other Financial Services' for such receipts.
The Tribunal emphasized a purposive interpretation of the Cenvat Credit Rules, allowing credit on office equipment essential for providing output services, rejecting narrow interpretations that deny such credit.
Regarding limitation and penalties, the Tribunal held that extended period of limitation cannot be invoked in cases of bona fide disputes and that penalties should be waived where there is reasonable belief in non-taxability, invoking Section 80 of the Finance Act, 1994.
Final determinations:
Levy of service tax - Banking Cash Transaction Tax - export of service or not - Short payment of service tax under ‘Business Auxiliary Service’, on reimbursements of 'banking cash transaction tax' - demand under 'Business Auxiliary Service' - availment of ineligible cenvat credit or not - invoction of extended period of limitation - Levy of penalty.
Levy of service tax - Banking Cash Transaction Tax - export of service or not - HELD THAT:- The issue is no more res-integra and issue is settled by the Tribunal in the matter of Muthoot Fincorp Ltd. Vs. Commr. of C.Ex. Visakhapatnam, [2009 (8) TMI 236 - CESTAT, BANGALORE], where it is held that 'The said Western Union charges fee from the person who is situated outside India and pays WFL some amount as commission and WFL pay current appellant a part of the amount as compensation. In the whole transaction it can be seen that the services rendered by the appellant of money transfer is directly to Western Union. If that be so, it can be said that the appellant is providing the services to Western Union whose beneficiaries are outside India.'
While considering the above issue, Tribunal has also considered the Circular issued by the Board dated 24.02.2009 regarding applicability of provisions of the Export of Service Rules, 2005 and held that services rendered by the appellant cannot be taxed under the category of 'business auxiliary services'.
Considering the evidence produced by the appellant as part of the appeal memorandum and reply to Show Cause Notice, the amount received by the appellant directly from client abroad, and benefit of services accruing to person outside India. Hence, service tax was not payable under ‘Business Auxiliary Service’.
Short payment of service tax under the category of 'Business Auxiliary Service' on reimbursements of the Banking Cash Transaction Tax (BCTT) - HELD THAT:- Considering the details furnished by the appellants, and also as per Sub-rule (4A) of Rule 6 of Rule 4(2) Service Tax Rules, 1994 the excess amount paid to the Central Government towards service tax for a month or quarter was allowed to be adjusted as service tax against the service tax liability of subsequent month or quarter. Thus, there is no omission on the part of appellant to allege short payment of Rs. 7,80,642/-.
Ineligible Cenvat credit of Rs. 3,26,997/- - HELD THAT:- The cenvat credit claimed by the appellant does not fall under the exclusion category as per the definition of input service and appellant is eligible for the same.
Invocation of extended period of limitation and imposition of penalty - HELD THAT:- There is no suppression of facts to invoke the extended period of limitation, since the issue is on interpretation of an issue and not suppression of facts. It is well settled that where there is a dispute prevailing in the matter of classification of products, the appellant cannot be held guilty of suppression or misstatement and hence charge of suppression is not sustainable and extended period cannot be invoked. Similarly in the matter of Jayaprakash Industries Ltd. Vs. Commissioner of Central Excise, Chandigarh [2002 (11) TMI 92 - SUPREME COURT], the Apex Court held that when there is a bona fide doubt about the tax liability on the goods due to diverging views of the courts, extended period of limitation is not invocable.
Conclusion - i) The demand of service tax on reimbursement of BCTT under BAS is set aside as the service constituted export of service and reimbursements were not taxable. ii) The demand under 'Business Auxiliary Service' and 'Banking and Other Financial Services' on mutual fund-related receipts rejected as the appellant was not a mutual fund distributor or agent. iii) The appellant is entitled to the Cenvat credit claimed on office equipment and related inputs; the demand for recovery is unsustainable. iv) The extended period of limitation and penalties imposed are not justified and are set aside.
The impugned order is set aside and the appeal is allowed.
Levy of service tax - Banking Cash Transaction Tax - export of service or not - Short payment of service tax under ‘Business Auxiliary Service’, on reimbursements of 'banking cash transaction tax' - demand under 'Business Auxiliary Service' - availment of ineligible cenvat credit or not - invoction of extended period of limitation - Levy of penalty.
Levy of service tax - Banking Cash Transaction Tax - export of service or not - HELD THAT:- The issue is no more res-integra and issue is settled by the Tribunal in the matter of Muthoot Fincorp Ltd. Vs. Commr. of C.Ex. Visakhapatnam, [2009 (8) TMI 236 - CESTAT, BANGALORE], where it is held that 'The said Western Union charges fee from the person who is situated outside India and pays WFL some amount as commission and WFL pay current appellant a part of the amount as compensation. In the whole transaction it can be seen that the services rendered by the appellant of money transfer is directly to Western Union. If that be so, it can be said that the appellant is providing the services to Western Union whose beneficiaries are outside India.'
While considering the above issue, Tribunal has also considered the Circular issued by the Board dated 24.02.2009 regarding applicability of provisions of the Export of Service Rules, 2005 and held that services rendered by the appellant cannot be taxed under the category of 'business auxiliary services'.
Considering the evidence produced by the appellant as part of the appeal memorandum and reply to Show Cause Notice, the amount received by the appellant directly from client abroad, and benefit of services accruing to person outside India. Hence, service tax was not payable under ‘Business Auxiliary Service’.
Short payment of service tax under the category of 'Business Auxiliary Service' on reimbursements of the Banking Cash Transaction Tax (BCTT) - HELD THAT:- Considering the details furnished by the appellants, and also as per Sub-rule (4A) of Rule 6 of Rule 4(2) Service Tax Rules, 1994 the excess amount paid to the Central Government towards service tax for a month or quarter was allowed to be adjusted as service tax against the service tax liability of subsequent month or quarter. Thus, there is no omission on the part of appellant to allege short payment of Rs. 7,80,642/-.
Ineligible Cenvat credit of Rs. 3,26,997/- - HELD THAT:- The cenvat credit claimed by the appellant does not fall under the exclusion category as per the definition of input service and appellant is eligible for the same.
Invocation of extended period of limitation and imposition of penalty - HELD THAT:- There is no suppression of facts to invoke the extended period of limitation, since the issue is on interpretation of an issue and not suppression of facts. It is well settled that where there is a dispute prevailing in the matter of classification of products, the appellant cannot be held guilty of suppression or misstatement and hence charge of suppression is not sustainable and extended period cannot be invoked. Similarly in the matter of Jayaprakash Industries Ltd. Vs. Commissioner of Central Excise, Chandigarh [2002 (11) TMI 92 - SUPREME COURT], the Apex Court held that when there is a bona fide doubt about the tax liability on the goods due to diverging views of the courts, extended period of limitation is not invocable.
Conclusion - i) The demand of service tax on reimbursement of BCTT under BAS is set aside as the service constituted export of service and reimbursements were not taxable. ii) The demand under 'Business Auxiliary Service' and 'Banking and Other Financial Services' on mutual fund-related receipts rejected as the appellant was not a mutual fund distributor or agent. iii) The appellant is entitled to the Cenvat credit claimed on office equipment and related inputs; the demand for recovery is unsustainable. iv) The extended period of limitation and penalties imposed are not justified and are set aside.
The impugned order is set aside and the appeal is allowed.
The appellant manufactures simulators classified under Chapter 8505 of CETA, 1985, attracting a nil rate of duty. Consequently, no duty was paid on these simulators supplied to the Ministry of Defence. The appellant was registered under service tax for certain services but not under Central Excise for the simulators due to the nil duty classification. Alleging wrongful availment and utilization of ineligible Cenvat credit, the department initiated proceedings and confirmed a demand equivalent to 10% of the exempted goods' value along with interest and penalties. On appeal, the matter was remanded for de novo adjudication, which confirmed a reduced demand under Rule 6(3)(ii) of the Cenvat Credit Rules, 2004, along with interest and penalties. The appellant challenged this order before the Tribunal.
The appellant contended that the issue is settled by various precedents and that the demand confirmed was grossly disproportionate to the proportionate credit attributable to exempted goods. Specifically, the appellant had reversed proportionate Cenvat credit of Rs. 16,81,342/- and Rs. 13,69,721/- for financial years 2008-09 and 2009-10 respectively, totaling Rs. 30,51,063/-, whereas the demand was for Rs. 3,45,42,699/-. The appellant argued that under Rule 6(1) of the Cenvat Credit Rules, 2004, credit is disallowed only to the extent used in exempted goods manufacture, and since the reversal was made with interest before the adjudication order, the demand and penalties were unwarranted. The appellant relied on an extensive list of judicial decisions supporting the proposition that reversal of proportionate credit prior to adjudication suffices to negate further demand or penalty.
The department's authorized representative countered that the reversal was made only after issuance of the show cause notice, and the cited case laws pertain to reversals made prior to such notices. Hence, the department argued that the appellant's conduct amounted to a lapse warranting demand confirmation and penalties.
The Tribunal observed that the appellant admitted to the omission in availing Cenvat credit on exempted goods but rectified the error by reversing the credit along with interest once the mistake was discovered. The department accepted this reversal. The Tribunal noted that the Karnataka High Court in the case of CCE Vs. ETA Technology Pvt. Ltd. had held that reversal of credit availed is sufficient and there is no requirement to pay an additional 8% of the exempted goods' value. Similarly, in Tata Technologies Ltd., it was held that minor procedural lapses should not deprive the assessee of substantial benefits once the declaration and reversal are made, even if belatedly. The Tribunal emphasized that the legislative intent is to prevent undue benefit through Cenvat credit attributable to exempted goods or services, not to impose penalties where the credit has been reversed with interest. It further held that Rule 6 cannot be used as a tool to extract amounts beyond the remedial measure directly available under the law.
Applying these principles, the Tribunal concluded that since the appellant had reversed the proportionate Cenvat credit attributable to exempted goods along with interest before adjudication, the imposition of demand and penalties was not justified. The impugned order confirming the demand and penalties was therefore unsustainable and was set aside. The appeal was allowed with consequential relief in accordance with law.
Significant holdings include the following verbatim reasoning: "once the appellant who had availed ineligible Cenvat credit and had reversed the entire amount with interest before issue of the order, Adjudication Authority ought to have considered the same and dropped the demand." Further, "there is merit in the contention of the assessee that Rule 6 cannot be used as tool to extract the amount, which is much beyond the remedial measure and what cannot be collected directly, cannot be collected indirectly, as well."
The core principles established are that reversal of proportionate Cenvat credit attributable to exempted goods along with interest, if done prior to adjudication, satisfies the legislative requirement and precludes further demand or penalty. The intention of the law is to prevent undue credit benefit, but not to impose punitive measures where the credit has been duly reversed. Procedural lapses or belated reversals, if rectified substantively, should not deny the assessee relief.
In final determination, the Tribunal held that the reversal of proportionate credit by the appellant under Rule 6(3A) of the Cenvat Credit Rules, 2004 was proper and sufficient. Consequently, the demand confirmed under Rule 6(3)(ii), along with interest and penalties, was set aside. The appeal was allowed accordingly.
Reversal of the proportionate cenvat credit attributable to exempted goods by the appellant - lapse on the part of the appellant in availing the Cenvat credit and it is reversed only after issue of Show Cause Notice - Rule 6(3A) of Cenvat Credit Rules, 2004 - HELD THAT:- It is an admitted fact that the appellant had committed an omission by availing the CENVAT credit on exempted goods and when they came to know about such omission, they have reversed the credit wrongly availed against the exempted goods along with interest, once the department accepted the same, there is no reason or justification to invoke the penal provisions and to proceed to confirm the demand.
Further, Hon'ble High Court of Karnataka in the case of CCE Vs. ETA Technology Pvt., Ltd. [2010 (6) TMI 757 - KARNATAKA HIGH COURT] has taken note of the amendment and held that the reversal of credit availed would be sufficient and there is no need to pay 8% of the value of exempted goods. Further, in the matter of Tata Technologies limited [2016 (1) TMI 972 - CESTAT MUMBAI] it was held that once the assessee have filed the declaration, though belatedly, due to minor procedural lapses, substantial benefit cannot be denied. The intention of the legislation is that the assessee should not get undue benefit in the form of CENVAT Credit, which is attributable to input services used in providing exempted output service. It is further observed that there is no dispute with regard to the CENVAT Credit reworked by the assessee which is attributable to the exempted goods.
Further, there is merit in the contention of the assessee that Rule 6 cannot be used as tool to extract the amount, which is much beyond the remedial measure and what cannot be collected directly, cannot be collected indirectly, as well.
Following the decision of Hon'ble Karnataka High Court in the case CCE Vs. ETA Technology Pvt., Ltd., considering substantive compliance made by the appellant i.e. payment of attributable CENVAT Credit on exempted goods along with interest, the substantial benefit cannot be denied.
Appeal allowed.
Reversal of the proportionate cenvat credit attributable to exempted goods by the appellant - lapse on the part of the appellant in availing the Cenvat credit and it is reversed only after issue of Show Cause Notice - Rule 6(3A) of Cenvat Credit Rules, 2004 - HELD THAT:- It is an admitted fact that the appellant had committed an omission by availing the CENVAT credit on exempted goods and when they came to know about such omission, they have reversed the credit wrongly availed against the exempted goods along with interest, once the department accepted the same, there is no reason or justification to invoke the penal provisions and to proceed to confirm the demand.
Further, Hon'ble High Court of Karnataka in the case of CCE Vs. ETA Technology Pvt., Ltd. [2010 (6) TMI 757 - KARNATAKA HIGH COURT] has taken note of the amendment and held that the reversal of credit availed would be sufficient and there is no need to pay 8% of the value of exempted goods. Further, in the matter of Tata Technologies limited [2016 (1) TMI 972 - CESTAT MUMBAI] it was held that once the assessee have filed the declaration, though belatedly, due to minor procedural lapses, substantial benefit cannot be denied. The intention of the legislation is that the assessee should not get undue benefit in the form of CENVAT Credit, which is attributable to input services used in providing exempted output service. It is further observed that there is no dispute with regard to the CENVAT Credit reworked by the assessee which is attributable to the exempted goods.
Further, there is merit in the contention of the assessee that Rule 6 cannot be used as tool to extract the amount, which is much beyond the remedial measure and what cannot be collected directly, cannot be collected indirectly, as well.
Following the decision of Hon'ble Karnataka High Court in the case CCE Vs. ETA Technology Pvt., Ltd., considering substantive compliance made by the appellant i.e. payment of attributable CENVAT Credit on exempted goods along with interest, the substantial benefit cannot be denied.
Appeal allowed.
