TaxTMI Updates e-Newsletter
Jul 07,2022

Blocking of Input Tax Credit - intimation of recorded reasons - principles of natural justice - opportunity of hearing - reasoned speaking order

Blocking of Input Tax Credit - intimation of recorded reasons - principles of natural justice - Validity of blocking the petitioner's Input Tax Credit without communicating the recorded reasons to the petitioner. - HELD THAT: - The Court held that the respondent WBGST Authority's action of blocking the petitioner's Input Tax Credit without intimating the recorded reasons was arbitrary and illegal. Failure to communicate the recorded reasons deprived the petitioner of the opportunity to know the basis for the coercive action and to effectively defend or oppose it, thereby violating the principles of natural justice. Even though the respondents produced a record showing that recorded reasons existed, they could not demonstrate that those reasons had been communicated to the petitioner prior to taking the coercive action.

The impugned action of blocking the petitioner's Input Tax Credit without intimating the recorded reasons is illegal and not sustainable in law.

Opportunity of hearing - reasoned speaking order - Remedial course to be followed by the WBGST Authority after supplying recorded reasons and considering the petitioner's objections. - HELD THAT: - The Court directed that a copy of the recorded reasons be furnished to the petitioner and granted the petitioner seven days to file objections to the blocking of Input Tax Credit. The WBGST Authority was directed to consider and dispose of such objections in accordance with law by passing a reasoned and speaking order after giving the petitioner or its authorised representative an opportunity of hearing, within seven days from receipt of the petitioner's response. If, during the hearing, the petitioner establishes grounds warranting cancellation or revocation of the blocking order, the Authority shall immediately revoke the same. The Court further directed that in future the Authority must communicate any order of blocking Input Tax Credit along with the recorded reasons to the assessee.

Recorded reasons to be supplied; petitioner to file objections within seven days; Authority to decide objections by a reasoned speaking order after hearing within seven days and to revoke the blocking if justified; future communications of recorded reasons mandated.

Final Conclusion: Writ petition allowed: blocking of the petitioner's Input Tax Credit without communication of recorded reasons set aside; recorded reasons to be supplied to the petitioner, objections to be filed within seven days, and the WBGST Authority directed to decide the objections by a reasoned speaking order after hearing within seven days, with further direction that in future recorded reasons must accompany any order blocking Input Tax Credit.

Binding nature of CBIC circulars on tax authorities - non-binding nature of administrative circulars on courts - show cause notice issued under Sections 73 and 74 of the GST Act, 2017 not vitiated for contradicting a CBIC circular - obligation to examine applicability of administrative clarification in adjudication - remand for fresh adjudication after considering CBIC Circular No.52/26/2018-GST dated 09.08.2018

Binding nature of CBIC circulars on tax authorities - non-binding nature of administrative circulars on courts - Whether the CBIC circular No.52/26/2018-GST dated 09.08.2018 is binding on the revenue authorities and on the Court. - HELD THAT: - The Court held that circulars issued by the Central Board of Indirect Taxes and Customs are binding on the authorities in the performance of their functions, relying on established precedent, but such administrative circulars are not binding on the Courts. Whether a particular circular applies to the facts of a case must be determined on the merits of those facts; the mere existence of a circular does not conclusively resolve applicability without adjudication. [Paras 6, 7]

CBIC circulars bind the authorities but are not binding on Courts; applicability has to be examined on merits.

Show cause notice issued under Sections 73 and 74 of the GST Act, 2017 not vitiated for contradicting a CBIC circular - obligation to examine applicability of administrative clarification in adjudication - Whether the impugned show cause notice can be quashed as being without jurisdiction because it is said to be contrary to the CBIC circular relied upon by the petitioner. - HELD THAT: - The Court concluded that issuance of the show cause notice by the respondent under Sections 73 and 74 of the GST Act, 2017 cannot be characterised as without jurisdiction merely because the notice proposes a view that the petitioner contends is contrary to the CBIC circular. The correctness or applicability of the circular vis-a -vis the facts alleged in the notice is a matter for adjudication by the authority; it does not render the notice void ab initio. [Paras 6]

The show cause notice is not without jurisdiction simply because it appears to conflict with the CBIC circular; the question of applicability must be decided in adjudication.

Remand for fresh adjudication after considering CBIC Circular No.52/26/2018-GST dated 09.08.2018 - obligation to examine applicability of administrative clarification in adjudication - What is the appropriate remedy where a show cause notice is challenged on the basis of a CBIC circular? - HELD THAT: - Having found that the circular binds the authorities but does not itself dispose of the controversy, the Court directed a practical remedial course: the petitioner was to file a reply to the impugned show cause notice within 60 days and the 4th respondent was directed to decide the matter independently within 30 days thereafter after considering the applicability of CBIC Circular No.52/26/2018-GST dated 09.08.2018 to the facts, with an opportunity of hearing to the petitioner. The order recognises that the question of applicability is for the adjudicating authority to determine on merits rather than for summary quashing at the writ stage. [Paras 8, 9]

Matter remanded to the 4th respondent for independent adjudication after considering the circular; petitioner to file reply within 60 days and authority to decide within 30 days thereafter.

Final Conclusion: Writ petition disposed by directing the petitioner to file a reply to the show cause notice and remitting the matter to the adjudicating authority for independent consideration of the applicability of CBIC Circular No.52/26/2018-GST dated 09.08.2018, with liberty to be heard; no costs.

Imposition of penalty under Section 271D for contravention of Section 269SS - reasonableness of explanation for acceptance of cash loans from related/sister concerns - genuineness of loan transactions - business exigency and cash requirements for site payments as a defence to penalty

Imposition of penalty under Section 271D for contravention of Section 269SS - reasonableness of explanation for acceptance of cash loans from related/sister concerns - genuineness of loan transactions - Whether the penalty under Section 271D for alleged acceptance of cash loans in breach of Section 269SS could be sustained where the loans were taken from sister concerns, the transactions were held to be genuine and a business exigency explanation was offered - HELD THAT: - The Court examined the factual findings recorded by the CIT(A) and accepted by the ITAT that the cash loans were genuine, originated from sister concerns which had sufficient cash, were handled by the same individual across the entities, and were taken to meet urgent site requirements including labour payments at remote locations where banking facilities were not readily available. The appellate authorities found the explanation of business expediency and urgency to be reasonable and noted that the transactions had been accounted for and accepted in assessment. The High Court distinguished the decision in P. Baskar v. CIT , where the Madras High Court was not satisfied with the explanation for cash transactions, on the ground that in the present case a credible and sufficient explanation was furnished and accepted. The Court relied on precedents where acceptance of cash loans from related concerns to meet immediate salary or labour-site disbursements was held to constitute a reasonable cause for not using banking channels, and where imposition of penalty under Section 271D was therefore set aside. Having regard to the settled principle that a penalty under Section 271D cannot be sustained where a reasonable explanation and genuineness of transactions are established, and in light of the concurrent appellate findings, the Court found no error in deletion of the penalty. [Paras 5, 6, 7, 10, 11]

Penalty under Section 271D imposed for alleged contravention of Section 269SS deleted; appellate orders of CIT(A) and ITAT affirmed and Revenue's appeal dismissed.

Final Conclusion: The High Court found no substantial question of law and upheld the deletion of the penalty imposed under Section 271D, concluding that the transactions were genuine and the explanation for accepting cash loans from sister concerns on grounds of business exigency and urgency was reasonable; the appeal is dismissed.

Reopening of assessment - time-barred reopening - jurisdiction to reopen under section 148 - notice under section 148 - requirement to issue notice within six years under Section 149 - corrigendum cannot convert a material amendment into a procedural correction under Section 292-B - typographical error in assessment year and its legal effect

Notice under section 148 - requirement to issue notice within six years under Section 149 - time-barred reopening - Validity of the notice dated 31.03.2017 as having been issued within the statutory limitation for reopening the assessment for AY 2010-2011. - HELD THAT: - The court found that the respondents were obliged to issue a valid notice for reopening within six years from the end of the relevant assessment year as required by Section 149. Although the impugned notice bears the date 31.03.2017, the petitioner produced postal tracking showing the notice was booked on 04.04.2017 and delivered on 12.04.2017. The respondents failed to substantiate that the notice was in fact issued on 31.03.2017. On the material placed before the court, the notice was treated as having been issued after the limitation period and therefore did not confer jurisdiction to reopen the assessment for the tax period in question. [Paras 6, 7, 12]

The notice dated 31.03.2017 is set aside as time barred and did not validly invoke jurisdiction to reopen the assessment for AY 2010-2011.