Regarding the first issue, the relevant legal framework comprises the Indian Trusts Act, 1882, defining the nature, obligations, and fiduciary duties of a trust and trustee, and the Finance Act, 1994, particularly the provisions relating to service tax on 'Club or Association' services. The appellant is a trust created by a deed dated 15.09.1994 by a corporate settlor exclusively for the welfare of its employees, holding and administering a trust fund contributed to by beneficiaries (employees). The appellant had obtained service tax registration under 'Club or Association' and paid service tax from 01.05.2006 onwards but was later demanded service tax for the period 16.06.2005 to 30.04.2006, which was contested.
The Court examined the nature of a trust under the Indian Trusts Act, 1882, highlighting that a trust is an obligation annexed to ownership of property, arising from confidence reposed in the trustee for the benefit of beneficiaries. It emphasized that a trust is a fiduciary relationship, not a separate legal entity or 'person' in law, unlike a corporate body. The trustee holds equitable ownership and owes fiduciary duties to the beneficiaries, including preservation of the trust fund and impartial administration. The Court noted that the Finance Act does not define 'person' to include a trust, and the appellant trust does not fit within the statutory definition of a 'club or association' providing taxable services.
Precedents cited by the appellant included authoritative decisions establishing that trusts, especially private trusts for employee welfare, do not constitute taxable entities under 'club or association' services. The doctrine of mutuality, a fundamental principle in tax jurisprudence, was invoked to argue that there is no service provider-service recipient relationship between the trust and its beneficiaries. The doctrine posits that no person can trade with themselves or make a taxable profit by dealing with oneself. The appellant trust, created exclusively for the benefit of its beneficiaries, is therefore not engaged in a taxable transaction. The Court referred to the Supreme Court ruling in State of West Bengal v. Calcutta Club Ltd., which held that incorporated clubs or associations prior to 1st July 2012 were not included in the service tax net, reinforcing the applicability of the doctrine of mutuality.
On the issue of limitation, the appellant contended that the demand for service tax for the period before 01.05.2006 was barred by limitation, as the extended period under proviso to Section 73(1) of the Finance Act could not be invoked without evidence of willful suppression or evasion. The appellant had paid service tax post-insertion of the Explanation to Section 65 under a bona fide belief that no tax was payable prior. The Court found no willful suppression or intention to evade tax and held that invoking the extended period of limitation was unsustainable.
Regarding penalties, the appellant argued that penalties under various sections, including Section 78, were unjustified due to lack of mens rea or culpable mental state and absence of deliberate defiance or loss to revenue. The Court agreed that penalties were not warranted in the circumstances.
In applying the law to the facts, the Court recognized that the appellant trust is a private express trust created solely for employee welfare, with fiduciary trustees managing a distinct trust fund contributed by beneficiaries. There is no evidence of a commercial or membership-based relationship akin to a club or association providing taxable services. The fiduciary nature and absence of distinct service provider-recipient relationship preclude the applicability of service tax under the 'club or association' category. The Court also applied the doctrine of mutuality to reject the tax liability for the disputed period.
Competing arguments by the revenue, asserting that admission of service tax payment for subsequent periods negates ignorance of law and justifies extended limitation, were rejected by the Court due to absence of willful concealment and the bona fide nature of the dispute.
The Court concluded that the appellant trust is not liable to pay service tax under the 'club or association' category for the period 16.06.2005 to 30.04.2006. The extended period of limitation for demand was improperly invoked, and penalties were unjustified. The impugned order confirming the demand and penalties was set aside.
Significant holdings include the Court's reliance on the Supreme Court's authoritative statement that "incorporated clubs or associations prior to 1st July 2012 were not included in the Service Tax net," affirming the doctrine of mutuality's applicability to trusts. The Court preserved the principle that a trust, being a fiduciary relationship without separate legal personality, cannot be treated as a distinct taxable person under service tax law in the absence of a service provider-recipient relationship.
Verbatim, the Court observed: "No man can trade with himself; he cannot make in what is its true sense or meaning, taxable profit by dealing with himself", underscoring the doctrine of mutuality as a bar to taxing the appellant trust under the impugned provisions.
In final determination, the Court held that the appellant trust is not liable for service tax under the 'club or association' category for the disputed period, the extended limitation period cannot be invoked, and penalties imposed are unsustainable. The appeal was allowed with consequential relief as per law.
Liability of 'trust' incorporated by deed of Trust in terms of India Trust Act, 1882 for payment of service tax - Club or Association service - applicability of doctrine of mutuality even in respect of 'Trust' incorporated by Deed of Trust - invocation of extended period of limitation - Penalty.
Extended period of limitation - HELD THAT:- It is an admitted fact that Appellant had paid service tax for the period from 01.05.2006 after insertion of explanation; "for the purposes of this section, taxable service includes any taxable service provided or to be provided or any unincorporated associations or body of persons to a member thereof, for cash, deferred payment or any other valuable consideration" below Section 65 of the Act, though they are claiming that it was under mistake of law. As regards invoking the extended period of limitation the appellant submitted that they were under bonafide believe that prior to insertion of explanation to Section 65, no service tax was payable. Further, there is no allegation that Appellant had willfully suppressed the facts for evasion of tax - in the absence of any such willful intention for evasion of tax and considering the nature of the dispute the demand of service tax by invoking the extended period is unsustainable.
Liability to pay service tax - Club or Association service - doctrine of mutuality - HELD THAT:- Hon’ble Supreme Court in the matter of State of West Bengal Vs. Calcutta Club Ltd. [2019 (10) TMI 160 - SUPREME COURT], categorically held that 'It is, thus, clear that companies and cooperative societies which are registered under the respective Acts, can certainly be said to be constituted under those Acts. This being the case, we accept the argument on behalf of the respondents that incorporated clubs or associations or prior to 1st July 2012 were not included in the Service Tax net'.
The dispute in the present appeal is for the period from 16.06.2005 to 30.04.2006. In view of the above discussion and considering the ratio of the judgment of the Hon'ble Apex Court in State of West Bengal Vs. Calcutta Club Ltd., the appellant is not liable to pay service tax for the period from 16.06.2005 to 30.04.2006 under the category 'Club or Association' service.
Conclusion - The Court held that the appellant trust is not liable for service tax under the 'club or association' category for the disputed period, the extended limitation period cannot be invoked, and penalties imposed are unsustainable.
Appeal allowed.
Liability of 'trust' incorporated by deed of Trust in terms of India Trust Act, 1882 for payment of service tax - Club or Association service - applicability of doctrine of mutuality even in respect of 'Trust' incorporated by Deed of Trust - invocation of extended period of limitation - Penalty.
Extended period of limitation - HELD THAT:- It is an admitted fact that Appellant had paid service tax for the period from 01.05.2006 after insertion of explanation; "for the purposes of this section, taxable service includes any taxable service provided or to be provided or any unincorporated associations or body of persons to a member thereof, for cash, deferred payment or any other valuable consideration" below Section 65 of the Act, though they are claiming that it was under mistake of law. As regards invoking the extended period of limitation the appellant submitted that they were under bonafide believe that prior to insertion of explanation to Section 65, no service tax was payable. Further, there is no allegation that Appellant had willfully suppressed the facts for evasion of tax - in the absence of any such willful intention for evasion of tax and considering the nature of the dispute the demand of service tax by invoking the extended period is unsustainable.
Liability to pay service tax - Club or Association service - doctrine of mutuality - HELD THAT:- Hon’ble Supreme Court in the matter of State of West Bengal Vs. Calcutta Club Ltd. [2019 (10) TMI 160 - SUPREME COURT], categorically held that 'It is, thus, clear that companies and cooperative societies which are registered under the respective Acts, can certainly be said to be constituted under those Acts. This being the case, we accept the argument on behalf of the respondents that incorporated clubs or associations or prior to 1st July 2012 were not included in the Service Tax net'.
The dispute in the present appeal is for the period from 16.06.2005 to 30.04.2006. In view of the above discussion and considering the ratio of the judgment of the Hon'ble Apex Court in State of West Bengal Vs. Calcutta Club Ltd., the appellant is not liable to pay service tax for the period from 16.06.2005 to 30.04.2006 under the category 'Club or Association' service.
Conclusion - The Court held that the appellant trust is not liable for service tax under the 'club or association' category for the disputed period, the extended limitation period cannot be invoked, and penalties imposed are unsustainable.
Appeal allowed.
1. Whether the Respondent's activities of silver finishing, cubic painting, and related processing on semi-finished goods amount to a taxable 'Business Auxiliary Service' under Section 65(19) of the Finance Act, 1994.
2. Whether the Respondent is entitled to exemption from service tax under Notification No. 08/2005-ST dated 01.03.2005, as amended by Notification No. 19/2005-ST dated 16.06.2005, in respect of the job work activities.
3. The interpretation of the definition of 'Business Auxiliary Service' before and after the amendment dated 16.06.2005, particularly the distinction between "production of goods for the client" and "production on behalf of the client."
4. The validity of the demand raised by the Department without classifying the impugned activity under the "Business Auxiliary Service" and the method of valuation used for service tax demand.
5. Whether invocation of the extended period of limitation for service tax demand is sustainable.
Issue-wise Detailed Analysis
1. Taxability of the Respondent's Job Work Activities as 'Business Auxiliary Service'
The legal framework involves Section 65(19) of the Finance Act, 1994, which defines 'Business Auxiliary Service' and the relevant notifications and circulars interpreting its scope. The Tribunal considered the definition as it stood from 10.09.2004 to 16.06.2005, which covered "production on behalf of the client" but did not explicitly include "production for the client."
The Court noted that the Respondent received semi-finished goods from manufacturers and processed them (silver finishing, cubic painting, lacquering) before returning them. The Department contended that these activities did not amount to manufacture under Section 2(f) of the Central Excise Act, 1944, and thus attracted service tax as 'Business Auxiliary Service'.
However, the Tribunal relied on precedents including the decision in the case of Auto Coats Vs. CCE Coimbatore, where it was held that activities undertaken directly for customers and not on their behalf did not attract service tax prior to 16.06.2005. The Tribunal emphasized that the Respondent's activities were "production of goods for the client" and not "on behalf of the client," and thus not taxable under the definition prevailing before the amendment.
Further reliance was placed on decisions such as Pearl Packaging and Veesons Energy Systems, and Board's letter F.No.B1/6/2005-TRU dated 27.07.2005, which clarified the scope of 'Business Auxiliary Service' and supported the Respondent's position.
2. Applicability of Notification No. 08/2005-ST (Exemption Notification)
The Tribunal examined Notification No. 08/2005-ST dated 01.03.2005 and its amendment by Notification No. 19/2005-ST dated 16.06.2005, which exempted service tax on production or processing of goods for or on behalf of the client subject to conditions:
The Respondent demonstrated compliance with these conditions: semi-finished goods were supplied by reputed automotive manufacturers, processed as per specifications, and returned to the clients. The final products were excisable and cleared on payment of duty. Thus, the exemption notification applied fully, rendering the service tax demand unsustainable.
3. Legality of the Demand and Method of Valuation
The Department's Show Cause Notice (SCN) demanded service tax without classifying the activity under 'Business Auxiliary Service' and proposed to treat the entire declared value of services as taxable. The Tribunal referred to a recent decision (Indian Machine Tools Manufacturers Association Vs. CCE Panchkula) holding that such a method of demand is unsustainable.
This reasoning undermined the Department's demand and supported the Respondent's contention that the demand was not properly framed and lacked legal basis.
4. Extended Period of Limitation
The Respondent challenged the invocation of the extended period of limitation for service tax demand, arguing absence of suppression or evasion. Reliance was placed on multiple Supreme Court decisions establishing that extended limitation applies only in cases of willful suppression or fraud.
The Tribunal observed that the Adjudicating authority had not made any finding on this issue and accordingly refrained from expressing any view on the invocation of extended limitation.
5. Interest and Penalty
Since the Tribunal concluded that no service tax liability arose, it followed that interest and penalty demands could not be sustained.
Significant Holdings
"Prior to 16.06.2005, the assessee was in production of goods for the client and not on behalf of the clients as per the definition of 'Business Auxiliary Service' as it existed the said activity was not a taxable activity under 'Business Auxiliary Service' prior to the amendment."
"By virtue of Notification No. 08/2005-ST dated 01.03.2005 as amended, the goods produced or processed on job work basis are fully exempted, if the conditions specified are satisfied."
"The Adjudication authority rightly held that the Respondent is eligible for the benefit of Notification No. 08/2005-ST dated 01.03.2005 and no service tax is payable by Respondent as demanded in the show cause notice."
"The demand raised without classifying the impugned activity under 'Business Auxiliary Service' and treating the declared value as taxable value is unsustainable."
"As no liability of tax arises, the question of interest and penalty does not arise."
"In view of the clear finding given by the Adjudication authority specifying the reasons for dropping the demand raised against the Respondent, we find no reason to interfere with the said findings."
The Tribunal dismissed the Revenue's appeal, upholding the exemption claim and rejecting the service tax demand on the job work activities of the Respondent. The decision clarifies the distinction in the scope of 'Business Auxiliary Service' before and after the amendment dated 16.06.2005 and affirms the applicability of the exemption notification when conditions are met, emphasizing the necessity of proper classification and valuation in service tax demands.
Entitlement for service tax exemption as per N/N. 08/2005-ST dated 01.03.2005 as amended by N/N.19/2005-ST dated 16.06.2005 in respect of the job work activities - Business Auxiliary services - extended period of limitation - HELD THAT:- As regards invoking of the extended period of limitation, there is no finding given by the Adjudication authority regarding invoking of the extended period of limitation, hence no view expressed regarding the demand invoking the extended period of limitation.
On merit, on going through the findings given by the Adjudication authority, where it is held that prior to 16.06.2005, the assessee was in production of goods for the client and not on behalf of the clients as per the definition of ‘Business Auxiliary Service’ as it existed the said activity was not a taxable activity under ‘Business Auxiliary Service’ prior to the amendment. It is clarified vide Circular No. 80/10/2004/S.T dated 17.09.2004 that production of goods not amounting to manufacture are taxable. Due to change in the definition of ‘Business Auxiliary Service’ the 'Production or processing of goods for, or on behalf of the client' became a taxable activity, however was exempted under Notification No. 08/2005-ST dated 01.03.2005 as amended, once the job-worked goods are returned to the client, who uses the same in the manufacture of the final goods, which are cleared on payment of duty.
Hence, it is held that the assessee is not liable to pay any Service Tax on the Services provided by him. Further, as no liability of tax arises, the question of interest and penalty does not arise.
Conclusion - i) The Respondent is eligible for the benefit of Notification No. 08/2005-ST dated 01.03.2005 and no service tax is payable by Respondent as demanded in the show cause notice. ii) The demand raised without classifying the impugned activity under 'Business Auxiliary Service' and treating the declared value as taxable value is unsustainable. iii) As no liability of tax arises, the question of interest and penalty does not arise.