Corrigendum cannot convert a material amendment into a procedural correction under Section 292-B - typographical error in assessment year and its legal effect - reopening of assessment - Whether the corrigendum dated 11.04.2017 correcting the assessment year from 2015-16 to 2010-11 operates as a mere procedural correction or amounts to a fresh notice (and thus is time barred). - HELD THAT: - The original notice expressly invoked jurisdiction to reopen the assessment for AY 2015-2016. The subsequent document dated 11.04.2017 styled as a 'corrigendum' corrected the assessment year to 2010-2011. The court held that the correction related to a material part of the notice (the assessment year) and could not be treated as a mere procedural irregularity under Section 292-B. Accordingly, the purported corrigendum amounted to an invocation of jurisdiction for AY 2010-2011 only on 11.04.2017, which lies beyond the permissible period and is therefore ineffective. [Paras 8, 9, 10, 11]

The corrigendum dated 11.04.2017 is set aside as it operates as a fresh, time-barred attempt to invoke jurisdiction for AY 2010-2011 and cannot be salvaged as a procedural correction.

Final Conclusion: The notices in question (the notice dated 31.03.2017 and the corrigendum dated 11.04.2017) and the consequential order overruling the petitioner's objection are set aside; the proposed reopening of assessment for AY 2010-2011 is held to be time barred and the writ petition is allowed.

Deductibility of interest as business expenditure - penal interest versus compensatory interest - interest charged under Section 42(3) of the Reserve Bank of India Act - cash reserve ratio non maintenance interest - binding precedent and stare decisis in revenue appeals

Deductibility of interest as business expenditure - penal interest versus compensatory interest - interest charged under Section 42(3) of the Reserve Bank of India Act - cash reserve ratio non maintenance interest - Whether interest paid to the Reserve Bank of India under Section 42(3) on account of non maintenance of the cash reserve ratio is a penal levy and therefore not allowable as a deduction in computing business income. - HELD THAT: - The Tribunal had held that the interest charged for failure to maintain the CRR is penal and not compensatory, observing that the penal interest rate increases for continued default and that criminal liability for responsible persons indicates a punitive character. The High Court, however, applied the earlier Division Bench decision in Commissioner of Income Tax-2 v. Bank of Baroda, which treated similar interest charged under the RBI and Banking Regulation statutory provisions as not constituting a penalty and therefore allowable as a business expenditure. In view of that binding precedent, the Court reversed the Tribunal's conclusion and answered the substantial question in favour of the bank, holding that the interest in issue is not to be treated as a non deductible penal levy but is allowable in computing business income. [Paras 5, 6, 7, 8]

Interest charged by the RBI under Section 42(3) for non maintenance of CRR is not a penal, non deductible levy and is allowable as a deduction; appeal allowed.

Final Conclusion: The appeal is allowed: the High Court, following its Division Bench precedent, ruled that interest charged by the RBI for non maintenance of the CRR under Section 42(3) is not penal in character and is deductible in computing the bank's business income for AY 1990 91.

Notice under Section 148 issued to deceased and its validity as against legal representative - legal representative deemed to be an assessee - proceedings against deceased continued against legal representative - application of Section 159(2)(b) and its limits where Revenue was aware of death - deeming fiction in Section 159(3)

Notice under Section 148 issued to deceased and its validity as against legal representative - application of Section 159(2)(b) and its limits where Revenue was aware of death - legal representative deemed to be an assessee - Whether a notice issued under Section 148 in the name of a deceased assessee is valid and whether proceedings can be continued or a fresh notice issued against the legal representative. - HELD THAT: - The Court examined Section 159 which creates a deeming fiction that the legal representative is an assessee and provides that proceedings against a deceased may be continued against, or taken against, the legal representative. The Division Bench precedent relied upon recognised that Clause (b) of Sub section (2) is intended to preserve proceedings or rights of the Revenue that existed at the time of death, but held that where the Department was put on notice that the assessee was dead and yet chose to pursue notices in the name of the deceased, Clause (b) could not be relied upon to validate such proceedings. Applying that principle, and noting that subsequent communications were addressed to the petitioner as legal representative, the Court found the challenge to the impugned notice sustainable insofar as it was issued in the name of the deceased. Rather than quashing all proceedings on merits, the Court granted relief limited to directing the Revenue to issue an appropriate notice to the petitioner in his capacity as legal representative and excluded the time already spent in the impugned proceedings for computation of limitation. The Court prescribed a timetable for fresh issuance and completion of the assessment proceedings to protect the interests of both parties. [Paras 6, 7]

Writ allowed at the admission stage; respondent permitted to issue a fresh notice under Section 148 to the petitioner as legal representative within two weeks and to complete proceedings within the time limits directed, with the time spent in the impugned proceedings excluded.

Final Conclusion: The writ petition was allowed at admission; the respondent was granted liberty to issue a fresh notice under Section 148 to the petitioner as the legal representative of the deceased and to conclude the assessment within the prescribed timetable, with no order as to costs.

Disallowance under section 14A read with Rule 8D - rectification under section 154 - condonation of delay - de novo adjudication - opportunity of being heard

Disallowance under section 14A read with Rule 8D - rectification under section 154 - de novo adjudication - opportunity of being heard - condonation of delay - Restoration of the matter relating to disallowance under section 14A read with Rule 8D to the file of the Assessing Officer for fresh adjudication after considering submissions and the rectification application. - HELD THAT: - The Assessing Officer made the disallowance under section 14A in the absence of evidence establishing one to one nexus. The assessee maintains that relevant details were submitted during assessment proceedings (submissions dated 23/08/2018) but were not taken into account by the Assessing Officer, and therefore filed an application under section 154 seeking rectification. The learned CIT(A) dismissed the appeal on the ground of delay without adjudicating the merits. The Tribunal accepted the Revenue's concession that the decision on the rectification application would bear on the disallowance and noted that the rectification application remained pending despite follow ups. In these circumstances, the Tribunal held that it is appropriate to remit the issue to the Assessing Officer for de novo consideration of the disallowance after taking into account all details furnished by the assessee and the rectification application, and directed that no order be passed without affording the assessee an opportunity of being heard. The Tribunal therefore did not decide the correctness of the disallowance on merits but ordered fresh adjudication by the Assessing Officer. [Paras 8, 9]

The issue of disallowance under section 14A read with Rule 8D is restored to the Assessing Officer for de novo adjudication after consideration of all details and the rectification application; no order to be passed without affording the assessee a hearing; the appeal is allowed for statistical purposes.

Final Conclusion: The Tribunal remitted the matter relating to the section 14A disallowance to the Assessing Officer for fresh adjudication after consideration of the assessee's submissions and the pending section 154 rectification application, directed that the assessee be heard before any order is passed, and allowed the appeal for statistical purposes.

Classification of agricultural land for capital gains - definition of capital asset under section 2(14) of the Act - effect of government notifications / G.O.s on territorial limits - applicability of exemption under section 54F - status of taxpayer (individual v. HUF) for capital gains assessment

Classification of agricultural land for capital gains - definition of capital asset under section 2(14) of the Act - effect of government notifications / G.O.s on territorial limits - Whether the lands sold on 26.11.2010 were capital assets within the meaning of section 2(14) by virtue of inclusion of the village within Chennai City Corporation limits and therefore taxable as long term capital gains, or remained agricultural land outside municipal limits and outside the scope of capital gains. - HELD THAT: - The Assessing Officer treated the sale consideration as long term capital gains on the ground that, though revenue records classify the parcels as agricultural land, the lands were situated within the limits of Chennai City Corporation and had been sold for non agricultural purposes; the Revenue placed reliance on G.O.(Ms) No.280 dated 09.11.2010. The assessee produced a later Gazette notification dated 19.07.2011 and contended the village was included within the Corporation limits only from that later date; the sale took place on 26.11.2010. Because the legal characterisation of the asset for capital gains purposes hinges on whether, as on the date of transfer, the land fell within municipal limits under the relevant government orders, the factual and legal question requires verification. The Tribunal found no dispute as to the land being shown as agricultural in revenue records and accepted that the determinative point is the territorial inclusion effected by the respective G.O.s relied upon by the parties. The Tribunal therefore did not decide the matter on merits but directed that the Assessing Officer should examine the two Government Orders placed on record, verify the territorial extent and the effective dates, and decide the nature of the asset in accordance with law. [Paras 7]

Issue remitted to the file of the Assessing Officer for verification of the relevant Government Orders and fresh decision on whether the land was a capital asset as on the date of transfer; appeal treated as allowed for statistical purposes.

Final Conclusion: The Tribunal did not finally determine the taxability of the sale proceeds; it set aside the matter and remitted the question whether the lands were capital assets (by reason of inclusion within Chennai Corporation limits under competing G.O.s) to the Assessing Officer for fresh consideration and decision in accordance with law. The appeal is allowed for statistical purposes.