The appeal filed by the Revenue is dismissed.
Entitlement for service tax exemption as per N/N. 08/2005-ST dated 01.03.2005 as amended by N/N.19/2005-ST dated 16.06.2005 in respect of the job work activities - Business Auxiliary services - extended period of limitation - HELD THAT:- As regards invoking of the extended period of limitation, there is no finding given by the Adjudication authority regarding invoking of the extended period of limitation, hence no view expressed regarding the demand invoking the extended period of limitation.
On merit, on going through the findings given by the Adjudication authority, where it is held that prior to 16.06.2005, the assessee was in production of goods for the client and not on behalf of the clients as per the definition of ‘Business Auxiliary Service’ as it existed the said activity was not a taxable activity under ‘Business Auxiliary Service’ prior to the amendment. It is clarified vide Circular No. 80/10/2004/S.T dated 17.09.2004 that production of goods not amounting to manufacture are taxable. Due to change in the definition of ‘Business Auxiliary Service’ the 'Production or processing of goods for, or on behalf of the client' became a taxable activity, however was exempted under Notification No. 08/2005-ST dated 01.03.2005 as amended, once the job-worked goods are returned to the client, who uses the same in the manufacture of the final goods, which are cleared on payment of duty.
Hence, it is held that the assessee is not liable to pay any Service Tax on the Services provided by him. Further, as no liability of tax arises, the question of interest and penalty does not arise.
Conclusion - i) The Respondent is eligible for the benefit of Notification No. 08/2005-ST dated 01.03.2005 and no service tax is payable by Respondent as demanded in the show cause notice. ii) The demand raised without classifying the impugned activity under 'Business Auxiliary Service' and treating the declared value as taxable value is unsustainable. iii) As no liability of tax arises, the question of interest and penalty does not arise.
The appeal filed by the Revenue is dismissed.
The core legal questions considered by the Tribunal were:
- Whether the activity of procurement and sale of duty credit scrips/licenses by the appellant amounts to a taxable 'Business Support Service' under the service tax law.
- Whether the appellant's activity constitutes a provision of service or merely a purchase and sale transaction of goods (licenses/scrips) subject to Value Added Tax (VAT).
- Whether the valuation adopted by the Commissioner for levy of service tax was correct, particularly whether the profit margin on sale of scrips can be considered as the taxable value for service tax.
- Whether the demand raised by the Revenue is barred by limitation, considering the appellant's registration and payment of service tax on other services.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Whether the procurement and sale of scrips amounts to 'Business Support Service'
Relevant legal framework and precedents: The category of 'Business Support Service' is defined to include services related to promotion, marketing, sale, procurement, production, processing of goods or services on behalf of the client, or any service incidental or auxiliary to these activities. The appellant's activity was examined under this definition.
Court's interpretation and reasoning: The Commissioner held that since the appellant entered into agreements with exporters, undertook documentation, submission, follow-up, and bore expenses to obtain licenses, these activities fell under 'Business Support Service'. However, the Tribunal scrutinized the agreement and found that the appellant purchased the scrips at a discount (94% of face value) and sold them, discharging VAT on the sale.
The Tribunal emphasized that the Commissioner did not specify which particular service under the 'Business Support Service' definition was rendered, nor did the agreement show any payment received for a service. Instead, the appellant's activity was a straightforward purchase and sale transaction.
Key evidence and findings: The agreement between the appellant and exporters showed the appellant's role was to buy scrips at a discounted price and resell them, with the exporters bearing expenses for license verification. VAT returns were produced showing payment of VAT on these transactions.
Application of law to facts: Since the appellant was engaged in buying and selling of scrips, which are goods, and not rendering any identifiable service as per the statutory definition, the Tribunal held that the activity does not amount to a 'Business Support Service' liable to service tax.
Treatment of competing arguments: The Revenue argued that the appellant's documentation and facilitation constituted a service. The appellant countered that these were merely incidental to the sale and did not amount to a separate taxable service. The Tribunal accepted the appellant's position, noting the absence of any service charges and the presence of VAT on the transaction.
Conclusion: The procurement and sale of scrips by the appellant do not constitute 'Business Support Service' for service tax purposes.
Issue 2: Whether the valuation adopted by the Commissioner for service tax levy was correct
Relevant legal framework and precedents: Service tax valuation rules require that taxable value be based on the consideration received for the service rendered. The Tribunal relied on precedents including Idea Mobile Communication Ltd. and ASL Motors Pvt. Ltd., which held that profit on sale of goods cannot be taxed as service value.
Court's interpretation and reasoning: The Commissioner's valuation was based on the difference between the face value of the license and the discounted purchase price, treating this margin as taxable service value. The Tribunal found this approach incorrect as it was not based on any actual service consideration but on a notional profit margin.
Key evidence and findings: The appellant's VAT returns and agreement showed that the margin was part of the sale price of goods, not a separate service charge. The Commissioner did not identify any separate service fee.
Application of law to facts: Since no separate service charge was received, and the margin was part of the sale price of goods, the valuation for service tax was improper.
Treatment of competing arguments: The appellant relied on judicial precedents to argue that profit on sale of goods is not taxable as service tax. The Revenue's valuation was rejected for lack of legal basis.
Conclusion: The valuation adopted by the Commissioner for service tax was not in accordance with the legal provisions and cannot be sustained.
Issue 3: Whether the demand is barred by limitation
Relevant legal framework and precedents: The limitation period for service tax demand is governed by the Finance Act and judicial pronouncements such as Uniworth Textile Ltd., which require valid reasons for invoking extended limitation, particularly suppression or fraud.
Court's interpretation and reasoning: The appellant had registered for service tax in 2009 and paid tax on consultation services. The notice invoking extended limitation was issued on 31.01.2010 for the period May 2006 to March 2010. The Tribunal found no valid reasons or allegations of suppression to justify extended limitation.
Key evidence and findings: The appellant's registration and payment of service tax on other services and absence of any concealment or suppression were noted.
Application of law to facts: Without any justification for extended limitation, the demand for the earlier period is time barred.
Treatment of competing arguments: The Revenue did not provide sufficient grounds for extended limitation. The Tribunal relied on Supreme Court decisions to reject the extended period invocation.
Conclusion: The demand is barred by limitation and cannot be sustained.
Cross-reference: Issues 1 and 2 are closely linked as the question of whether the activity is a service directly affects the valuation and taxability. Issue 3 is independent but supports the appellant's case on procedural grounds.
3. SIGNIFICANT HOLDINGS
- "The Commissioner in the impugned order does not specify as to which of the above services were rendered by the appellant and moreover from which clauses of the above agreement, we do not find any payment being received by the appellant for rendering any of the above services."
- "They had in fact purchased the scrips at discounted prices and sold them for a simple margin of profit and on these sales, VAT is being discharged which is not in dispute."
- "The valuation adopted also is not on any service charges received by the appellant but on the difference of the face value of the license and the price at which the appellant had purchased the scrip which is not in accordance with the valuation rules."
- The Tribunal relied on the precedent in ASL Motors Pvt. Ltd. which held that "no service tax can be levied on the amount representing the dealers' margin or any part of it which already has been subjected to sales tax."
- On limitation, the Tribunal held: "We also do not find any valid reasons implicated by the learned Commissioner to invoke suppression as is held by the Hon'ble Supreme Court in the case of Uniworth Textile Ltd."
- Final determinations: The Tribunal set aside the impugned order on both merits and limitation grounds and allowed the appeal.
Levy of service tax - Business Support Service - activity of procurement and sale of scrips for exporters - extended period of limitation.
HELD THAT:- The Commissioner in the impugned order does not specify as to which of the above services were rendered by the appellant and moreover from which clauses of the above agreement, we do not find any payment being received by the appellant for rendering any of the above services. As rightly pointed out by the appellant, they had in fact purchased the scrips at discounted prices and sold them for a simple margin of profit and on these sales, VAT is being discharged which is not in dispute. The valuation adopted also is not on any service charges received by the appellant but on the difference of the face value of the license and the price at which the appellant had purchased the scrip which is not in accordance with the valuation rules.
Therefore, there being no service rendered as such and the imaginary value adopted also being not in accordance with the legal provisions of law, there are no reason to sustain the impugned order on merits.
The Tribunal in the case of ASL Motors Pvt. Ltd. vs. Commr. of C. EX. & Service Tax, Patna [2007 (11) TMI 73 - CESTAT, KOLKATA] in similar circumstances observed that 'When the appellants sold the cars and recovered the amount including the dealers’ margin, the dominant intent, was to sale the goods, namely, cars and not to provide free after sales service. In our view, the entire amount including the dealers’ margin has been rightly taxed to sales tax representing the value of the cars. The provision of free servicing is merely incidental and intended to promote the sale of the cars. Hence, we are of the view that no service tax can be levied on the amount representing the dealers’ margin or any part of it which already has been subjected to sales tax.'
Extended period of limitation - suppression of facts or not - HELD THAT:- The period of dispute involved in this appeal is from May 2006 to March 2010 and the notice was issued on 31.01.2010 invoking extended period of limitation. There are no valid reasons implicated by the learned Commissioner to invoke suppression.
Conclusion - i) There being no service rendered as such and the imaginary value adopted also being not in accordance with the legal provisions of law, there are no reason to sustain the impugned order on merits. ii) The extended period cannot be invoked.
The impugned order is set aside both on merits as well as on limitation - appeal allowed.
Levy of service tax - Business Support Service - activity of procurement and sale of scrips for exporters - extended period of limitation.
HELD THAT:- The Commissioner in the impugned order does not specify as to which of the above services were rendered by the appellant and moreover from which clauses of the above agreement, we do not find any payment being received by the appellant for rendering any of the above services. As rightly pointed out by the appellant, they had in fact purchased the scrips at discounted prices and sold them for a simple margin of profit and on these sales, VAT is being discharged which is not in dispute. The valuation adopted also is not on any service charges received by the appellant but on the difference of the face value of the license and the price at which the appellant had purchased the scrip which is not in accordance with the valuation rules.
Therefore, there being no service rendered as such and the imaginary value adopted also being not in accordance with the legal provisions of law, there are no reason to sustain the impugned order on merits.
The Tribunal in the case of ASL Motors Pvt. Ltd. vs. Commr. of C. EX. & Service Tax, Patna [2007 (11) TMI 73 - CESTAT, KOLKATA] in similar circumstances observed that 'When the appellants sold the cars and recovered the amount including the dealers’ margin, the dominant intent, was to sale the goods, namely, cars and not to provide free after sales service. In our view, the entire amount including the dealers’ margin has been rightly taxed to sales tax representing the value of the cars. The provision of free servicing is merely incidental and intended to promote the sale of the cars. Hence, we are of the view that no service tax can be levied on the amount representing the dealers’ margin or any part of it which already has been subjected to sales tax.'
Extended period of limitation - suppression of facts or not - HELD THAT:- The period of dispute involved in this appeal is from May 2006 to March 2010 and the notice was issued on 31.01.2010 invoking extended period of limitation. There are no valid reasons implicated by the learned Commissioner to invoke suppression.
Conclusion - i) There being no service rendered as such and the imaginary value adopted also being not in accordance with the legal provisions of law, there are no reason to sustain the impugned order on merits. ii) The extended period cannot be invoked.
The impugned order is set aside both on merits as well as on limitation - appeal allowed.
The core legal questions considered in this appeal are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Classification of Service - Works Contract Service vs. Commercial or Industrial Construction Service
Relevant legal framework and precedents: The classification of services under the service tax regime is governed by the relevant notifications and service tax laws effective during the period. The appellant was initially registered under 'Construction of Residential Complex Service' from 2004. The issue arose because the appellant claimed their service fell under works contract service, which was taxable only from 01.06.2007, whereas the revenue classified the service under Commercial or Industrial Construction Service and Construction of Complex Service effective from 10.09.2004 and 16.06.2005 respectively.
Court's interpretation and reasoning: The Tribunal had earlier remanded the matter for fresh consideration as the appellant did not advance the classification under works contract service before the adjudicating authority. Upon reconsideration, the adjudicating authority held that the appellant was not entitled to reclassify the service under works contract service since service tax on works contract service was introduced only from 01.06.2007, and the appellant had already paid service tax under the other categories prior to that date.
Key evidence and findings: The appellant produced evidence of sales tax (KGST) paid on the contract amount and argued that the service tax liability on works contract is only from 01.06.2007, hence no tax was due before that date under that classification.
Application of law to facts: The Tribunal noted that the appellant's activities prior to 01.06.2007 were subject to service tax under the Commercial or Industrial Construction Service and Construction of Complex Service categories. However, the appellant contended that the entire contract was a composite works contract and thus not taxable before 01.06.2007.
Treatment of competing arguments: The revenue argued that since the appellant paid service tax under the other categories, they could not change classification retrospectively to works contract service. The appellant relied on judicial precedents to support the composite nature of the contract and the non-taxability of works contract service prior to 01.06.2007.
Conclusions: The Tribunal found merit in the appellant's contention based on judicial precedent and remand directions, concluding that the classification issue needed to be resolved in light of the apex court's ruling.
Issue 2: Taxability of Composite Works Contract Services Prior to 01.06.2007
Relevant legal framework and precedents: The pivotal precedent is the judgment of the Hon'ble Supreme Court in CCE vs. Larsen & Toubro Ltd., which clarified the taxability of indivisible works contract services prior to the introduction of service tax on works contract service from 01.06.2007.
Court's interpretation and reasoning: The Supreme Court held that indivisible works contract services were not liable to service tax before 01.06.2007. This ruling directly impacts the appellant's liability for the period in question.
Key evidence and findings: The appellant relied on this judgment and the Tribunal's own prior order dated 19.06.2020, which allowed the appeal for the period from 01.12.2005 onwards, recognizing the composite nature of the contract and applying the Supreme Court's ruling.
Application of law to facts: The Tribunal acknowledged that since the appellant's activities were carried out before the works contract service was introduced for taxation, the appellant is exempt from service tax liability on such composite contracts for the relevant period.
Treatment of competing arguments: The revenue conceded that the appellant was entitled to exemption based on the Supreme Court's decision.
Conclusions: The Tribunal held that the appellant's works contract services prior to 01.06.2007 are not taxable, thereby setting aside the demand and penalty imposed.
Issue 3: Inclusion of Value of Free Supply Material in Taxable Value and Eligibility for Exemption
Relevant legal framework and precedents: Notification No.15/2004 - ST dated 10.09.2004 provides exemptions subject to conditions including the valuation of taxable services.
Court's interpretation and reasoning: The revenue contended that the appellant's receipts did not include the value of free supply material by the client, thus disqualifying them from exemption. The appellant challenged this on the basis of classification and taxability.
Key evidence and findings: The adjudicating authority issued a show-cause notice on this ground and confirmed the demand. However, the Tribunal's final view was influenced by the Supreme Court's ruling on composite contracts and the non-taxability of works contract service prior to 01.06.2007.
Application of law to facts: Since the service itself was held non-taxable, the issue of valuation inclusive of free supply material became immaterial for the relevant period.
Treatment of competing arguments: The appellant did not specifically contest the valuation issue after the classification and taxability were resolved in their favor.
Conclusions: The Tribunal did not uphold the demand based on valuation since the service was not taxable during the period.
Issue 4: Applicability of Composition Scheme under Notification No.32/2007/ST
Relevant legal framework and precedents: Notification No.32/2007/ST dated 12.05.2007 introduced a composition scheme for works contract service applicable to contracts commenced after 01.06.2007.
Court's interpretation and reasoning: The adjudicating authority relied on Circular No.128/10/2010-ST to hold that the composition scheme applies only to contracts after 01.06.2007.
Key evidence and findings: The appellant's contracts were prior to 01.06.2007 and thus outside the scope of the composition scheme.
Application of law to facts: The Tribunal accepted that the composition scheme was not applicable to the appellant's contracts for the relevant period.
Treatment of competing arguments: No significant dispute arose on this point as the appellant's main contention was exemption based on non-taxability.
Conclusions: The composition scheme was not applicable to the appellant's contracts during the period under consideration.
Issue 5
Classification of the service carried out by the appellant - works contract service or Commercial or Industrial Construction service - liability on composite works contract services prior to 01.06.2007 - applicability of exemption under N/N.15/2004 – ST dated 10.09.2004 - HELD THAT:- Since the issue is squarely covered by the judgment of Hon’ble Supreme Court in the case of CCE vs. Larsen & Toubro Ltd. [2015 (8) TMI 749 - SUPREME COURT] wherein it had categorically held that indivisible works contract services are not liable to service tax prior to 01.06.2007. Hence, the impugned order is set aside.
Appeal allowed.
Classification of the service carried out by the appellant - works contract service or Commercial or Industrial Construction service - liability on composite works contract services prior to 01.06.2007 - applicability of exemption under N/N.15/2004 – ST dated 10.09.2004 - HELD THAT:- Since the issue is squarely covered by the judgment of Hon’ble Supreme Court in the case of CCE vs. Larsen & Toubro Ltd. [2015 (8) TMI 749 - SUPREME COURT] wherein it had categorically held that indivisible works contract services are not liable to service tax prior to 01.06.2007. Hence, the impugned order is set aside.
Appeal allowed.
The core legal questions considered in this appeal are:
- Whether the appellant, a 100% Export Oriented Unit (EOU) providing customer care services categorized as 'Business Auxiliary Services', is entitled to refund of service tax paid on input services under Rule 5 of the Cenvat Credit Rules, 2004 read with Notification No. 5/2006-CE (NT) dated 14.03.2006.
- Specifically, whether the refund claim can be allowed for input services such as Event Management Service and Pandal and Shamiana Service, which were disallowed by the Commissioner (Appeals) on the ground that these services do not have sufficient nexus with the output services and are not essential for the output service.
- The broader issue of the interpretation of "input service" under Rule 2(l) of the Cenvat Credit Rules, 2004, particularly whether the definition should be construed liberally to include services that relate to the business activities supporting the output services exported by the appellant.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Entitlement to Refund under Rule 5 of Cenvat Credit Rules, 2004 for Input Services
Relevant legal framework and precedents: The refund claim is governed by Rule 5 of the Cenvat Credit Rules, 2004, which allows refund of service tax paid on input services used in providing taxable output services that are exported. Notification No. 5/2006-CE (NT) dated 14.03.2006 further regulates such refunds. The definition of "input service" under Rule 2(l) of the Cenvat Credit Rules, 2004 is crucial, as it encompasses services used by the provider of output services in relation to business activities.
The Tribunal referred to its earlier decisions in Final Order Nos. 20114-20115/2014 and 21415/2016, where refund claims on Event Management Services were allowed. Additionally, the Tribunal relied on the precedent set in the case of Dell International Services India P. Ltd. versus C.C.E., Bangalore, where it was held that input services utilized in providing exported output services are eligible for rebate, emphasizing a liberal interpretation of "input service" to include all activities relating to business.
Court's interpretation and reasoning: The Tribunal emphasized that once the taxable service is exported and input services are utilized in providing the output service, the appellant is entitled to rebate equal to the service tax paid on such input services. The phrase "activities relating to business" in the definition of "input service" mandates a liberal interpretation, and there cannot be a dispute that the input services rendered are activities relating to the exported output services.
Key evidence and findings: The appellant's own prior orders, including the Commissioner (Appeals)'s Order-in-Appeal No. 14/2023 dated 12.01.2023, allowed Cenvat credit on Pandal and Shamiana Services, car parking, and renting of immovable property. This evidences consistency in recognizing these services as input services eligible for credit/refund.
Application of law to facts: The Tribunal applied the liberal interpretation of "input service" and the principle that services supporting the output services exported by the appellant should qualify for refund. The prior decisions in the appellant's own case and the Dell International Services case were pivotal in concluding that Event Management Services and Pandal and Shamiana Services are integral to the business auxiliary services exported.
Treatment of competing arguments: The Commissioner (Appeals) had rejected refund claims for Event Management and Pandal and Shamiana Services on the ground that these are not essential services for the output service. The Tribunal rejected this narrow view, holding that such services are indeed related to the business activities and support the output services, thus qualifying as input services.
Conclusions: The Tribunal concluded that the appellant is entitled to refund on all input services, including Event Management and Pandal and Shamiana Services, as these are essential and related to the exported output services.
3. SIGNIFICANT HOLDINGS
The Tribunal's crucial legal reasoning is encapsulated in the following verbatim excerpt from the Dell International Services case, which it adopted:
"Once the taxable service is exported and various input services have been utilized for providing the output service the appellants could be entitled for the rebate, which is equal to the service tax paid on the input services. Going by the definition of the 'input service' under Rule 2(l) of the Cenvat Credit Rules, 2004 the service utilized by the appellants for providing output service can indeed be considered as input services. We also take note that the definition of 'input service' indicates that the interpretation should be done in a liberal way in view of the phrase 'activities relating to business', there cannot be any dispute that the input services rendered by the appellants are all activities relating to the output services exported by the appellant."
The core principles established are:
Final determinations on each issue:
100% EOU - refund of service tax paid on input services under Rule 5 of the Cenvat Credit Rules, 2004 read with N/N. 5/2006-CE (NT) dated 14.03.2006 - Event Management Services - Pandal and Shamiana Services - HELD THAT:- This Tribunal in CST BANGALORE VERSUS M/S. JUNIPER NETWORKS INDIA PVT LTD [2014 (3) TMI 819 - CESTAT BANGALORE] allowed the appeals filed by the appellant stating that the appellant is eligible for the benefit of refund in respect of all the services and one of the services was Event Management Services which is in dispute in the present appeal.
Further, it is seen that the Commissioner (Appeals) vide Order-in-Appeal No. 14/2023 dated 12.01.2023 in the appellant’s own case had allowed availment of cenvat credit on Pandal and Shamiana Services, hence, the question of rejecting refund on these services cannot be sustained.
The Tribunal in the case of Dell International Services India P. Ltd. Versus C.C.E., Bangalore [2009 (6) TMI 447 - CESTAT, BANGALORE] observed while allowing refund on various input services under Rule 5 of the Cenvat Credit Rules, 2004 that 'Once the taxable service is exported and various input services have been utilized for providing the output service the appellants could be entitled for the rebate, which is equal to the service tax paid on the input services. Going by the definition of the “input service” under Rule 2(l) of the Cenvat Credit Rules, 2004 the service utilized by the appellants for providing output service can indeed be considered as input services. We also take note that the definition of “input service” indicates that the interpretation should be done in a liberal way in view of the phrase “activities relating to business”, there cannot be any dispute that the input services rendered by the appellants are all activities relating to the output services exported by the appellant'
Conclusion - i) The refund claim for Event Management Services is allowed, overruling the Commissioner (Appeals)'s rejection. ii) The refund claim for Pandal and Shamiana Services is also allowed.
The impugned order set aside - appeal allowed.
100% EOU - refund of service tax paid on input services under Rule 5 of the Cenvat Credit Rules, 2004 read with N/N. 5/2006-CE (NT) dated 14.03.2006 - Event Management Services - Pandal and Shamiana Services - HELD THAT:- This Tribunal in CST BANGALORE VERSUS M/S. JUNIPER NETWORKS INDIA PVT LTD [2014 (3) TMI 819 - CESTAT BANGALORE] allowed the appeals filed by the appellant stating that the appellant is eligible for the benefit of refund in respect of all the services and one of the services was Event Management Services which is in dispute in the present appeal.
Further, it is seen that the Commissioner (Appeals) vide Order-in-Appeal No. 14/2023 dated 12.01.2023 in the appellant’s own case had allowed availment of cenvat credit on Pandal and Shamiana Services, hence, the question of rejecting refund on these services cannot be sustained.
The Tribunal in the case of Dell International Services India P. Ltd. Versus C.C.E., Bangalore [2009 (6) TMI 447 - CESTAT, BANGALORE] observed while allowing refund on various input services under Rule 5 of the Cenvat Credit Rules, 2004 that 'Once the taxable service is exported and various input services have been utilized for providing the output service the appellants could be entitled for the rebate, which is equal to the service tax paid on the input services. Going by the definition of the “input service” under Rule 2(l) of the Cenvat Credit Rules, 2004 the service utilized by the appellants for providing output service can indeed be considered as input services. We also take note that the definition of “input service” indicates that the interpretation should be done in a liberal way in view of the phrase “activities relating to business”, there cannot be any dispute that the input services rendered by the appellants are all activities relating to the output services exported by the appellant'
Conclusion - i) The refund claim for Event Management Services is allowed, overruling the Commissioner (Appeals)'s rejection. ii) The refund claim for Pandal and Shamiana Services is also allowed.
The impugned order set aside - appeal allowed.
The core legal questions considered by the Tribunal were:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Liability to pay service tax under Section 66A on air freight charges
Relevant legal framework and precedents: Section 66A of the Finance Act, 1994, stipulates that certain services provided by a person outside India to a recipient in India are taxable as if provided in India. Section 65(105)(zzn) defines taxable service as any service provided by an aircraft operator in relation to transport of goods by aircraft. Section 65(3b) defines an aircraft operator as a person who provides transport of goods or passengers by aircraft.
The appellant relied on precedents including Asiatic Drugs and Pharmaceutical Ltd. vs. Commissioner of CEST, Alwar and Commissioner of Service Tax vs. Kiri Dyes and Chemicals Ltd., which addressed similar issues of service tax applicability on air freight.
Court's interpretation and reasoning: The Tribunal noted that Section 66A applies only if the service rendered falls under the taxable services defined in Section 65(105). The appellant did not provide the transport service themselves but paid freight charges to Indian agents of the freight forwarders.
Key evidence and findings: The appellant produced Bills of Entry showing that the freight charges were paid in Indian Rupees to Indian agents and included in the assessable value for customs duty under Section 14 of the Customs Act.
Application of law to facts: Since the appellant paid freight charges to Indian agents who acted as intermediaries, the actual service provider was the aircraft operator or its agent. The appellant did not directly provide the transport service. Section 66A is not applicable to the appellant as the service was not provided by a person outside India directly to the appellant but through agents within India.
Treatment of competing arguments: The Revenue argued that the appellant was liable to pay service tax under Section 66A from 18.04.2006 on the airport services. The appellant countered that the service was rendered in India by Indian agents and thus not taxable under Section 66A. The Tribunal accepted the appellant's argument, observing that the service tax liability, if any, lies with the agents who provided the service.
Conclusions: The appellant is not liable to pay service tax under Section 66A on air freight charges as the service was rendered by Indian agents, not by a foreign service provider directly to the appellant.
Issue 2: Applicability of Section 66A(2) and Explanation 1 regarding agents of freight forwarders
Relevant legal framework: Section 66A(2) treats permanent establishments in India and abroad as separate persons for service tax purposes. Explanation 1 clarifies that a person carrying on business through a branch or agency in any country is deemed to have a business establishment in that country.
Court's interpretation and reasoning: The Tribunal found that the freight forwarders' Indian agents constitute a business establishment in India and thus the service provided by them is taxable in India, not under reverse charge from the appellant.
Application of law to facts: Since the appellant paid freight charges to Indian agents, these agents are liable to pay service tax on the services they provided. The appellant cannot be held liable under Section 66A for services rendered by Indian agents.
Conclusions: The provisions of Section 66A(2) and Explanation 1 exempt the appellant from service tax liability on air freight charges paid to Indian agents of freight forwarders.
Issue 3: Double taxation on freight charges included in customs assessable value
Relevant legal framework: Section 14 of the Customs Act, 1962 requires inclusion of freight charges in the assessable value for customs duty. Service tax is a separate levy under the Finance Act, 1994.
Court's interpretation and reasoning: The Tribunal noted that the freight element was already subjected to customs duty as part of the assessable value. Imposing service tax on the same freight element under reverse charge on the appellant would amount to double taxation.
Key evidence: Bills of Entry produced by the appellant demonstrated inclusion of freight charges in customs valuation.
Application of law to facts: The Tribunal held that since customs duty was paid on the freight charges, demanding service tax on the same amount under reverse charge from the appellant is unjustified.
Conclusions: The appellant cannot be subjected to service tax on freight charges already subjected to customs duty, as it would amount to double taxation.
Issue 4: Whether transport of goods by air was outside service tax purview during the relevant period
Relevant legal framework: The appellant argued that transport of goods by air was outside service tax purview even after the introduction of the negative list and Notification No.9/2016-ST dated 01.03.2016.
Court's interpretation and reasoning: The Tribunal focused primarily on the period from 04.05.2006 to 03.10.2007 and the applicability of Section 66A. It did not specifically elaborate on the impact of the negative list or the 2016 notification, but implicitly accepted that the relevant provisions during the period mandated service tax only on services provided by aircraft operators or their agents.
Conclusions: The Tribunal did not find merit in the appellant's argument that transport of goods by air was outside service tax purview during the relevant period, but held that the appellant was not liable under Section 66A for the reasons discussed above.