Disallowance under section 40(a)(ia) of the Income Tax Act - deduction of tax at source - reversal and addition in subsequent year - verification on remand by Assessing Officer - refund/payment of self-assessment/advance tax

Disallowance under section 40(a)(ia) of the Income Tax Act - deduction of tax at source - reversal and addition in subsequent year - verification on remand by Assessing Officer - Validity of disallowance of Rs.24,02,058/- under section 40(a)(ia) for non-deduction of TDS - HELD THAT: - The Tribunal recorded the assessee's contention that Rs.23,52,059/- of the impugned amount had been reversed and added back in the subsequent assessment year because the payment was disputed and not made in the year under consideration, and that TDS was deducted and deposited in respect of the remaining Rs.50,000/-. Having considered rival submissions, the Tribunal did not adjudicate the disallowance on merits but directed the Assessing Officer to verify the factual assertions made by the assessee. If the assessee's contentions are borne out on verification, the Assessing Officer is to refrain from making the disallowance. [Paras 3]

Matter remitted to the Assessing Officer for verification of facts; disallowance to be withdrawn if the assessee's contentions are found correct.

Refund/payment of self-assessment/advance tax - verification on remand by Assessing Officer - Computation of refundable amount and alleged under-counting of tax paid by the Assessing Officer - HELD THAT: - The assessee disputed the Assessing Officer's computation of tax credit/refund, asserting higher self-assessment and advance tax payments than recorded by the AO. The Tribunal did not resolve the computation on the record but restored the issue to the file of the Assessing Officer to verify the payments and, if the assessee's contentions are established, to issue the refund due. [Paras 4]

Computation of tax paid and entitlement to refund remitted to the Assessing Officer for verification and issuance of refund if found due.

Final Conclusion: The appeal is treated as allowed for statistical purposes; contested disallowance under section 40(a)(ia) and the computation of refund/tax payments are remitted to the Assessing Officer for factual verification and appropriate action in accordance with the Tribunal's directions.

Deductibility of business expenditure under Section 37 - Explanation 1 to Section 37 - expenditure incurred for commission of an offence not allowable - Compounding fees for violation of statutory provisions - Penalty or fine not allowable as business expenditure

Deductibility of business expenditure under Section 37 - Explanation 1 to Section 37 - expenditure incurred for commission of an offence not allowable - Compounding fees for violation of statutory provisions - Whether the payment of Rs.5,00,000 made to the West Bengal Fire Service Department is allowable as a business expenditure under Section 37 of the Act - HELD THAT: - The Tribunal accepted the documentary material relied upon by the lower authorities, including the order dated 26.04.2013 of the Director General, West Bengal Fire and Emergency Services and the challan evidencing deposit, which demonstrate that the payment was made as compounding fees after pleading guilty to offences for non provision of required fire safety measures under the West Bengal Fire Services Act, 1950. The payment was thus penal in nature and made to compound statutory offences. Explanation 1 to Section 37 declares that any expenditure incurred for a purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction shall be allowed. Applying that principle, the Tribunal held that the amount paid as compounding fees is not allowable as a deduction. The Tribunal further observed that the offence concerned relates to public safety and that the assessee's attempts to characterize the payment otherwise were misleading; consequently the disallowance by the authorities was upheld. [Paras 2, 4, 5, 6]

The payment of Rs.5,00,000 as compounding fees is penal in nature and not deductible under Section 37; the appeal is dismissed.

Final Conclusion: The Tribunal dismissed the appeal, upholding the disallowance of the Rs.5,00,000 payment as a non deductible compounding fee under Explanation 1 to Section 37 of the Income Tax Act.

Revision under section 263 - limited scrutiny under section 143(2)/(3) - error and prejudice test for exercise of revisionary jurisdiction - computation of book profits under section 115JB - indexed cost of acquisition for capital gains

Revision under section 263 - limited scrutiny under section 143(2)/(3) - error and prejudice test for exercise of revisionary jurisdiction - Validity of PCIT's exercise of revisionary jurisdiction under section 263 in setting aside the AO's limited-scrutiny assessment order for not examining inclusion of capital gains in book profits. - HELD THAT: - The Tribunal held that two conditions must be satisfied for exercise of revisionary jurisdiction under section 263: the AO's order must be erroneous and it must be prejudicial to the Revenue. Where an assessment under section 143(3) has been carried out pursuant to a limited-scrutiny selection under the notice issued under section 143(2), the AO is authorised to examine only the specified limited issue. Non-examination of issues outside that authorised scope cannot be treated as an erroneous order for the purpose of section 263. The PCIT could therefore have exercised revision only in respect of the limited issue actually before the AO; he had no jurisdiction to set aside the assessment on a different issue which the AO was not authorised to examine during the limited scrutiny. Applying these principles to the present facts, the Tribunal found no error in the AO's limited-scrutiny assessment and therefore held the PCIT's revisionary order setting aside the assessment on the ground of non-inclusion of capital gains to be without jurisdiction. [Paras 6, 7]

PCIT's exercise of jurisdiction under section 263 was without jurisdiction and the revisionary order setting aside the assessment was quashed.

Computation of book profits under section 115JB - indexed cost of acquisition for capital gains - Whether non-inclusion of long-term capital gains from sale of shares in computing book profit under section 115JB was prejudicial to the Revenue, having regard to availability of indexed cost of acquisition. - HELD THAT: - The Tribunal accepted the assessee's submission, supported by precedents, that while computing capital gains for the purpose of book profits under section 115JB, indexed cost of acquisition is to be taken into account. On the facts as demonstrated by the assessee, once indexation is applied the transaction resulted in a long-term capital loss rather than a gain. Consequently, omission to include the sale proceeds as capital gain did not cause prejudice to the Revenue. Even assuming the AO had not considered the issue, the absence of prejudice meant the condition for invoking section 263 was not satisfied. [Paras 6]

There was no prejudice to the Revenue from the AO's conduct, since indexation would yield a capital loss; thus the omission did not justify revision under section 263.

Final Conclusion: The PCIT's order under section 263 setting aside the limited-scrutiny assessment was quashed and the assessee's appeal was allowed.

Admission of additional evidence under Rule 29 - remand for de novo adjudication - opportunity of hearing / principles of natural justice - application of special tax rate under section 115BBE - treatment of undisclosed credits under section 68 - verification and grant of TDS credit - exclusion of limitation period by Supreme Court order (COVID period)

Admission of additional evidence under Rule 29 - remand for de novo adjudication - opportunity of hearing / principles of natural justice - Remand to the Assessing Officer for de novo adjudication after admission of additional evidence and direction to afford opportunity of hearing. - HELD THAT: - The Tribunal found that documents now produced as additional evidence could not be filed before the lower authorities for reasons including limited opportunity to respond to a single notice of the learned CIT(A) during the pandemic and that the impugned addition was made in the absence of these details. The Department did not object to admission. In view of the absence of those details before the AO and the ex parte disposal by the learned CIT(A), the Tribunal considered it appropriate to admit the additional evidence and remand the matter to the file of the Assessing Officer for fresh adjudication. The Tribunal expressly directed that no order shall be passed without affording the assessee an opportunity of hearing. Consequently grounds 1 to 3 were allowed for statistical purposes and the substantive question of applicability of section 115BBE and related additions was left for fresh consideration by the AO. [Paras 6, 8]

Matter remanded to the Assessing Officer for de novo adjudication after admission of additional evidence and after affording the assessee an opportunity of hearing; grounds 1 to 3 allowed for statistical purpose.

Verification and grant of TDS credit - Direction to the Assessing Officer to verify and grant claimed TDS credit in accordance with law. - HELD THAT: - The Tribunal observed that the intimation under section 143(1) had granted TDS credit only in part and directed the Assessing Officer to verify the details submitted by the assessee and to grant the balance credit as per law. This direction was given without finally adjudicating the merits of the claimed credit, which is to be examined by the AO on verification of records. [Paras 9]

Assessing Officer directed to verify the claimed TDS details and grant credit in accordance with law; ground 4 allowed for statistical purpose.

Final Conclusion: Delay in filing the appeal was held excused by exclusion of the COVID period by the Supreme Court order and the appeal is allowed for statistical purposes: the matter (grounds 1-3) is remitted to the Assessing Officer for de novo adjudication after admission of additional evidence and after affording hearing, and the AO is directed to verify and grant the claimed TDS credit in accordance with law (ground 4).

Cost of acquisition - Section 49(1) - Gift - Fair market value - Voluntary valuation

Cost of acquisition - Section 49(1) - Gift - Fair market value - Voluntary valuation - Whether the cost of acquisition of a capital asset received by way of gift is to be taken as the cost to the previous owner under section 49(1) and whether a higher value voluntarily adopted by the previous owner (fair market value) can be substituted for that cost. - HELD THAT: - The Tribunal held that section 49(1) unequivocally prescribes that where a capital asset becomes the property of the assessee by way of gift, the cost of acquisition in the hands of the assessee is to be the cost for which the previous owner acquired it, subject only to addition of cost of improvements borne by the previous owner or assessee. The provision contains no reference to "fair market value" and does not permit substitution of the previous owner's voluntary valuation at the time of receipt. Reliance on the decision in CIT v. Shanthi Chandran supports the proposition that the statutory phrase "cost of acquisition" must be given its plain meaning and cannot be replaced by a value stated in a settlement or voluntary act. Consequently, the authorities below were correct in treating the cost as the previous owner's acquisition cost (as determined from the development transaction and related documents) rather than accepting an inflated valuation voluntarily adopted by the previous owner. [Paras 8, 9, 10, 11]

The cost of acquisition in the hands of the assessee must be the cost to the previous owner as contemplated by section 49(1); a higher voluntary/fair market valuation by the previous owner cannot be substituted, and the orders of the authorities below are upheld.