3. SIGNIFICANT HOLDINGS
The Tribunal held that:
"Section 66A cannot be invoked unless the service rendered by the appellant is defined under Section 65(105) of the Finance Act 1994. Both the authorities do not divulge the service that are rendered by the appellant under which service, tax is being demanded as per Section 66A. The freight element on which service tax is being demanded are the charges paid by the appellant in Indian currency to the freight forwarders who are the agents, who have provided the service as an aircraft operator agent. Hence, the service tax, if any, is liable to be paid by these agents (freight forwarders) who have collected the freight charges from the appellant."
Core principles established include:
The final determination was that the appellant was not liable to pay service tax on air freight charges under Section 66A of the Finance Act, 1994 for the period from 04.05.2006 to 03.10.2007. Consequently, the impugned order demanding service tax from the appellant was set aside and the appeal allowed.
Levy of service tax - freight charges incurred paid for imported goods - period of dispute is from 04.05.2006 to 03.10.2007 - SCN issued on 30.03.2009 - HELD THAT:- As per section 65(3b) of the Finance Act, 1994, aircraft operator means ‘any person who provides transport of goods or passengers by aircraft’ and as per Section 65(105)(zzn) taxable service means ‘any service provided or to be provided to any person by an aircraft operator in relation to transport of goods by aircraft’.
Section 66A cannot be invoked unless the service rendered by the appellant is defined under Section 65(105) of the Finance Act 1994. Both the authorities do not divulge the service that are rendered by the appellant under which service, tax is being demanded as per Section 66A. The freight element on which service tax is being demanded are the charges paid by the appellant in Indian currency to the freight forwarders who are the agents, who have provided the service as an aircraft operator agent. Hence, the service tax, if any, is liable to be paid by these agents (freight forwarders) who have collected the freight charges from the appellant. The appellant has also placed on record various copies of Bills of Entry to prove that the freight element paid by them to the freight forwarders was part of the assessable value on which customs duty is paid, hence, it amounts to double taxation in as much on the same freight charges, service tax is being demanded under reverse charge from the appellant.
Conclusion - The appellant is not liable to pay service tax on air freight charges under Section 66A of the Finance Act, 1994 for the period from 04.05.2006 to 03.10.2007.
There are no merit in the impugned order demanding service tax on the appellant - the impugned order is set aside and Appeal is allowed.
Levy of service tax - freight charges incurred paid for imported goods - period of dispute is from 04.05.2006 to 03.10.2007 - SCN issued on 30.03.2009 - HELD THAT:- As per section 65(3b) of the Finance Act, 1994, aircraft operator means ‘any person who provides transport of goods or passengers by aircraft’ and as per Section 65(105)(zzn) taxable service means ‘any service provided or to be provided to any person by an aircraft operator in relation to transport of goods by aircraft’.
Section 66A cannot be invoked unless the service rendered by the appellant is defined under Section 65(105) of the Finance Act 1994. Both the authorities do not divulge the service that are rendered by the appellant under which service, tax is being demanded as per Section 66A. The freight element on which service tax is being demanded are the charges paid by the appellant in Indian currency to the freight forwarders who are the agents, who have provided the service as an aircraft operator agent. Hence, the service tax, if any, is liable to be paid by these agents (freight forwarders) who have collected the freight charges from the appellant. The appellant has also placed on record various copies of Bills of Entry to prove that the freight element paid by them to the freight forwarders was part of the assessable value on which customs duty is paid, hence, it amounts to double taxation in as much on the same freight charges, service tax is being demanded under reverse charge from the appellant.
Conclusion - The appellant is not liable to pay service tax on air freight charges under Section 66A of the Finance Act, 1994 for the period from 04.05.2006 to 03.10.2007.
There are no merit in the impugned order demanding service tax on the appellant - the impugned order is set aside and Appeal is allowed.
The core legal questions considered by the Court in this matter are:
(a) Whether the liability for excise dues outstanding against a predecessor unit can be transferred to and demanded from the purchaser of immovable property with plant and machinery acquired through auction, in the absence of explicit statutory provisions during the relevant period;
(b) Whether Rule 230(2) of the Central Excise Rules, 1944 and the proviso to Section 11 of the Central Excise Act, 1944, were applicable to transfer liability for the period from 01.07.2001 to 01.04.2004;
(c) Whether the purchaser, having acquired only immovable property with attached plant and machinery and not the business itself, can be held liable for the predecessor's excise dues;
(d) Whether the refund claim of the petitioner for the amount deposited under protest should be allowed, given the above considerations.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (a) & (b): Transferability of Predecessor's Excise Liability and Applicability of Rule 230(2) and Section 11 Proviso During 01.07.2001 to 01.04.2004
The legal framework centers on Section 11 of the Central Excise Act, 1944, and Rule 230(2) of the Central Excise Rules, 1944. Section 11 and Rule 230(2) provide mechanisms whereby liability for excise duty may be transferred to a successor purchaser of a business or undertaking, making the purchaser responsible for dues outstanding against the predecessor.
The respondents relied heavily on the Supreme Court decision in Macson Marble Pvt. Ltd., which upheld the principle that excise liability can be transferred to a subsequent buyer under Rule 230(2). However, the Court noted that the facts in Macson Marble were distinct, as the possession and demand arose in 1987, a period when the statutory provisions for transfer of liability were in place.
The petitioner contended that during the period from 01.07.2001 to 01.04.2004, no statutory provisions akin to Rule 230(2) or the proviso to Section 11 existed, thereby negating any legal basis for transferring predecessor liability to the purchaser. This contention was supported by a prior coordinate bench decision in Rishabhdeo Tex Print Pvt. Ltd., which held that between these dates, the absence of such provisions meant that no liability transferred with the assets.
The Court reproduced paragraph 26 of the Rishabhdeo Tex Print judgment, emphasizing that no liability followed the transfer of assets in that period, and that assets vested in the buyer free from encumbrances.
Applying this precedent, the Court interpreted that since the petitioner's purchase and conveyance deed execution occurred in August and September 2001 respectively, within the said period, the statutory provisions for transferring liability were not in force. Therefore, the respondents were not justified in demanding the predecessor's liability from the petitioner under the excise laws.
The Court also distinguished the Macson Marble decision on factual grounds, noting that the issue of absence of statutory provisions during the specific period was not before the Supreme Court in that case.
Issue (c): Nature of Purchase - Whether Business Was Transferred
The petitioner argued that the auction was limited to immovable property with attached plant and machinery and did not include the business of the predecessor unit. The advertisement for auction explicitly described the sale as "as is where is" for industrial plots with plant and machinery, without any mention of transfer of business or liabilities.
The respondents contended that the business was also transferred, thereby justifying the demand of predecessor liability.
The Court examined the advertisement and found no indication that the business was included in the auction. The Court accepted the petitioner's submission that only immovable property and plant and machinery were sold, and the business was not transferred. Consequently, the Court held that the liability for excise dues could not be fastened on the petitioner on the basis of transfer of business.
Issue (d): Entitlement to Refund of Amount Deposited Under Protest
Given the above determinations that the petitioner was not liable for the predecessor's excise dues during the relevant period and that the business was not transferred, the Court analyzed the validity of rejection of the refund claim.
The petitioner had deposited Rs. 3,10,375/- under protest to secure registration under the Excise Rules, as the department insisted on clearing the outstanding dues of the predecessor unit. The refund claim was subsequently rejected by the Deputy Commissioner.
The Court found the rejection unjustified in light of the absence of statutory liability transfer and the nature of the purchase. It directed that the refund claim be allowed and ordered the department to process the refund within three months, including interest at 6% per annum.
3. SIGNIFICANT HOLDINGS
The Court's crucial legal reasoning is encapsulated in the following verbatim excerpt from the Rishabhdeo Tex Print judgment, which the Court adopted:
"Therefore, position becomes clear that between 1st of July 2001 to 1st of April 2004 there was no provision akin to Rule 230 or proviso to Section 11 of the Act on the Statute Book. Hence, as on the date of transfer of the assets took place in May 2003, no corresponding liability followed the transfer of assets in the hands of buyer to clear the dues of previous owner which had not been paid under the Central Excise Act and the provisions of S.F.C. Act took full effect whenever such assets have vested in buyer free from all encumbrance."
The Court established the core principle that statutory provisions governing transfer of excise duty liability to a purchaser must be explicitly in force at the time of transfer to impose such liability. Absence of such provisions during the relevant period means no liability can be transferred.
Further, the Court held that acquisition of immovable property with plant and machinery does not automatically entail transfer of business or excise liability unless specifically stipulated.
Accordingly, the Court concluded:
(a) The respondents were not justified in demanding predecessor's excise duty liability from the petitioner for the period 01.07.2001 to 01.04.2004;
(b) The petitioner was entitled to refund of the amount deposited under protest;
(c) The impugned order rejecting the refund claim was quashed and set aside;
(d) The refund claim was to be processed with interest at 6% per annum within three months.
Rejection of refund claim of amount paid under protest - transfer of previous liability - liability for excise dues outstanding against a predecessor unit can be transferred to and demanded from the purchaser of immovable property with plant and machinery acquired through auction or not - whether the respondents were justified in demanding the liability of the predecessor of petitioner in terms of Rule 230(2) of the Rules of 1944 or proviso to Section 11 of the Act of 1944 or not? - HELD THAT:- This question does not require much deliberation in the present writ petition in view of the decision passed by the Co-ordinate Bench of this Court in Rishabhdeo Tex Print [2005 (11) TMI 546 - RAJASTHAN HIGH COURT]. The issue with regard to transfer of previous liability in the intervening period i.e. from 01.07.2001 to 01.04.2004 was under consideration in the said judgment. The Co-ordinate Bench of this Court in para 26 have considered the exactly identical issue where it was held that 'position becomes clear that between 1st of July 2001 to 1st of April 2004 there was no provision akin to Rule 230 or proviso to Section 11 of the Act on the Statute Book. Hence, as on the date of transfer of the assets took place in May 2003, no corresponding liability followed the transfer of assets in the hands of buyer to clear the dues of previous owner which had not been paid under the Central Excise Act and the provisions of S.F.C. Act took full effect whenever such assets have vested in buyer free from all encumbrance.'
In the present case, the offer of the petitioner was accepted by RIICO on 24.08.2001 and conveyance deed was executed on 24.09.2001.
In view of the judgment passed by the Co-ordinate Bench in the case of Rishabhdeo Tex Print, submissions made by petitioner appears to be justified while contending that since there was no provision for shifting liability of the predecessor in the intervening period and, therefore, no demand could have been raised for the said period and department was not at all justified in denying the refund of the claim deposited by the petitioner under protest.
The contention of the petitioner that it has purchased immovable property with assets and liability and not the business. The advertisement issued by the RIICO nowhere indicates that they are proposing to auction the business of M/s HMG Granite Pvt. Ltd. The details as provided in the advertisement only speaks of the land and the plant and machinery attached to it. In view of the condition mentioned in the advertisement, the contention as raised by the respondents with regard to the transfer of business cannot be accepted. Counsel for the petitioner is right in submitting that it was the auction only for land with attached plant and machinery. The respondent No.3, therefore, was not at all justified in fastening the liability on the petitioner by treating it to be a transfer of business.
Conclusion - i) The respondents were not justified in demanding predecessor's excise duty liability from the petitioner for the period 01.07.2001 to 01.04.2004; ii) The petitioner was entitled to refund of the amount deposited under protest.
The impugned order is set aside - petition allowed.
Rejection of refund claim of amount paid under protest - transfer of previous liability - liability for excise dues outstanding against a predecessor unit can be transferred to and demanded from the purchaser of immovable property with plant and machinery acquired through auction or not - whether the respondents were justified in demanding the liability of the predecessor of petitioner in terms of Rule 230(2) of the Rules of 1944 or proviso to Section 11 of the Act of 1944 or not? - HELD THAT:- This question does not require much deliberation in the present writ petition in view of the decision passed by the Co-ordinate Bench of this Court in Rishabhdeo Tex Print [2005 (11) TMI 546 - RAJASTHAN HIGH COURT]. The issue with regard to transfer of previous liability in the intervening period i.e. from 01.07.2001 to 01.04.2004 was under consideration in the said judgment. The Co-ordinate Bench of this Court in para 26 have considered the exactly identical issue where it was held that 'position becomes clear that between 1st of July 2001 to 1st of April 2004 there was no provision akin to Rule 230 or proviso to Section 11 of the Act on the Statute Book. Hence, as on the date of transfer of the assets took place in May 2003, no corresponding liability followed the transfer of assets in the hands of buyer to clear the dues of previous owner which had not been paid under the Central Excise Act and the provisions of S.F.C. Act took full effect whenever such assets have vested in buyer free from all encumbrance.'
In the present case, the offer of the petitioner was accepted by RIICO on 24.08.2001 and conveyance deed was executed on 24.09.2001.
In view of the judgment passed by the Co-ordinate Bench in the case of Rishabhdeo Tex Print, submissions made by petitioner appears to be justified while contending that since there was no provision for shifting liability of the predecessor in the intervening period and, therefore, no demand could have been raised for the said period and department was not at all justified in denying the refund of the claim deposited by the petitioner under protest.
The contention of the petitioner that it has purchased immovable property with assets and liability and not the business. The advertisement issued by the RIICO nowhere indicates that they are proposing to auction the business of M/s HMG Granite Pvt. Ltd. The details as provided in the advertisement only speaks of the land and the plant and machinery attached to it. In view of the condition mentioned in the advertisement, the contention as raised by the respondents with regard to the transfer of business cannot be accepted. Counsel for the petitioner is right in submitting that it was the auction only for land with attached plant and machinery. The respondent No.3, therefore, was not at all justified in fastening the liability on the petitioner by treating it to be a transfer of business.
Conclusion - i) The respondents were not justified in demanding predecessor's excise duty liability from the petitioner for the period 01.07.2001 to 01.04.2004; ii) The petitioner was entitled to refund of the amount deposited under protest.
The impugned order is set aside - petition allowed.
The core legal questions considered by the Tribunal in this appeal are:
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Validity and Binding Nature of Annual Capacity of Production Determination
Relevant Legal Framework and Precedents: The determination of Annual Capacity of Production is governed by the Hot Re-rolling Steel Mills, Annual Capacity Determination Rules, 1997, framed under Section 3A of the Central Excise Act, 1944. Rule 3(3) prescribes a formula for capacity determination, while Rule 5 allows the Commissioner to adopt actual production if it exceeds deemed production. The Supreme Court's decision in CCE, Chandigarh Vs. Doaba Steel Rolling Mills clarified the interpretation and scope of these Rules.
Court's Interpretation and Reasoning: The Tribunal noted that the Annual Capacity was fixed at 8272.798 MTs by the Commissioner following Rule 5, applying the formula and actual production data. The appellant never challenged this determination before any forum. The Tribunal emphasized that the capacity determination is a prerequisite for levy under Section 3A, which is a non obstante provision overriding Section 3.