Final Conclusion: The Tribunal dismissed the assessee's appeal against the CIT(A)'s order for AY.2014-15, upholding the treatment of cost of acquisition as the previous owner's cost under section 49(1) and rejecting reliance on the previous owner's higher voluntary valuation.

Penalty under section 271(1)(c) - Penalty not leviable where the underlying additions are deleted - Bonafide claim - Disallowance under section 35(2AB) - Deletion of additions as a basis for deleting penalty

Penalty under section 271(1)(c) - Deletion of additions as a basis for deleting penalty - Whether penalty under section 271(1)(c) could be sustained where the additions/disallowances (corporate guarantee fee, interest on foreign currency loans and advances, and donation to SRF Vidyalaya) were deleted by the Tribunal/CIT(A). - HELD THAT: - The Tribunal noted that the impugned additions on account of corporate guarantee fee and interest on foreign currency loans and advances were deleted by this Tribunal in a connected order, and that the disallowance in respect of donation to SRF Vidyalaya was also deleted by the Tribunal. Where the additions themselves have been deleted, there is no justification for levying penalty under section 271(1)(c). Applying this principle, the CIT(A)'s deletion of the penalty insofar as it related to the deleted additions was upheld, and the AO was directed to delete the penalty on the addition made on account of donation to SRF Vidyalaya.

Penalty levied under section 271(1)(c) in respect of the deleted additions/disallowances is deleted; revenue's appeal on this ground dismissed and assessee's cross-objection allowing deletion sustained.

Bonafide claim - Disallowance under section 35(2AB) - Penalty under section 271(1)(c) - Whether penalty under section 271(1)(c) was justified for the disallowance under section 35(2AB) where the assessee made a bona fide claim but there was a discrepancy between the DSIR approval figure and the claimed deduction. - HELD THAT: - The Tribunal found the assessee's claim to be bona fide despite the discrepancy: DSIR approval recorded a certain approved sum whereas the assessee's claim was marginally different, prompting the AO's disallowance. In light of the circumstances and applying the governing precedent cited by the Tribunal on the treatment of bona fide claims when imposing penalty, the levy of penalty under section 271(1)(c) was held not to be justified. Accordingly, the CIT(A)'s deletion of the penalty in respect of the section 35(2AB) disallowance was upheld.

Penalty under section 271(1)(c) not sustainable on the disallowance under section 35(2AB) given the bona fide nature of the claim; penalty deleted.

Final Conclusion: Revenue's appeal dismissed insofar as penalty deletions are concerned; assessee's cross-objection allowed; the penalties under section 271(1)(c) relating to the deleted additions/disallowance for A.Y.2010-11 are deleted.

Ex parte appellate order - violation of principles of natural justice - mandate of Sub section (6) of Section 250 of the Income tax Act - remand for fresh adjudication after granting opportunity of hearing

Ex parte appellate order - mandate of Sub section (6) of Section 250 of the Income tax Act - violation of principles of natural justice - Whether the order of the Commissioner of Income Tax (Appeals) dismissing the assessee's appeal without adjudicating the merits and without affording adequate opportunity was valid. - HELD THAT: - The Tribunal found that the CIT(A) passed an ex parte order without deciding the issue on merits and thereby failed to comply with the requirement in Sub section (6) of Section 250 that the appellate authority state the points in dispute and assign reasons for its conclusion. The Tribunal observed that sufficient opportunity of hearing is a fundamental requirement of natural justice and that a party should not be condemned unheard. In view of these defects, the appellate order could not stand and the matter required fresh consideration with the parties being afforded adequate opportunity and the assessee being directed to furnish the details called for by the authorities. Because the Tribunal restored the issue for re adjudication, it did not decide the merits of the depreciation disallowance raised by the assessee. [Paras 7, 9]

Impugned order of CIT(A) dated 25.06.2019 set aside and the issue restored to the file of the Assessing Officer for re adjudication after granting sufficient opportunity of hearing to the assessee; assessee directed to furnish the required details; merits not adjudicated.

Final Conclusion: Appeal allowed for statistical purposes by setting aside the CIT(A) order and remanding the matter to the Assessing Officer for fresh adjudication after providing the assessee adequate opportunity and calling for required details; merits of the depreciation disallowance left open.

Amendment of Bills of Entry under the Customs Act, 1962 - Writ of Mandamus - direction to decide pending amendment applications - applicability of Notification No. 12/2012-CE (Sl. No. 263A(ii)) to Countervailing Duty - rate of Countervailing Duty - timely and expeditious decision

Amendment of Bills of Entry under the Customs Act, 1962 - Writ of Mandamus - direction to decide pending amendment applications - applicability of Notification No. 12/2012-CE (Sl. No. 263A(ii)) to Countervailing Duty - timely and expeditious decision - Respondents directed to decide the petitioner's applications for amendment of specified Bills of Entry to reflect the claimed Countervailing Duty rate, in accordance with law. - HELD THAT: - The petitioner filed applications to amend a total of 431 Bills of Entry spanning the periods May 2014 to July 2014 and August 2014 to January 2015, seeking corrections to the Countervailing Duty rate purportedly payable at 1% as per Sl. No. 263A(ii) of Notification No. 12/2012-CE dated 17.03.2012. The petitioner urged that there is no limitation for seeking amendment of Bills of Entry under the Customs Act, 1962, and relied upon recent High Court decisions. The court did not adjudicate the merits of the entitlement to the 1% rate or resolve the limitation contention; instead, on the record before it and by consent of the parties, the court disposed of the writ petition by directing the respondents to consider and decide the pending amendment applications in accordance with law and to do so in a timely and expeditious manner.

Writ petition disposed with a direction that the respondents shall decide the petitioner's amendment applications for the specified Bills of Entry in accordance with law and expeditiously.

Final Conclusion: The writ petition is disposed of by directing the respondents to decide the petitioner's applications for amendment of the listed Bills of Entry (May 2014 to July 2014; August 2014 to January 2015) in accordance with law and without delay; no adjudication was made on the substantive entitlement to the claimed Countervailing Duty rate or on limitation.

Remand for fresh consideration on merits - alternative remedy and maintainability of writ petitions - confiscation by Commissioner (Appeals) reversing adjudicating authority - proviso to Section 128A requiring opportunity to show cause before enhancement - requirement of due opportunity and cross-examination before adjudication

Alternative remedy and maintainability of writ petitions - remand for fresh consideration on merits - The learned Single Judge's dismissal of the writ petitions as infructuous on the ground of availability of alternative remedy was set aside and the matter remanded for fresh consideration. - HELD THAT: - The High Court found that the Single Judge had not decided the substantive question of statutory violation on the merits before dismissing the petitions as having an alternative remedy. The appellants had earlier undertaken to confine their writ challenges to statutory violations while pursuing other points before the CESTAT, and the interim order recorded that undertaking. In these circumstances the Court concluded that the matter should be reopened so that the statutory violation is decided on merits and in accordance with law after affording due opportunity to all parties. Consequently the impugned order of dismissal was set aside and the writ petitions were remitted to the Single Judge for expeditious fresh disposal. [Paras 7, 8]

Order of dismissal set aside and the matter remanded to the Single Judge to decide the issue of statutory violation on merits after affording opportunity to parties.

Proviso to Section 128A requiring opportunity to show cause before enhancement - requirement of due opportunity and cross-examination before adjudication - confiscation by Commissioner (Appeals) reversing adjudicating authority - The question whether the first appellate authority complied with the procedural requirement to afford opportunity before enhancing penalty and whether due opportunity (including to test witness statements) was given was left open for fresh adjudication. - HELD THAT: - The Court noted the appellants' grievance that the Commissioner (Appeals) confiscated goods and enhanced penalties without complying with the procedural safeguard in the proviso to Section 128A - namely, calling upon the assessee to show cause before enhancement - and that the adjudicating authority had passed orders without granting the appellants' request for cross-examination of witnesses. These procedural contentions were neither finally adjudicated by the Single Judge nor addressed on merits. In view of the foregoing and the importance of determining whether statutory procedural safeguards were observed before confiscation and enhancement, the Court directed that the Single Judge decide these issues afresh, affording all parties the opportunity necessary to ventilate and substantiate their contentions. [Paras 7]

Procedural compliance regarding enhancement and the opportunity to contest witness statements remitted for fresh consideration by the Single Judge, who shall decide these matters on merits after affording due opportunity.