Key Evidence and Findings: The record showed the capacity was provisionally fixed and then finalized by the Commissioner. The appellant did not dispute the capacity figure but challenged the resulting duty demands. The Commissioner's order and the appellate order both relied on the capacity figure.
Application of Law to Facts: Since the capacity determination was never challenged, it became binding. The Tribunal held that the demands based on this capacity are sustainable unless the capacity determination itself is set aside.
Treatment of Competing Arguments: The appellant's failure to challenge the capacity determination was fatal to its case. The Tribunal rejected the appellant's attempt to dispute demands without disputing the foundational capacity figure.
Conclusion: The Annual Capacity of Production determination was valid, binding, and not subject to collateral attack in the present appeal.
Issue 2: Justification and Sustainability of Differential Duty Demands
Relevant Legal Framework and Precedents: Section 3A of the Central Excise Act enables levy of duty based on annual capacity. The demands for differential duty were issued pursuant to the capacity determination under the 1997 Rules. The Supreme Court's ruling in the Doaba Steel Rolling Mills case affirmed the validity of demands based on such capacity determinations.
Court's Interpretation and Reasoning: The Tribunal found that the demands corresponded to the periods September 1997 to March 1999 and were calculated on the basis of the capacity fixed by the Commissioner. The appellate authority upheld these demands after hearing the appellant and analyzing evidence.
Key Evidence and Findings: Demand notices for amounts of Rs.7,27,740/-, Rs.12,40,920/-, and Rs.12,40,920/- were issued for three half-year periods. The appellant did not produce evidence to disprove the demands or the basis thereof.
Application of Law to Facts: Since the capacity determination was valid and the demands were calculated accordingly, the demands were legally sustainable.
Treatment of Competing Arguments: The appellant's arguments were largely procedural or based on pending litigation elsewhere, without substantive evidence to negate the demands. The Tribunal noted absence of details or justification for adjournments or delay tactics.
Conclusion: The differential duty demands were justified and upheld.
Issue 3: Application and Interpretation of Rule 5 of the 1997 Rules
Relevant Legal Framework and Precedents: Rule 5 of the Hot Re-rolling Steel Mills, Annual Capacity Determination Rules, 1997, allows the Commissioner to adopt actual production figures in place of deemed production arrived at by formula under Rule 3(3). The Supreme Court in the Doaba Steel Rolling Mills case extensively interpreted Rule 5, confirming its applicability and scope.
Court's Interpretation and Reasoning: The Tribunal relied on the Supreme Court's analysis, which held that Rule 5 "springs into action" when annual capacity is determined or re-determined by applying the formula, particularly when there are changes in installed machinery or other relevant factors. The Tribunal found no reason to depart from this settled principle.
Key Evidence and Findings: The Commissioner applied Rule 5 to fix capacity at 8272.798 MTs, reflecting actual production exceeding deemed production. The appellant did not challenge the validity of Rule 5 or its application.
Application of Law to Facts: The Tribunal held that the Commissioner's use of Rule 5 was correct and legally sound, and the appellant's failure to challenge it rendered the demands sustainable.
Treatment of Competing Arguments: The appellant's challenge to the demands was not supported by any argument against Rule 5's validity or its application. The Tribunal rejected any implicit contention that the formula alone must be binding without recourse to actual production.
Conclusion: Rule 5 was correctly applied to determine Annual Capacity of Production, supporting the duty demands.
Issue 4: Procedural Fairness and Observance of Natural Justice
Relevant Legal Framework and Precedents: The principles of natural justice require that the appellant be given a fair opportunity to present its case. The matter had earlier been remanded by this Tribunal for fresh consideration after observing natural justice principles.
Court's Interpretation and Reasoning: The present impugned order was passed after hearing the appellant and analyzing evidence. The Tribunal found that the Commissioner(Appeals) had complied with natural justice requirements in the de-novo appellate proceedings.
Key Evidence and Findings: The record showed multiple hearings and opportunities afforded to the appellant. The appellant's repeated failure to appear or produce evidence was noted.
Application of Law to Facts: The Tribunal concluded that procedural fairness was observed. The appellant's absence and failure to justify adjournments did not warrant further delay.
Treatment of Competing Arguments: The appellant's reliance on pending Supreme Court proceedings without substantiation was rejected as insufficient to delay disposal.
Conclusion: Principles of natural justice were duly observed and the appeal was properly adjudicated.
3. SIGNIFICANT HOLDINGS
The Tribunal upheld the Annual Capacity of Production determination fixed at 8272.798 MTs under the Hot Re-rolling Steel Mills, Annual Capacity Determination Rules, 1997, including the application of Rule 5 allowing adoption of actual production over deemed production.
The Tribunal relied on the Supreme Court's authoritative interpretation in the Doaba Steel Rolling Mills case, particularly the following reasoning:
"Rule 5 of the 1997 Rules will be attracted for determination of the annual capacity of production of the factory when any change in the installed machinery or any part thereof is intimated to the Commissioner of Central Excise in terms of Rule 4(2) of the said Rules."
"Section 3A of the Act is an exception to Section 3 of the Act the charging Section and being in nature of a non obstante provision, the provisions contained in the said Section override those of Section 3 of the Act."
The Tribunal concluded that since the appellant never challenged the capacity determination itself, the demands for differential duty based on that capacity were sustainable and valid.
Finally, the Tribunal rejected the appeal, holding that the impugned order confirming the differential duty demands was legally sound and that no further adjournments or delays were justified in the absence of substantive grounds.
Determination of the Annual Capacity of Production of the manufacturer - applicability of Rule 5 of the Hot Re-rolling Steel Mills, Annual Capacity Determination Rules, 1997 - HELD THAT:- There are force in the contention of the learned AR for the Revenue that Rule 5 of the said Rules empowers the Commissioner to adopt the actual production instead of the deemed production arrived at on the basis of the formula for determination of the Annual Capacity of Production of the manufacturer.
In CCE, Chandigarh Vs. Doaba Steel Rolling Mills [2011 (7) TMI 10 - SUPREME COURT], Hon’ble Supreme Court observed 'Rule 5 of the 1997 Rules will be attracted for determination of the annual capacity of production of the factory when any change in the installed machinery or any part thereof is intimated to the Commissioner of Central Excise in terms of Rule 4(2) of the said Rules.'
It is also found that the appellant, without challenging the Annual Capacity of Production determined by the Commissioner, disputed the demands raised pursuant to the said determination of the Annual Capacity of Production.
There are no merits in the appeal - appeal dismissed.
Determination of the Annual Capacity of Production of the manufacturer - applicability of Rule 5 of the Hot Re-rolling Steel Mills, Annual Capacity Determination Rules, 1997 - HELD THAT:- There are force in the contention of the learned AR for the Revenue that Rule 5 of the said Rules empowers the Commissioner to adopt the actual production instead of the deemed production arrived at on the basis of the formula for determination of the Annual Capacity of Production of the manufacturer.
In CCE, Chandigarh Vs. Doaba Steel Rolling Mills [2011 (7) TMI 10 - SUPREME COURT], Hon’ble Supreme Court observed 'Rule 5 of the 1997 Rules will be attracted for determination of the annual capacity of production of the factory when any change in the installed machinery or any part thereof is intimated to the Commissioner of Central Excise in terms of Rule 4(2) of the said Rules.'
It is also found that the appellant, without challenging the Annual Capacity of Production determined by the Commissioner, disputed the demands raised pursuant to the said determination of the Annual Capacity of Production.
There are no merits in the appeal - appeal dismissed.
1. Whether the petitioner was denied adequate opportunity of hearing in violation of the principles of natural justice, specifically the failure to provide the petitioner the statutory 30 days' time to submit a reply to the show-cause notice issued under Section 20(5) of the M.P. VAT Act, 2002.
2. Whether the High Court can entertain a writ petition under Article 226 of the Constitution of India challenging an assessment order under the M.P. VAT Act, 2002, when an alternative statutory remedy of appeal is available.
3. The applicability and scope of judicial precedents regarding the exhaustion of statutory remedies before invoking constitutional writ jurisdiction in tax matters.
Issue-wise Detailed Analysis
1. Adequacy of Opportunity of Hearing under Section 20(5) of the M.P. VAT Act, 2002
The petitioner contended that the impugned assessment order dated 12.07.2022 was passed without giving the petitioner the mandatory 30 days to file a reply to the show-cause notice dated 17.02.2021. The petitioner sought to rely on the principles of natural justice and the law laid down by the Apex Court in Godrej Sara Lee Ltd. vs. Excise and Taxation Officer-cum-Assessing Authority & Ors. (2023) and the Division Bench judgment of this High Court in Alok Kumar Choubey vs. State of M.P. & Ors. (2021) to argue that the order was liable to be quashed for non-compliance with procedural fairness.
However, the Court noted that the petitioner had not challenged the order through the statutory appellate mechanism but directly approached the High Court by way of writ petition under Article 226. The Court observed that while principles of natural justice are fundamental, the exercise of writ jurisdiction in tax matters must be circumscribed by the availability of efficacious statutory remedies.
2. Availability and Exhaustion of Statutory Remedy of Appeal
The respondent State, through the Additional Advocate General, relied heavily on the Supreme Court's recent authoritative decision in The State of Madhya Pradesh and Another vs. M/s Commercial Engineers and Body Building Company Limited (2022), which reiterated the principle that when a statutory remedy of appeal is available in tax matters, the High Court should not entertain writ petitions under Article 226 challenging assessment orders.
The Court examined the detailed reasoning in paragraphs 6 and 8 of the Supreme Court judgment, which relied on a series of precedents including United Bank of India v. Satyawati Tondon, Punjab National Bank v. O.C. Krishnan, and others. These precedents emphasize that:
The Court underscored that the M.P. VAT Act, 2002 provides a statutory appellate mechanism under Section 46(1), which the petitioner had not availed. The Court, therefore, held that the petitioner was required to challenge the assessment order through the appellate authority rather than by writ petition.
3. Application of Law to Facts and Treatment of Competing Arguments
While the petitioner argued that the failure to provide 30 days' time to reply violated natural justice, the Court found that this procedural grievance did not justify bypassing the statutory appellate remedy. The Court reasoned that the availability of the appeal mechanism under Section 46(1) of the M.P. VAT Act, 2002 provided an adequate and efficacious remedy to address such grievances.
The Court also noted that the petitioner had not filed an appeal but instead approached the High Court directly, which is impermissible in light of the binding precedents. The Court declined to examine the merits of the input rebate claim or the substantive correctness of the assessment order at this stage.
Further, the Court referred to the principle that the High Court, while exercising writ jurisdiction, must consider factors such as the complexity of facts, availability of alternative remedies, delay, and public interest, as emphasized in City and Industrial Development Corpn. v. Dosu Aardeshir Bhiwandiwala and Raj Kumar Shivhare v. Directorate of Enforcement.
4. Directions and Conclusion
The Court dismissed the writ petition on the ground of non-exhaustion of statutory remedy and relegated the petitioner to file an appeal before the appellate authority under Section 46(1) of the M.P. VAT Act, 2002. The Court permitted the appeal to be filed within four weeks from the date of the order and directed that the appellate authority shall entertain and decide the appeal on merits without raising limitation objections, subject to compliance with other statutory requirements.
The Court clarified that its order did not express any opinion on the merits of the input rebate claim or the assessment order and that the appellate authority was free to decide the matter independently, uninfluenced by any observations made by the High Court in the writ proceedings.
Significant Holdings
"Article 226 is not meant to short-circuit or circumvent statutory procedures. It is only where statutory remedies are entirely ill-suited to meet the demands of extraordinary situations... that recourse may be had to Article 226 of the Constitution. But then the Court must have good and sufficient reason to bypass the alternative remedy provided by statute. Surely matters involving the revenue where statutory remedies are available are not such matters."
"When a statutory forum is created by law for redressal of grievance and that too in a fiscal statute, a writ petition should not be entertained ignoring the statutory dispensation."
"The writ petition preferred by the respondent herein - original writ petitioner - assessee is hereby dismissed on the ground of alternative efficacious statutory remedy of appeal available to the respondent. The respondent is relegated to prefer an appeal before the appellate authority under Section 46(1) of the MP VAT Act, 2002."
Core principles established include the mandatory exhaustion of statutory remedies before invoking writ jurisdiction in tax assessment matters, the limited scope of writ jurisdiction in fiscal matters, and the importance of adherence to procedural safeguards within the statutory framework.
Final determinations were that the writ petition was not maintainable due to the availability of an alternative statutory remedy and that the petitioner must pursue the remedy of appeal under the M.P. VAT Act, 2002. No interference was made with the merits of the assessment order at this stage.
Maintainability of petition - availability of alternative remedy of appeal - Challenge to Entry Tax Assessment order u/s 20 (5) of the M.P. Vat Act, 2002 - petitioner did not furnish Return/Audit report as required under Section 39 (2) in time for the period 01.04.2017 to 30.06.2017 - HELD THAT:- The Apex Court in case of The State of Madhya Pradesh and Another vs. M/s Commercial Engineers and Body Building Company Limited [2022 (10) TMI 576 - SUPREME COURT] has held that in a tax matter when a statutory remedy of appeal is available, the High Court ought not to have entertained the writ petition under Article 226 of the Constitution of India against the Assessment Order by-passing the statutory remedy of appeal.
Conclusion - The writ petition is not maintainable due to the availability of an alternative statutory remedy and that the petitioner must pursue the remedy of appeal under the M.P. VAT Act, 2002.
Thus, no ground for interference at this stage is made out. However, petitioner may challenge the impugned order before the appellate authority in accordance with law, if so advised - petition dismissed.
Maintainability of petition - availability of alternative remedy of appeal - Challenge to Entry Tax Assessment order u/s 20 (5) of the M.P. Vat Act, 2002 - petitioner did not furnish Return/Audit report as required under Section 39 (2) in time for the period 01.04.2017 to 30.06.2017 - HELD THAT:- The Apex Court in case of The State of Madhya Pradesh and Another vs. M/s Commercial Engineers and Body Building Company Limited [2022 (10) TMI 576 - SUPREME COURT] has held that in a tax matter when a statutory remedy of appeal is available, the High Court ought not to have entertained the writ petition under Article 226 of the Constitution of India against the Assessment Order by-passing the statutory remedy of appeal.
Conclusion - The writ petition is not maintainable due to the availability of an alternative statutory remedy and that the petitioner must pursue the remedy of appeal under the M.P. VAT Act, 2002.
Thus, no ground for interference at this stage is made out. However, petitioner may challenge the impugned order before the appellate authority in accordance with law, if so advised - petition dismissed.
Regarding the legality of the redevelopment and the nature of the Subject Property, the Court examined the statutory and planning framework, including the sanctioned Development Plan of 1991 which designated the land as Recreation Ground ('R.G.'). The appellants contended that this classification, following due public notification and absence of objections, vested MCGM with a statutory mandate to develop the land for recreational purposes. The Court noted that the Subject Property had long been in a dilapidated state, used as a garbage dumping ground, and lacked characteristics of a functional water body at the time of redevelopment. The Court relied on affidavits from municipal officials and photographic evidence showing the transformation into a verdant urban park with substantial green cover and public amenities, serving diverse community needs.
In contrast, the opposing party emphasized documentary evidence, including MCGM's own correspondence referring to the 'Khajuria Talao' and the ecological significance of the original water body, which purportedly supported rare aquatic species and mangrove ecosystems. The Court acknowledged these contentions but found the evidence insufficient to establish that the water body remained functional or ecologically viable at the time of redevelopment. The Court also critically examined the post facto sanction issued during litigation, recognizing procedural irregularities and contradictions but held that its legal status was not determinative of the appropriate remedy given the passage of time and changed circumstances.
The Court's interpretation of the public trust doctrine was pivotal. It affirmed that the doctrine imposes a constitutional obligation on the State to protect environmental resources such as water bodies for public benefit and ecological sustainability. However, the Court emphasized that the doctrine's application must be context-sensitive, balancing ecological imperatives with sustainable development and evolving public welfare priorities. The Court rejected a rigid absolutist approach that mandates restoration irrespective of practical realities, highlighting that the transformation from a degraded water body to a thriving recreational park serves significant public and ecological functions.
Applying the law to the facts, the Court identified three critical factors: the prior condition of the water body, the current ecological value of the park, and the feasibility of restoration. It found that the water body had deteriorated into a non-functional state prior to redevelopment, that the park now contributes positively to the urban ecosystem and community welfare, and that restoration would be environmentally counterproductive and practically unfeasible due to lack of natural catchment and potential health hazards from stagnant water. The Court also noted the substantial public investment and community reliance on the park, underscoring the detrimental impact of demolition and restoration orders.
The Court addressed competing arguments by acknowledging the High Court's reliance on constitutional environmental mandates and public trust principles but distinguished the present case on grounds of changed ground realities and public benefit. It rejected the notion that the post facto sanction was the sole determinant of legality, focusing instead on the broader question of ecological and social utility. The Court also considered the delay in filing the writ petition, observing that environmental grievances must be raised promptly to prevent irreversible changes and that the late challenge undermined the rationale for restoration.
Consequently, the Court concluded that the High Court's direction to demolish the park and restore the lake was untenable. Instead, it allowed the appeal, setting aside the Impugned Judgment, and directed preservation of the existing park as a green space for public use without predominant commercial activity. The Court mandated the constitution of an Expert Committee to explore alternative water body development nearby to compensate ecologically, comprehensive restoration of other deteriorated water bodies within municipal limits, and periodic compliance reporting to ensure implementation of these directions.
Significant holdings include the Court's nuanced exposition of the public trust doctrine: "The doctrine... imposes a legal obligation upon governmental authorities to protect these resources for public benefit and ecological sustainability... its application must necessarily be calibrated according to the factual matrix and contemporary public needs." The Court established that environmental jurisprudence requires balancing ecological conservation with sustainable urban development, rejecting absolutist restoration mandates when public welfare and ecological benefits of existing amenities are demonstrable.
The Court also held that post facto sanctions, while relevant to authorization, cannot override practical considerations of feasibility and public interest in determining remedies. It underscored the importance of timely judicial intervention in environmental matters to avoid irreversible fait accompli situations.
In sum, the Court's final determinations were: (i) the redevelopment of the Subject Property into a recreational park was lawful and justified given the prior dilapidated state and statutory designation; (ii) the High Court's demolition and restoration order was inappropriate; (iii) the public trust doctrine mandates protection of environmental resources but must be applied contextually; (iv) the post facto sanction's validity is not dispositive of remedial measures at this stage; and (v) the existing park must be preserved with ecological and social considerations balanced through expert-guided restorative measures elsewhere.
Doctrine of public trust - Redevelopment of the Subject Property, which allegedly obliterated a century-old lake - Appropriateness of direction to demolish the constructed recreational park and restore the lake - whether the development warrants preservation given its current utility and the inexorable passage of time? - HELD THAT:- The High Court’s reasoning rested primarily on the public trust doctrine, whereby it held that the State could not permit the destruction of natural water bodies under any circumstances. Furthermore, it found the post facto sanction legally ineffective, as it attempted to retrospectively validate an unauthorized act while simultaneously prohibiting the very land use change that had already occurred. Consequently, invoking Articles 48A and 51A(g) of the Constitution, the High Court concluded that the preservation of water bodies constitutes an absolute constitutional mandate that invariably supersedes developmental considerations or temporal factors.
The public trust doctrine establishes that certain environmental resources are held in trust by the State for the unimpeded enjoyment of the public and for posterity. Although the doctrine imposes a legal obligation upon governmental authorities to protect these resources for public benefit and ecological sustainability, extending to public lands, parks, forests, water bodies, wetlands, and other areas acquired by the State, its application must necessarily be calibrated according to the factual matrix and contemporary public needs. The doctrine, thus, does not operate in isolation but must be harmonized with the objectives of sustainable development and evolving public welfare priorities.
The delay in seeking judicial intervention significantly undermines the foundation of the High Court’s impugned decision. The beautification project commenced in 2008 and reached completion by 2011, with the park becoming fully operational for public use. However, the petition was instituted before the High Court towards the tail end of 2012—nearly five years after the project’s commencement and well after its completion. It is well-settled that environmental grievances must be raised promptly when alleged violations commence, not after transformative changes have materialized and become entrenched. This considerable delay has created an irreversible fait accompli wherein substantial public resources have been expended, and a thriving recreational facility has become integral to community life. No public purpose, therefore, would be served by undoing what time and usage have legitimized through community acceptance and reliance.
Conclusion - The High Court’s direction to restore the Subject Property to its original condition as a pond, though made with laudable intentions, fails to account for the transformed reality and the substantial public benefit derived from the current recreational space.
The impugned judgement set aside - appeal allowed.
Doctrine of public trust - Redevelopment of the Subject Property, which allegedly obliterated a century-old lake - Appropriateness of direction to demolish the constructed recreational park and restore the lake - whether the development warrants preservation given its current utility and the inexorable passage of time? - HELD THAT:- The High Court’s reasoning rested primarily on the public trust doctrine, whereby it held that the State could not permit the destruction of natural water bodies under any circumstances. Furthermore, it found the post facto sanction legally ineffective, as it attempted to retrospectively validate an unauthorized act while simultaneously prohibiting the very land use change that had already occurred. Consequently, invoking Articles 48A and 51A(g) of the Constitution, the High Court concluded that the preservation of water bodies constitutes an absolute constitutional mandate that invariably supersedes developmental considerations or temporal factors.
The public trust doctrine establishes that certain environmental resources are held in trust by the State for the unimpeded enjoyment of the public and for posterity. Although the doctrine imposes a legal obligation upon governmental authorities to protect these resources for public benefit and ecological sustainability, extending to public lands, parks, forests, water bodies, wetlands, and other areas acquired by the State, its application must necessarily be calibrated according to the factual matrix and contemporary public needs. The doctrine, thus, does not operate in isolation but must be harmonized with the objectives of sustainable development and evolving public welfare priorities.
The delay in seeking judicial intervention significantly undermines the foundation of the High Court’s impugned decision. The beautification project commenced in 2008 and reached completion by 2011, with the park becoming fully operational for public use. However, the petition was instituted before the High Court towards the tail end of 2012—nearly five years after the project’s commencement and well after its completion. It is well-settled that environmental grievances must be raised promptly when alleged violations commence, not after transformative changes have materialized and become entrenched. This considerable delay has created an irreversible fait accompli wherein substantial public resources have been expended, and a thriving recreational facility has become integral to community life. No public purpose, therefore, would be served by undoing what time and usage have legitimized through community acceptance and reliance.
Conclusion - The High Court’s direction to restore the Subject Property to its original condition as a pond, though made with laudable intentions, fails to account for the transformed reality and the substantial public benefit derived from the current recreational space.
The impugned judgement set aside - appeal allowed.
- Whether the petitioners, as Managing Director and Authorised Signatory of the accused Cooperative Society, can be held criminally liable under Section 138 of the Negotiable Instruments Act, 1881 (NI Act) for the dishonour of a cheque issued by the Society.
- Whether the petitioners were "in charge of, and responsible to the company for the conduct of the business of the company" at the time of commission of the offence, as required under Section 141(1) of the NI Act to fasten individual criminal liability.
- Whether the absence of specific averments in the complaint regarding the petitioners' charge and responsibility over the company's business justifies quashing the prosecution against them.
- The applicability and interpretation of Section 141 of the NI Act, including the provisos exempting government-nominated directors and officers exercising due diligence.
2. ISSUE-WISE DETAILED ANALYSIS
Issue: Liability of Petitioners under Section 138 NI Act for Dishonour of Cheque Issued by the Cooperative Society
The legal framework centers on Section 138 of the NI Act, which penalizes the drawer of a cheque that is dishonoured for insufficiency of funds or other reasons. When the drawer is a company or cooperative society, Section 141 of the NI Act governs the imposition of criminal liability on individuals associated with the company.
The Court examined whether the petitioners, as officers of the Cooperative Society, could be prosecuted under Section 138 for the dishonour of the cheque issued by the Society. The petitioners contended that the financial collapse of the Society, beyond their control, caused the dishonour, and that they were not responsible at the material time-one's tenure having ended and the other being on leave without allowance.
The complaint lacked any specific allegation that the petitioners were in charge of and responsible for the conduct of the Society's business at the time the offence was committed. The petitioners' defense also highlighted ongoing efforts to liquidate the Society's assets to satisfy liabilities, including the amount covered by the cheque, indicating no personal liability.
Issue: Interpretation and Application of Section 141(1) of the NI Act
Section 141(1) imposes criminal liability on every person who, at the time the offence under Section 138 was committed, was in charge of and responsible to the company for the conduct of its business. The two provisos exempt persons who prove lack of knowledge or due diligence, and government-nominated directors or officers.
The Court relied heavily on recent authoritative precedents interpreting Section 141(1). In Ashok Shewakramani v. State of Andhra Pradesh, the Supreme Court clarified that the phrases "was in charge of" and "was responsible to the company for the conduct of the business" must be read conjunctively, not disjunctively. Mere management or involvement in day-to-day affairs does not satisfy the statutory requirement. The person must have been specifically in charge of and responsible for the company's business conduct at the time of the offence.
The Court noted that the complaint's general averments that the petitioners were managing the company or involved in daily affairs were insufficient. The complaint failed to allege that the petitioners were in charge of and responsible for the business conduct at the relevant time, which is mandatory to fasten criminal liability under Section 141(1).
Further, the second proviso exempts persons nominated as directors by virtue of holding government office, which was relevant here since the first petitioner was deputed from the Co-operative Department as Managing Director and his tenure ended prior to the offence.
Issue: Sufficiency of Complaint and Grounds for Quashing Proceedings
The Court examined whether the absence of the mandatory averments in the complaint warranted quashing the prosecution against the petitioners. The Supreme Court in Ravi Dhingra v. State of NCT of Delhi reiterated that complaints lacking the essential averments under Section 141(1) cannot be maintained and must be quashed to prevent abuse of process.
The Court found that the complaint in the present case conspicuously lacked the statutory averments that the petitioners were in charge of and responsible to the Society for its business conduct at the time of the cheque dishonour. The prosecution against the petitioners was thus prima facie unsustainable.
The Magistrate's refusal to entertain discharge petitions on the ground that summons trials do not permit discharge was also noted. However, the High Court emphasized that the proper remedy in such cases is quashing the proceedings, as done here.
3. SIGNIFICANT HOLDINGS
"There is absolutely nothing stated in Annexure-A1 complaint ... that the petitioners herein were in charge of, and were responsible to the first accused Society for its conduct of business at the time of commission of the offence. Therefore, the primary requirement to fasten the petitioners with criminal liability under Section 138 of the NI Act ... has not been established by the complainant."
"The words 'was in charge of' and 'was responsible to the company for the conduct of the business of the company' cannot be read disjunctively and the same ought be read conjunctively in view of use of the word 'and' in between."
"Merely because somebody is managing the affairs of the company, per se, he does not become in charge of the conduct of the business of the company or the person responsible to the company for the conduct of the business of the company."
"When the complaint lacks the mandatorily required averment to maintain a complaint for the commission of offence under Section 138 of the NI Act, the only option left with the High Court is quashment of those proceedings."
The Court concluded that the petitioners were not liable to be prosecuted under Section 138 read with Section 141 of the NI Act due to absence of essential allegations regarding their charge and responsibility over the Society's business at the time of the offence. The proceedings against the petitioners were accordingly quashed.
Dishonour of Cheque - vicarious/criminal liability of Managing Director and Authorised Signatory of the accused Cooperative Society for the dishonour of a cheque issued by the Society - petitioners would contend that they are not liable to be prosecuted for the dishonour of the cheque issued by the first accused Society, since the dishonour happened due to the financial collapse of that Society which was beyond their control - HELD THAT:- Section 141 of the NI Act deals with the commission of offence under Section 138 of the said Act by a company. As per Sub-section (1) of Section 141 of the NI Act, the requirement for fastening a person with criminal liability for the offence committed by a company under Section 138 of the NI Act is that at the time when the offence was committed, such person should be in charge of, and responsible to the company for the conduct of the business of the company. The first proviso to Section 141(1) of the NI Act exonerates the officer or employee of the company from the said offence if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence.
As far as the present case is concerned, there is absolutely nothing stated in Annexure-A1 complaint filed by the first respondent that the petitioners herein were in charge of, and were responsible to the first accused Society for its conduct of business at the time of commission of the offence. Therefore, the primary requirement to fasten the petitioners with criminal liability under Section 138 of the NI Act for the dishonour of the cheque issued by the first accused Society, has not been established by the complainant (first respondent).
It is clear from the decisions of the Hon’ble Apex Court in in Ravi Dhingra v. State of NCT of Delhi [2024 (12) TMI 1090 - SUPREME COURT] that the requirement to plead in the complaint that the persons being prosecuted were in charge of, and were responsible to the company for the conduct of business of the company at the time of commission of the offence, cannot be watered down by other general and superficial statements to the effect that those persons were managing the affairs of the company. As far as the present case is concerned, there is absolutely no allegation in Annexure-A1 complaint that the petitioners were in charge of, and responsible for the conduct of business of the first accused Society. That being so, the prosecution launched against the petitioners, is prima facie unsustainable.