Final Conclusion: The impugned order dismissing the writ petitions was set aside; the matters are remitted to the Single Judge for fresh and expeditious consideration of the statutory-violation and related procedural issues (including compliance with the proviso to Section 128A and opportunity to test witness statements), after affording all parties due opportunity.

Jurisdiction of DRI officers to issue show cause notice - remand by appellate tribunal - restoration of appeals to the tribunal to await superior court decision - maintaining status quo pending higher court decision - prohibition on coercive action

Jurisdiction of DRI officers to issue show cause notice - remand by appellate tribunal - restoration of appeals to the tribunal to await superior court decision - Whether the Tribunal was justified in setting aside adjudication orders and remanding the matters to the original authority while the question of jurisdiction of DRI officers was sub judice before the Supreme Court. - HELD THAT: - The Court held that identical orders had been considered by a Division Bench in Sanket Praful Tolia and by a coordinate Bench in earlier decisions, which required that where the jurisdictional issue is pending before the Supreme Court the correct procedural course is to keep the appeals pending before the Tribunal and await the Supreme Court's decision rather than remit to the original adjudicating authority. Following Sanket Praful Tolia, the Court set aside the impugned CESTAT orders which had remanded the cases to the original authority and restored the appeals to the file of the Tribunal to be kept pending until the Supreme Court decides the appeals filed against the Delhi High Court decision in Mangali Impex. The Court expressly left the substantial questions of law open for determination by the higher forum. [Paras 6, 7, 8]

Impugned remand orders by CESTAT set aside; appeals restored to Tribunal to be kept pending and to await the Supreme Court's decision.

Maintaining status quo pending higher court decision - prohibition on coercive action - Whether the Department may take coercive action against the assessee while the appeals are kept pending awaiting the Supreme Court's decision. - HELD THAT: - While directing that the appeals be restored to the Tribunal and kept pending, the Court made clear that the Department shall not initiate any coercive action against the respondents/assessees and that the status quo as preserved by prior orders must be maintained until the Supreme Court decides the appeals concerning the jurisdictional issue. This protective direction preserves the parties' positions without adjudicating the merits of the underlying demands. [Paras 6, 8]

Department restrained from initiating coercive action; status quo to be maintained pending final decision of the Supreme Court.

Final Conclusion: The appeals are allowed; the CESTAT orders remanding the matters to the original adjudicating authority are set aside and the matters are restored to the Tribunal to be kept pending awaiting the Supreme Court's decision on the jurisdictional issue in Mangali Impex, with a direction that the Department shall not initiate coercive action and the substantial questions of law remain open.

Condonation of delay - limitation period extension due to COVID-19 - time-bar of appeal under first proviso to section 128(1) of the Customs Act, 1962 - death of counsel as sufficient cause for delay - remand for hearing on merits

Condonation of delay - limitation period extension due to COVID-19 - death of counsel as sufficient cause for delay - remand for hearing on merits - Whether the Commissioner (Appeals) rightly rejected the appellant's appeal as time barred and whether the delay in filing ought to be condoned. - HELD THAT: - The original order dated 10.12.2019 was received on 13.12.2019; the appeal period of 60 days would have expired on 13.2.2020, and with the one month condonable extension by the Commissioner (Appeals) the last permissible date was 13.3.2020. The appeal was filed on 30.8.2020. The Supreme Court's suo moto order extending limitation with effect from 15.3.2020 was noted, leaving a two day delay (13.3.2020 to 15.3.2020). The appellant produced an affidavit and the death certificate of his counsel (who was infected with COVID 19 and subsequently died), establishing that the delay arose from circumstances beyond the appellant's control. On these peculiar facts the Tribunal held that the two day delay should be viewed leniently, set aside the Commissioner (Appeals) order rejecting the appeal as time barred, and remanded the matter to the Commissioner (Appeals) to hear and decide the appeal on merits. The Tribunal expressly recorded that the condonation was allowed only on the peculiar facts and would not operate as a precedent. [Paras 8, 9]

Impugned order rejecting the appeal as time barred set aside; two day delay condoned in view of counsel's COVID 19 infection and death and the COVID limitation extension; appeal remitted to Commissioner (Appeals) for adjudication on merits.

Final Conclusion: The appeal is allowed insofar as the order of the Commissioner (Appeals) rejecting the appeal as time barred is set aside; the appeal is remanded to the Commissioner (Appeals) to be heard and disposed of on merits, the Tribunal condoning the short delay on the peculiar facts (not to serve as precedent).

Evidence of clandestine removal and burden of proof - Admissibility and evidentiary value of statements recorded without cross examination (Section 138B) - Presumption that goods available in open market have suffered duty - Requirement of prior notice to owner before confiscation (Section 124) - Confiscation under Section 111(j) - Validity of show cause notice - proper officer and jurisdiction under Section 28

Evidence of clandestine removal and burden of proof - Presumption that goods available in open market have suffered duty - Confiscation under Section 111(j) - Whether Revenue proved that the goods seized from the appellant were clandestinely received from the SEZ unit and liable to confiscation under Section 111(j). - HELD THAT: - The Tribunal held that where seized goods are of the kind available in the open market and a town seizure is involved, the onus lies on Revenue to establish that those specific goods were received clandestinely from the SEZ without payment of duty. Reliance placed by Revenue on statements of third parties that were retracted or not tested by cross examination and on inferences drawn from discrepant records was insufficient. The appellant produced purchase invoices, ledger entries and bank payments showing acquisition from the open market by banking channels, which prima facie supported genuineness. Absent cogent corroborative evidence directly linking the seized goods to duty unpaid clearances from the SEZ (for example, seizure in transit, identifying marks or reliable documentary correlation), confiscation was not sustainable. [Paras 31]

Confiscation of the goods from the appellant's premises was not proved and the confiscation order set aside in respect of the appellant.

Admissibility and evidentiary value of statements recorded without cross examination (Section 138B) - Whether statements relied upon by Revenue (of the SEZ director, marketing executives and transporters) could be treated as having evidentiary value in adjudication without affording opportunity of cross examination under Section 138B. - HELD THAT: - The Tribunal found that several statements on which Revenue heavily relied were either retracted or were not tested by cross examination during adjudication; consequently they lacked evidentiary value in the face of Section 138B's mandate. The adjudicating authority could not base a finding of clandestine receipt and resultant penalty/confiscation on such untested statements when the appellant had produced documentary and bank evidence supporting lawful purchase. [Paras 31]

Statements not cross examined and/or retracted were held insufficient to sustain the adverse findings and penalties against the appellant.

Requirement of prior notice to owner before confiscation (Section 124) - Whether the procedure required by Section 124 - issuance of prior notice to the owner with appropriate approval - was complied with before ordering confiscation of the appellant's goods. - HELD THAT: - The Tribunal observed that no notice in terms of Section 124 was issued to the owner appellant prior to passing the confiscation and penalty order. The absence of such statutory procedural compliance vitiated the confiscation and penalty measures insofar as the appellant was concerned. [Paras 33]

The confiscation and penalty orders were held bad for non compliance with Section 124 in respect of the appellant.

Validity of show cause notice - proper officer and jurisdiction under Section 28 - Whether the show cause notice issued by officers of DGCEI was maintainable in view of the requirement that only the proper officer under Section 28(1)/28(4) can issue demand for differential/escaped duty. - HELD THAT: - Relying on the legal position stated in Canon India Pvt. Ltd. and subsequent authorities, the Tribunal held that the show cause notice issued by DGCEI officers who were not the proper officers as contemplated under Section 28 was without jurisdiction. The adjudication based on such notice therefore suffered from a jurisdictional defect. [Paras 29, 34]

The show cause notice issued by the officers of DGCEI was held to be without jurisdiction and invalid for the purpose of issuing demands/penalties against the appellant.

Final Conclusion: The appeal was allowed; the adjudicating order of confiscation and penalties insofar as it related to the appellant was set aside on the grounds that Revenue failed to prove clandestine receipt of the seized goods, relied on untested/retracted statements, did not comply with Section 124, and the show cause notice was issued by officers not competent under Section 28. Consequential relief awarded: release of the seized goods.

Quashing of criminal proceedings under Section 482 CrPC - prima facie case - ingredients of offence - civil dispute versus criminal liability - inherent powers exercised sparingly / rarest of rare doctrine

Quashing of criminal proceedings under Section 482 CrPC - prima facie case - ingredients of offence - civil dispute versus criminal liability - Whether the petition under Section 482 CrPC to quash C.C. No.165 of 2018 against the petitioners should be allowed. - HELD THAT: - The Court held that the complaint, subsequent investigation, and the charge sheet disclose specific allegations and material which, at the threshold, amount to prima facie ingredients of criminal offences alleged. The question of dishonest intention, forgery, waiver or extension of contractual timelines, and the contention that the matters are purely contractual or to be adjudicated under company law are matters of defence and factual controversy which must be examined at a full trial. Reliance on authorities emphasising that civil character of a dispute alone does not warrant quashing was applied; quashing is permissible only where complaint discloses no offence or is frivolous, vexatious or oppressive. The Court also applied the settled principle that inherent powers under Section 482 CrPC must be exercised with great caution and only in rare cases. On the material placed before it (including recorded statements under Section 161 CrPC and the charge sheet), the Court found no grounds to interfere at the pre-trial stage. [Paras 14, 16, 17, 18, 19]

The petition to quash the criminal proceedings was dismissed and the trial Court was directed to proceed with adjudication.

Final Conclusion: The High Court dismissed the petition under Section 482 CrPC, holding that the allegations and the materials collected by the Investigating Officer disclose prima facie offences and that factual and legal defences are matters for trial; quashing was not justified.

Maintainability of a private complaint under Section 447 of the Companies Act - bar on cognizance under Section 212(6) of the Companies Act - offences under the Companies Act being non-cognizable except as provided - company as a necessary party in prosecutions relating to corporate filings and allotments - jurisdiction of Special/Economic Offences Court to try other offences contingent on an offence under the Companies Act - quashing of criminal proceedings under Section 482 Cr.P.C. for abuse of process, including malafide prosecution and inordinate delay

Maintainability of a private complaint under Section 447 of the Companies Act - bar on cognizance under Section 212(6) of the Companies Act - offences under the Companies Act being non-cognizable except as provided - Whether the Special/Economic Offences Court could take cognizance of offences under Section 447 (and offences covered by Section 447 such as Section 448) on a private complaint in the absence of a complaint in writing by the Director, SFIO or an authorised officer of the Central Government. - HELD THAT: - The Court held that Section 212(6) creates a specific bar: offences referred to in sub section (6) of Section 212 (which includes offences under Section 447) are cognizable and the Special Court shall not take cognizance of such offences except upon a complaint in writing by the Director, SFIO or an officer of the Central Government authorised in writing. Section 439 generally renders offences under the Act non cognizable but expressly excludes the offences referred to in Section 212(6) from that non cognizability provision; accordingly a private complaint cannot be the foundation for cognizance of offences covered by Section 212(6). The bar operates as a safeguard against frivolous prosecutions and prescribes the statutory channel for initiating prosecution for corporate fraud once SFIO/Central Government procedures have been complied with. Applying these provisions to the facts, cognizance taken by the trial court on a private complaint for the offences under Section 447 (and offences falling within its scope) was held not maintainable. [Paras 23]

Cognizance of offences under Section 447 (and offences covered thereby) could not be taken on the private complaint; prosecution on those counts was not maintainable absent the statutory complaint under Section 212(6).

Company as a necessary party in prosecutions relating to corporate filings and allotments - jurisdiction of Special/Economic Offences Court to try other offences contingent on an offence under the Companies Act - Whether the Company (PARPL) was a necessary party to the complaint and whether the Special Court could proceed to try other offences if no offence under the Companies Act was made out. - HELD THAT: - The Court observed that the principal allegations related to corporate filings, purported allotment of shares and uploads to the ROC website - matters intrinsically involving the company - and therefore the company is a necessary party to proceedings of this character. Further, Section 436(2) permits a Special Court to try other offences only 'when trying an offence under this Act'; consequently, if no offence under the Companies Act is made out (or is held not maintainable), the Special Court lacks jurisdiction to proceed with other offences premised on that foundation. The Court treated the failure to array the company as significant and concluded that the company ought to have been a party in proceedings alleging offences arising from corporate acts and filings. [Paras 25, 30]

The Company is a necessary party in prosecutions concerning corporate filings/allotments; absent a sustainable offence under the Companies Act, the Special Court cannot properly proceed to try ancillary offences predicated on it.

Quashing of criminal proceedings under Section 482 Cr.P.C. for abuse of process, including malafide prosecution and inordinate delay - Whether continuance of the criminal proceedings amounted to abuse of process warranting exercise of inherent jurisdiction under Section 482 Cr.P.C. on account of delay, mala fides and collateral civil character of the dispute. - HELD THAT: - Applying the principles in Bhajan Lal and subsequent authorities, the Court found that the complaint was filed after long delay (allegations reaching back two decades) and that the complainant had, for many years, accepted company filings including Annual Returns without challenge. The belated criminalization of what the Court regarded as essentially civic/commercial disputes, taken together with surrounding facts, indicated malafide and an ulterior motive to harass and seek revenge. The statutory bar under Section 212(6) reinforced the conclusion that allowing the proceedings to continue would amount to abuse of process. In exercise of its inherent powers, the Court concluded that the criminal proceedings should be quashed also on these grounds. [Paras 41, 42]

Proceedings were an abuse of process due to inordinate delay and mala fides; exercise of Section 482 Cr.P.C. was appropriate to quash the prosecution.

Jurisdiction of Special/Economic Offences Court to try other offences contingent on an offence under the Companies Act - parallel proceedings before NCLT and criminal forum - Whether pendency of civil/tribunal proceedings (NCLT) on the same subject matter precluded initiation of criminal proceedings, and whether parallel proceedings rendered criminal prosecution improper. - HELD THAT: - The Court noted the distinct jurisdictions of NCLT and Special Courts and observed that pendency of civil proceedings before NCLT does not, per se, bar criminal proceedings so long as the ingredients of a criminal offence are prima facie made out. However, this general principle did not save the present complaint because (a) offences under Section 447 were held not maintainable on a private complaint by reason of Section 212(6), and (b) the prosecution was, in the circumstances of this record, tainted by delay and mala fides. Thus, although parallel civil proceedings are not an automatic bar, here the statutory bar together with other factors justified quashing. [Paras 31, 32]

Pendency of NCLT proceedings does not automatically bar criminal proceedings; however, given the statutory bar under Section 212(6) and the facts indicating abuse of process, the criminal proceedings could not be allowed to continue.

Final Conclusion: The High Court allowed the petitions and, invoking the bar in Section 212(6) of the Companies Act, 2013 and exercising inherent jurisdiction under Section 482 Cr.P.C. to prevent abuse of process (including for mala fides and inordinate delay), quashed the proceedings in C.C. No.31 of 2021 against the petitioners before the VIII Additional Metropolitan Sessions Judge cum Special Judge for Economic Offences, Nampally, Hyderabad.

Extinguishment of admitted operational and capex claims by bank-borrower restructuring - treatment of Operational and Capex creditors under an RBI-backed debt restructuring as distinct from a Resolution Plan - effect and continuity of a freezing order under Section 17(1A) of the Prevention of Money Laundering Act, 2002 - relevance of Forensic/Transaction Review adverse findings and parallel Section 66 proceedings to payment obligations

Extinguishment of admitted operational and capex claims by bank-borrower restructuring - treatment of Operational and Capex creditors under an RBI-backed debt restructuring as distinct from a Resolution Plan - Prayer for extinguishment of admitted claims and termination of contracts of Operational and Capex Creditors under the ITPCL Restructuring Plan - HELD THAT: - The Tribunal found that the admitted claims of the Operational and Capex Creditors (as admitted by the Claim Management Advisor) cannot be extinguished by the borrower or lenders through the Restructuring Plan. The RBI restructuring framework represents an arrangement between lenders and the borrower and does not supplant the requirement for an appropriate Resolution Plan to address admitted operational/capex claims. The admitted claims must be dealt with in a fair and reasonable Resolution Plan to be drawn and approved; the borrower cannot rely on its own alleged misconduct or adverse findings in internal/forensic reports to defeat creditors' admitted claims. Consequently, prayers seeking extinguishment of rights and termination of contracts (prayers (c) and (d) of I.A. No. 59 of 2021) were refused. The Tribunal directed that the Board of ITPCL may consider a supplementary Resolution Plan dealing with Operational and Capex creditors' claims and that such resolution needs approval of the new Board and the Adjudicating Authority. [Paras 34, 35, 36]

Prayers (c) and (d) in I.A. No. 59 of 2021 refusing extinguishment of admitted Operational/Capex claims; directed consideration of a supplementary Resolution Plan and its approval by the Board and the Adjudicating Authority.