Conclusion - The petitioners are not liable to be prosecuted under Section 138 read with Section 141 of the NI Act due to absence of essential allegations regarding their charge and responsibility over the Society's business at the time of the offence. The proceedings against the petitioners are accordingly quashed.
Petition allowed.
Dishonour of Cheque - vicarious/criminal liability of Managing Director and Authorised Signatory of the accused Cooperative Society for the dishonour of a cheque issued by the Society - petitioners would contend that they are not liable to be prosecuted for the dishonour of the cheque issued by the first accused Society, since the dishonour happened due to the financial collapse of that Society which was beyond their control - HELD THAT:- Section 141 of the NI Act deals with the commission of offence under Section 138 of the said Act by a company. As per Sub-section (1) of Section 141 of the NI Act, the requirement for fastening a person with criminal liability for the offence committed by a company under Section 138 of the NI Act is that at the time when the offence was committed, such person should be in charge of, and responsible to the company for the conduct of the business of the company. The first proviso to Section 141(1) of the NI Act exonerates the officer or employee of the company from the said offence if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence.
As far as the present case is concerned, there is absolutely nothing stated in Annexure-A1 complaint filed by the first respondent that the petitioners herein were in charge of, and were responsible to the first accused Society for its conduct of business at the time of commission of the offence. Therefore, the primary requirement to fasten the petitioners with criminal liability under Section 138 of the NI Act for the dishonour of the cheque issued by the first accused Society, has not been established by the complainant (first respondent).
It is clear from the decisions of the Hon’ble Apex Court in in Ravi Dhingra v. State of NCT of Delhi [2024 (12) TMI 1090 - SUPREME COURT] that the requirement to plead in the complaint that the persons being prosecuted were in charge of, and were responsible to the company for the conduct of business of the company at the time of commission of the offence, cannot be watered down by other general and superficial statements to the effect that those persons were managing the affairs of the company. As far as the present case is concerned, there is absolutely no allegation in Annexure-A1 complaint that the petitioners were in charge of, and responsible for the conduct of business of the first accused Society. That being so, the prosecution launched against the petitioners, is prima facie unsustainable.
Conclusion - The petitioners are not liable to be prosecuted under Section 138 read with Section 141 of the NI Act due to absence of essential allegations regarding their charge and responsibility over the Society's business at the time of the offence. The proceedings against the petitioners are accordingly quashed.
Petition allowed.
The core legal questions considered by the Court are:
(a) Whether the Chief Judicial Magistrate (CJM), Pune, is legally justified in refusing to extend the validity of the Writ of Commission issued under Section 14 of the SARFAESI Act beyond 90 days, thereby requiring the secured creditor to re-file a fresh Section 14 application for possession of secured assets;
(b) Whether the appointment of an advocate as Court Commissioner to execute possession orders under Section 14 of the SARFAESI Act is valid and consistent with statutory provisions and judicial precedents;
(c) Whether the CJM's refusal to execute the order dated 28th February 2023 in a time-bound and expeditious manner amounts to dereliction of duty and is contrary to the legislative intent of the SARFAESI Act;
(d) The scope and nature of assistance the CJM is mandated to provide to secured creditors under Section 14 of the SARFAESI Act, including the use of force and police assistance;
(e) The applicability and binding effect of the Division Bench order dated 17th April 2023 in Writ Petition No. 15285 of 2022 (L&T Finance Limited versus State of Maharashtra) and the Supreme Court judgment in NKGSB Co-operative Bank Limited versus Subir Chakravarty regarding execution of Section 14 orders.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (a): Validity and extension of Writ of Commission under Section 14 of SARFAESI Act
Relevant legal framework and precedents: Section 14 of the SARFAESI Act empowers the Chief Judicial Magistrate or District Magistrate to assist secured creditors in taking possession of secured assets. The statute does not prescribe any validity period for the order passed under Section 14. The Division Bench's order dated 17th April 2023 in L&T Finance Limited case and the Supreme Court's judgment in NKGSB Co-operative Bank Limited case are key precedents.
Court's interpretation and reasoning: The Court noted that the CJM, Pune, refused to extend the Writ of Commission beyond 90 days, asserting that the order's validity was limited to 90 days and requiring a fresh Section 14 application thereafter. The Court analyzed the statutory provisions and found no express limitation on the validity period of Section 14 orders. It held that the 90-day period fixed by the CJM was procedural and administrative, not a statutory deadline.
Key evidence and findings: The petitioner bank's submissions and the refusal of the CJM to extend the Writ of Commission despite the petitioner's repeated requests were material. The petitioner had complied with all formalities and had paid the Court Commissioner's fees.
Application of law to facts: The Court held that the CJM has inherent powers to extend the period of the Writ of Commission to enable the Court Commissioner to take and deliver possession of the secured assets. Requiring a fresh Section 14 application for extension would cause unnecessary delay and defeat the legislative intent of expeditious recovery.
Treatment of competing arguments: The State contended that the CJM's refusal was lawful as the 90-day period had expired and a fresh application was necessary. The Court rejected this, emphasizing the statutory scheme's purpose and the need for administrative flexibility.
Conclusion: The Court clarified that the CJM must extend the Writ of Commission period as necessary without insisting on re-filing, thereby facilitating timely execution of possession orders.
Issue (b): Appointment of advocate as Court Commissioner under Section 14(1A) SARFAESI Act
Relevant legal framework and precedents: Section 14(1A) allows the CJM/DM to appoint a Court Commissioner to assist in taking possession. The Supreme Court in NKGSB Co-operative Bank Limited versus Subir Chakravarty (2022) held that appointment of an advocate as Court Commissioner is valid and consistent with the statute.
Court's interpretation and reasoning: The Court relied on the Supreme Court's reasoning that the CJM/DM cannot personally attend to every possession due to logistical constraints, especially in commercial jurisdictions. An advocate, as an officer of the Court and subordinate to the CJM/DM, can be validly appointed to execute possession orders.
Key evidence and findings: The petitioner had appointed an advocate as Court Commissioner in accordance with the State Government guidelines and the Division Bench's directions in the L&T Finance Limited case.
Application of law to facts: The Court found the petitioner's appointment of an advocate Court Commissioner proper and consistent with the statutory mandate and judicial precedents.
Treatment of competing arguments: No direct opposition was raised against this appointment by the State; rather, the State's position was procedural regarding extension of the Writ of Commission.
Conclusion: The Court upheld the validity of appointing an advocate as Court Commissioner under Section 14(1A) SARFAESI Act.
Issue (c): Duty of the CJM to execute Section 14 orders expeditiously and consequences of failure
Relevant legal framework and precedents: The SARFAESI Act's objective is to facilitate speedy recovery of secured assets to improve liquidity and reduce NPAs. The Supreme Court in NKGSB emphasized that time is of the essence and the CJM/DM's role is ministerial and cannot brook delay.
Court's interpretation and reasoning: The Court observed that the CJM's refusal to extend the Writ of Commission and consequent delay in execution of the possession order frustrates the legislative purpose. Such refusal amounts to dereliction of duty and is contrary to the spirit of the SARFAESI Act.
Key evidence and findings: The petitioner's repeated requests and compliance contrasted with the CJM's non-cooperation.
Application of law to facts: The Court held that the CJM must act promptly to assist secured creditors and that failure to do so undermines the Act's objectives.
Treatment of competing arguments: The State's argument that a fresh application could be filed was rejected as it would cause avoidable delay.
Conclusion: The Court directed the CJM to execute Section 14 orders expeditiously, including granting necessary assistance.
Issue (d): Scope of assistance under Section 14 including use of force and police aid
Relevant legal framework and precedents: Section 14 empowers the CJM/DM to provide all assistance to secured creditors in taking possession, including breaking open locks and police assistance.
Court's interpretation and reasoning: The Court emphasized that the assistance includes use of force and police aid to overcome any hurdles in taking possession, reflecting the legislative intent to facilitate effective recovery.
Key evidence and findings: The petitioner sought directions for the CJM to provide such assistance.
Application of law to facts: The Court granted directions accordingly.
Treatment of competing arguments: No opposition was raised on this point.
Conclusion: The CJM is directed to provide all necessary assistance, including force and police aid, to secure possession.
Issue (e): Binding effect of Division Bench and Supreme Court rulings on execution of Section 14 orders
Relevant legal framework and precedents: The Division Bench order dated 17th April 2023 in L&T Finance Limited case and the Supreme Court judgment in NKGSB Co-operative Bank Limited case are authoritative on procedural and substantive aspects of Section 14 execution.
Court's interpretation and reasoning: The Court held that the CJM is bound to follow these directions and guidelines, including appointment of advocate Commissioners and expeditious execution.
Key evidence and findings: The petitioner had brought these orders to the CJM's notice, but the CJM refused to comply.
Application of law to facts: The Court enforced adherence to these precedents.
Treatment of competing arguments: The State did not dispute the binding nature but focused on procedural objections.
Conclusion: The CJM must comply with the Division Bench and Supreme Court directions to ensure proper execution of Section 14 orders.
3. SIGNIFICANT HOLDINGS
(i) "Once an order has been passed directing the Court Commissioner to take and deliver the possession of the secured asset to the authorised officer of the banks/financial institution within 90 days, and if for some reason the said process of taking possession and handing over within 90 days could not be achieved, a further extension of date of commission shall be made for which, a fresh application under section 14 need not be filed by such banks/financial institution. We hereby clarify that the Chief Judicial Magistrate, has all powers to extend the period of Writ of Commission to take and deliver possession of the secured assets."
(ii) The Supreme Court's observation in NKGSB Co-operative Bank Limited case that "an advocate is and must be regarded as an officer of the Court and subordinate to the CMM/DM for the purposes of Section 14 (1A) of the 2002 Act," and that "the statutory obligation enjoined upon the CMM/DM is to immediately move into action after receipt of a written application under Section 14(1) of the 2002 Act... Time is of the essence. This is the spirit of the special enactment."
(iii) The Court established that the CJM's refusal to extend the Writ of Commission and consequent delay in execution amounts to dereliction of duty and is contrary to the legislative intent of the SARFAESI Act.
(iv) The Court affirmed that the CJM must provide all necessary assistance including use of force and police aid to secured creditors for taking possession under Section 14.
(v) The Court mandated strict adherence by the CJM to the guidelines issued by the State Government and directions issued by the Division Bench and Supreme Court for expeditious and effective execution of Section 14 orders.
Prayer for enforcement of guidelines given by the State Government vide Circular dated 10th April 2023, and to follow Guidelines particularly appointing an Advocate as Commissioner to execute the order passed u/s 14 of the SARFAESI Act, 2002 - HELD THAT:- The SARFAESI Act was enacted for the purpose that the banks and financial institution would be able to release long term assets, manage problems of liquidity, asset liability mismatches and improve recovery by exercising powers to take possession of securities, sell them, and reduce non performing assets by adopting measures for recovery or reconstruction. Section 14 of the SARFAESI Act directs the Chief Judicial Magistrate or District Magistrate to assist secured creditor in taking possession of the secured asset.
The Supreme Court in NKGSB Co-operative Bank Limited Versus Subir Chakravarty [2022 (3) TMI 3 - SUPREME COURT] had occasioned to consider the issue regarding appointment of advocate and authorise him/her to take possession of the secured asset within the meaning of Section 14 (1A) of the SARFAESI Act. After considering numerous provisions and judgments the Supreme Court held that the CMM/DM had power to appoint an advocate Court Commissioner for executing the orders passed under Section 14 of the SARFAESI Act.
In the present proceedings, the petitioner financial institution has come up with a case that the learned Chief Judicial Magistrate, Pune, is not extending the date of commission on the ground that the validity of the order which commanded the Court Commissioner to take and deliver the possession of the secured assets to the authorised officer of the petitioner is only to be done within 90 days, and once this 90 days period is over, the petitioner would have to obtain a fresh order by refiling a Section 14 application. It is also further the case of the petitioner that in all such matters where within 90 days the order could not be executed, the learned Chief Judicial Magistrate, Pune, is directing parties to file a fresh application under section 14 - Once an order has been passed directing the Court Commissioner to take and deliver the possession of the secured asset to the authorised officer of the banks/financial institution within 90 days, and if for some reason the said process of taking possession and handing over within 90 days could not be achieved, a further extension of date of commission shall be made for which, a fresh application under section 14 need not be filed by such banks/financial institution.
Conclusion - The Chief Judicial Magistrate, has all powers to extend the period of Writ of Commission to take and deliver possession of the secured assets.
Application disposed off.
Prayer for enforcement of guidelines given by the State Government vide Circular dated 10th April 2023, and to follow Guidelines particularly appointing an Advocate as Commissioner to execute the order passed u/s 14 of the SARFAESI Act, 2002 - HELD THAT:- The SARFAESI Act was enacted for the purpose that the banks and financial institution would be able to release long term assets, manage problems of liquidity, asset liability mismatches and improve recovery by exercising powers to take possession of securities, sell them, and reduce non performing assets by adopting measures for recovery or reconstruction. Section 14 of the SARFAESI Act directs the Chief Judicial Magistrate or District Magistrate to assist secured creditor in taking possession of the secured asset.
The Supreme Court in NKGSB Co-operative Bank Limited Versus Subir Chakravarty [2022 (3) TMI 3 - SUPREME COURT] had occasioned to consider the issue regarding appointment of advocate and authorise him/her to take possession of the secured asset within the meaning of Section 14 (1A) of the SARFAESI Act. After considering numerous provisions and judgments the Supreme Court held that the CMM/DM had power to appoint an advocate Court Commissioner for executing the orders passed under Section 14 of the SARFAESI Act.
In the present proceedings, the petitioner financial institution has come up with a case that the learned Chief Judicial Magistrate, Pune, is not extending the date of commission on the ground that the validity of the order which commanded the Court Commissioner to take and deliver the possession of the secured assets to the authorised officer of the petitioner is only to be done within 90 days, and once this 90 days period is over, the petitioner would have to obtain a fresh order by refiling a Section 14 application. It is also further the case of the petitioner that in all such matters where within 90 days the order could not be executed, the learned Chief Judicial Magistrate, Pune, is directing parties to file a fresh application under section 14 - Once an order has been passed directing the Court Commissioner to take and deliver the possession of the secured asset to the authorised officer of the banks/financial institution within 90 days, and if for some reason the said process of taking possession and handing over within 90 days could not be achieved, a further extension of date of commission shall be made for which, a fresh application under section 14 need not be filed by such banks/financial institution.
Conclusion - The Chief Judicial Magistrate, has all powers to extend the period of Writ of Commission to take and deliver possession of the secured assets.
Application disposed off.
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