Effect and continuity of a freezing order under Section 17(1A) of the Prevention of Money Laundering Act, 2002 - relevance of Forensic/Transaction Review adverse findings and parallel Section 66 proceedings to payment obligations - Whether the Investigating Officer's email/freeze direction dated 22.09.2020 and related PMLA steps operate to lawfully withhold payments to SEPCO and Shandong - HELD THAT: - The Tribunal examined the email purportedly directing ITPCL not to make payments to certain EPC contractors and the subsequent provisional and confirmed attachment orders under the PMLA. Section 17(1A) of PMLA requires that where a freezing order is made, the authority must, within 30 days, file an application under Section 17(4) for continuation of freezing before the Adjudicating Authority. The record did not show compliance with the Section 17(4) procedure in respect of the Investigating Officer's email dated 22.09.2020; furthermore the provisional and final attachment orders on record related to shares held by A S Coal Pte. Ltd. and did not attach assets of SEPCO or Shandong. In these circumstances the Tribunal held that the Investigating Officer's email could not be treated as a continuing lawful inhibition on payments to the Operational/Capex Creditors and could not justify withholding admitted dues; however it noted that a paying authority may obtain appropriate security before making payment where litigation or investigations may affect such payment. [Paras 29, 30, 31]

The email dated 22.09.2020 does not operate as a continuing freezing order absent the statutory process under Section 17(4) PMLA; it cannot be relied upon to withhold payment of admitted claims to SEPCO and Shandong.

Final Conclusion: The Tribunal refused prayers (c) and (d) of I.A. No. 59 of 2021 seeking extinguishment of admitted Operational and Capex creditors' claims and termination of contracts; held that admitted claims must be addressed in a fair and reasonable Resolution Plan (not unilaterally extinguished via lender-borrower restructuring), and that the Investigating Officer's email of 22.09.2020 did not constitute a continuing freezing order under PMLA sufficient to withhold payments. The Board of ITPCL was directed to consider a supplementary Resolution Plan dealing with Operational and Capex creditors' claims, subject to approval by the new Board and the Adjudicating Authority.

Interim injunction restraining rights issue - exercise of appellate discretion to interfere with interim orders - status quo of shareholding pending adjudication - principles of natural justice regarding reasons - power of NCLT under Section 242(4) to pass equitable orders - rights issue and pre-emption under Section 62

Interim injunction restraining rights issue - exercise of appellate discretion to interfere with interim orders - status quo of shareholding pending adjudication - principles of natural justice regarding reasons - Whether the Appellate Tribunal should interfere with the NCLT's interim order restraining the company from proceeding with the rights issue and maintaining status quo in shareholding pending disposal of the company petition and related application. - HELD THAT: - The Appellate Tribunal treated the impugned order of the NCLT dated 23.03.2022 as an interim order made in the context of an on going Company Petition under Sections 241/242 alleging oppression and mismanagement. The Tribunal noted that the NCLT had restrained the respondents from proceeding with the then ongoing rights issue and directed maintenance of status quo as an interim measure (paras 4-7). While acknowledging that the impugned order was brief and cryptic, the Appellate Tribunal observed that it was not fatal to the exercise of the Tribunal's discretion. Exercising prudent appellate restraint and without expressing any view on the merits of the main petition, the Appellate Tribunal declined to disturb the NCLT's interim order in the facts and circumstances of the case, including the fact that the main petition's final hearing was imminent and that operations of the new hospital had commenced (paras 75-76). The dismissal of the appeal was therefore founded on the discretionary principle that appellate interference with interlocutory orders is not warranted in the present matrix of facts and timing, rather than on a definitive adjudication of the merits of the rights issue itself. [Paras 5, 6, 7, 75, 76]

Appeal dismissed; appellate court will not interfere with the NCLT's interim restraint and status quo order.

Power of NCLT under Section 242(4) to pass equitable orders - exercise of appellate discretion to interfere with interim orders - Whether the NCLT should be directed to conclude the main Company Petition within a specified timeline. - HELD THAT: - While refraining from expressing any opinion on the merits of the main petition, the Appellate Tribunal exercised supervisory concern over expedition of proceedings. The Tribunal directed the NCLT, Cuttack Bench, to conclude the hearing of Company Petition No. 98/CTB/2019 when it came up on 14.07.2022 within three weeks and to pass final orders within two weeks thereafter (para 77). This direction was issued as a case management measure to ensure timely disposal of the substantive dispute and did not amount to an adjudication on merits; it reflects the appellate forum's expectation that the NCLT exercise its powers under Section 242(4) efficiently to reach finality. [Paras 76, 77]

Directed NCLT to complete hearing within three weeks from 14.07.2022 and to pass final orders within two weeks thereafter.

Final Conclusion: The Company Appeal (AT) No. 50 of 2022 is dismissed; the Appellate Tribunal declined to interfere with the NCLT's interim restraint and status quo order relating to the rights issue, directed the NCLT to conclude the main petition within the stipulated timeline, and closed the connected interim applications.

Exclusion of time for bonafide proceedings in a forum without jurisdiction - applicability of the Limitation Act to proceedings before the Tribunal/Appellate Tribunal - condonation of delay - striking off under Section 248 of the Companies Act, 2013 - maintainability of review proceedings before the National Company Law Tribunal

Exclusion of time for bonafide proceedings in a forum without jurisdiction - applicability of the Limitation Act to proceedings before the Tribunal/Appellate Tribunal - Application of Section 14 of the Limitation Act, 1963 to exclude time spent in proceedings before the National Company Law Tribunal. - HELD THAT: - The Tribunal examined Section 14 of the Limitation Act, 1963, which permits exclusion of time spent pursuing proceedings bonafide in a court or tribunal without jurisdiction. The appellant had prosecuted a review application before the National Company Law Tribunal, Division Bench-II, Chennai, seeking to set aside its earlier order. The Tribunal found that the review application was not a proceeding before a forum lacking jurisdiction to try the subject matter; the NCLT was a competent forum to entertain a review under the rules invoked. Consequently, the statutory prerequisite for exclusion of time under Section 14 (i.e., prosecution bonafide in a forum which had no jurisdiction) was absent. The Tribunal therefore held that the appellant could not invoke Section 14 to exclude the period consumed by the NCLT proceedings from computation of limitation.

Section 14 could not be invoked to exclude the time spent in the NCLT review proceedings because those proceedings were not before a tribunal without jurisdiction.

Condonation of delay - maintainability of review proceedings before the National Company Law Tribunal - striking off under Section 248 of the Companies Act, 2013 - Whether the condonation of delay application in the Company Appeal should be allowed and whether the main appeal survives for adjudication. - HELD THAT: - Because the appellant could not establish entitlement to exclude the period of the NCLT review proceedings under Section 14, the application for condonation of delay (IA/482/2022) in the Company Appeal failed. The Tribunal applied this conclusion to the present proceedings: in the absence of condonation, the Company Appeal could not be admitted for adjudication. The Tribunal accordingly dismissed the condonation application and, as a direct consequence, dismissed the main Company Appeal (AT)(CH) No.40/2022 as not surviving for adjudication. Costs were not imposed.

IA/482/2022 for condonation of delay dismissed; consequently the main Company Appeal dismissed as not maintainable for adjudication.

Final Conclusion: The application to exclude time under Section 14 of the Limitation Act was rejected because the NCLT proceedings were not in a forum without jurisdiction; the condonation application was dismissed and, accordingly, the main Company Appeal was dismissed. No costs.

Eligibility under Section 29A(c) - Proviso to Section 29A(c) - payment of all overdue amounts - Date of NPA classification for Section 29A(c) - Section 12A withdrawal and promoter settlement proposals - Commercial wisdom of the Committee of Creditors

Section 12A withdrawal and promoter settlement proposals - Commercial wisdom of the Committee of Creditors - Validity of CoC's rejection of the promoters' restructuring/settlement proposal under Section 12A - HELD THAT: - The Court held that Section 12A permits withdrawal of an admitted application only with the approval of 90% voting share of the CoC and does not independently entitle promoters to foist a resolution plan on lenders. The promoters' submission was considered by the CoC at meetings on 05.03.2021 and 21.04.2021, recorded in the minutes, and was rejected as not commercially viable and not meeting procedural requirements of Section 12A. The CoC's unanimous commercial decision, reached after deliberation and recorded in the minutes, is not amenable to judicial interference. Accordingly, the Adjudicating Authority correctly refused to set aside the CoC's decision rejecting the promoters' proposal under Section 12A. [Paras 11, 12, 13, 15, 17]

CoC duly considered and validly rejected the promoters' Section 12A proposal; the Adjudicating Authority correctly refused to interfere.

Eligibility under Section 29A(c) - Date of NPA classification for Section 29A(c) - Proviso to Section 29A(c) - payment of all overdue amounts - Whether NTPC was ineligible under Section 29A(c) at the time of submission of its resolution plan - HELD THAT: - The Court examined whether the relevant date for applying the one year grace in Section 29A(c) is the declared date of classification or an earlier back dated effective date. It held that the operative date is the date on which classification is declared and not an earlier back dating adopted by the lender. Applying that principle, Canara Bank's classification declared on 21.05.2018 (not the back date 01.04.2009) meant that one year had not elapsed as on the CIRP commencement date 27.03.2019. Consequently NTPC was not disqualified under Section 29A(c) at the time it submitted its plan on 30.12.2019. Because NTPC was eligible when it first submitted a plan, it remained eligible during the CIRP and could revise its plan; there was no need to decide further contentions on the proviso to Section 29A(c). [Paras 18, 24, 26, 28]

NTPC was not disqualified under Section 29A(c) at the relevant time; its resolution plan(s) could validly be considered.

Final Conclusion: The Adjudicating Authority's order rejecting the IA seeking disqualification of NTPC under Section 29A and refusing to set aside the CoC's rejection of the promoters' Section 12A proposal is upheld; the appeal is dismissed.

Default - initiation of corporate insolvency resolution process by financial creditor - admission under Section 7(5)(a) of the Insolvency and Bankruptcy Code, 2016 - moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 - appointment of Interim Resolution Professional - constitution of Committee of Creditors

Default - initiation of corporate insolvency resolution process by financial creditor - admission under Section 7(5)(a) of the Insolvency and Bankruptcy Code, 2016 - Whether the petition under Section 7 of the IBC was filed within limitation, a default had occurred and the application was complete so as to warrant admission. - HELD THAT: - The Tribunal found that the date of default was 01.04.2019 and the petition was filed on 24.12.2020, hence within limitation (paragraph 10). The existence of default was established by the loan agreement and the arbitration award annexed to the petition; the corporate debtor in its reply admitted liability and its inability to repay (paragraph 12). The petition in prescribed Form No.1 was complete and there were no disciplinary proceedings against the proposed resolution professional. Applying the statutory test in Section 7(5)(a), the Tribunal was satisfied that default had occurred and the application met the statutory requirements for admission (paragraphs 10, 11, 12). [Paras 10, 11, 12]

The petition was admitted under Section 7(5) of the IBC as it was filed within limitation, default was established and the application was complete.

Appointment of Interim Resolution Professional - constitution of Committee of Creditors - moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 - Appointment of an Interim Resolution Professional, imposition of moratorium and directions regarding constitution of the Committee of Creditors and interim funding. - HELD THAT: - The Tribunal verified the credentials of the proposed IRP and found no adverse material; accordingly Mr. Pawan Sharma was appointed as Interim Resolution Professional and directed to perform duties under the Code, including convening the Committee of Creditors after collation of claims (paragraph 13, 15). Upon admission, moratorium was declared in terms of Section 14 and the statutory prohibitions flowing from it were imposed (paragraph 14). The IRP was directed to file constitution report within thirty days and to convene the first meeting of the Committee within seven days of that report, and to file fortnightly progress reports (paragraph 15). The financial creditor was directed to deposit an interim amount to meet IRP expenses, subject to adjustment by the Committee of Creditors (paragraph 16). [Paras 13, 14, 15, 16]

Mr. Pawan Sharma was appointed as Interim Resolution Professional; moratorium was declared with the statutory prohibitions; directions were issued for constitution of the Committee of Creditors, IRP reporting, and interim deposit to meet IRP expenses.

Final Conclusion: The petition under Section 7 was admitted; an Interim Resolution Professional was appointed; moratorium under Section 14 was declared; directions were issued for constitution of the Committee of Creditors, IRP reporting and interim funding; the petition is allowed.

Initiation of Corporate Insolvency Resolution Process against a personal guarantor under Section 95 of the IBC, 2016 - appointment and nomination of Resolution Professional under Sections 97 to 100 of the IBC, 2016 - right of audience / requirement of notice before appointment of Interim Resolution Professional - application of principles of natural justice in pre admission stage of insolvency proceedings - replacement of Resolution Professional under Section 98 of the IBC not being stage specific

Initiation of Corporate Insolvency Resolution Process against a personal guarantor under Section 95 of the IBC, 2016 - Application filed under Section 95 was maintainable and to be treated as filed against the personal guarantor with the corporate debtor being only formally added. - HELD THAT: - The petition filed under Section 95 was directed against the Personal Guarantor (Respondent No.1) although the corporate debtor was formally included. The Tribunal found the application complete for adjudication under Section 95 and proceeded on the basis that the relief sought was against the guarantor. The factual averments about credit facilities, guarantee deeds and default were accepted as the basis for initiating proceedings against the guarantor under Section 95. [Paras 1, 2]

The Section 95 application is entertainable and shall be treated as filed against the Personal Guarantor (Respondent No.1); Respondent No.2 is only formally added.

Right of audience / requirement of notice before appointment of Interim Resolution Professional - appointment and nomination of Resolution Professional under Sections 97 to 100 of the IBC, 2016 - application of principles of natural justice in pre admission stage of insolvency proceedings - No statutory right to be heard or requirement of notice to the debtor/personal guarantor before appointment of the Interim Resolution Professional (IRP) under the IBC as it currently stands. - HELD THAT: - The Tribunal analysed Sections 95-100 and noted the statutory scheme: nomination/appointment steps under Section 97, the role of the Board, and the report/decision process under Sections 99 and 100. The adjudicating authority observed that the Code prescribes timelines and procedures which do not mandate notice or an opportunity of audience prior to the appointment of the IRP. While earlier decisions (including a Bombay High Court observation favouring pre admission hearing as a matter of natural justice) were considered, the Tribunal held that principles of natural justice are met thereafter by provision for the IRP's report, furnishing of that report to the debtor under Section 99(10), and opportunities to respond under Sections 99(2) and 99(4) before the Adjudicating Authority decides under Section 100. Consequently, absence of prior notice before appointment of IRP does not amount to violation of natural justice under the present statutory scheme. [Paras 4, 5]

No notice or right of audience is required to be given to the debtor/personal guarantor before the appointment of the IRP.

Replacement of Resolution Professional under Section 98 of the IBC not being stage specific - appointment and nomination of Resolution Professional under Sections 97 to 100 of the IBC, 2016 - The contention that Section 98 entitles the debtor to seek replacement of the Resolution Professional prior to his appointment was rejected. - HELD THAT: - The Tribunal examined Section 98 and concluded that it is not confined to a pre appointment stage and can be invoked at various stages (including implementation of a repayment plan). Replacement under Section 98 is contemplated only after a Resolution Professional is appointed by the Adjudicating Authority under Section 97(5). Therefore, the argument that Section 98 requires a prior hearing before appointment of the IRP was held to be without substance. [Paras 5]

Section 98 does not mandate a hearing for replacement before appointment of the IRP; replacement proceeds post appointment as contemplated by the statute.

Appointment and nomination of Resolution Professional under Sections 97 to 100 of the IBC, 2016 - Appointment of the Interim Resolution Professional on the application was made and the nominated IRP was directed to file consent and submit his report within the statutory time. - HELD THAT: - Finding no bar to entertain the Section 95 application and noting the Petitioner's suggestion of a named insolvency professional, the Tribunal appointed the nominated person as Interim Resolution Professional. The IRP was directed to file written consent in Form No.2 and to submit his report within ten days from the date of the order in terms of Section 99, so that the Adjudicating Authority may consider admission or rejection under Section 100. [Paras 6]

The nominated professional is appointed as Interim Resolution Professional and directed to comply with statutory formalities and submit his report within the prescribed period.

Final Conclusion: The Tribunal held the Section 95 petition maintainable against the personal guarantor, rejected the submission that notice or pre appointment hearing is required before appointment of the IRP, refused to treat Section 98 as mandating prior replacement rights before appointment, and appointed the nominated Interim Resolution Professional with directions to file consent and submit his report for further action under the Code.

Initiation of corporate insolvency resolution process against a personal guarantor under Section 95 - admissibility and completeness of application for initiation of CIRP against personal guarantor - interim moratorium in proceedings against personal guarantor - appointment of a resolution professional and his duties under Section 99 - evidence of default and threshold debt for invoking personal guarantor proceedings

Admissibility and completeness of application for initiation of CIRP against personal guarantor - evidence of default - The application under Section 95 was found to be complete for the purpose of proceeding under the Code, with evidence establishing debt and default against the personal guarantor. - HELD THAT: - The Tribunal examined the documents filed by the financial creditor and recorded that the respondent was a guarantor to the corporate debtor, that evidence of default in the loan accounts had been filed, and that the debt owed exceeded the statutory threshold of one crore. On that basis the application was held complete for the purposes of appointing a resolution professional under the Code. The finding rests on the bank's production of sanction and loan documents, invocation notice, revival letters, certified account statements and the demand notice sent under the Rules, which together were treated as establishing debt and default as on the date of the application. [Paras 5, 7]

Application under Section 95 is complete for the purpose of appointing a resolution professional; evidence of debt and default against the personal guarantor is established.

Interim moratorium in proceedings against personal guarantor - Interim moratorium was commenced with effect from the first hearing date recorded by the Tribunal. - HELD THAT: - The Tribunal recorded that the matter was first heard on 17.06.2022 and, in view of the petition and the order passed, the interim moratorium stipulated by the Code commenced from that date. This operative step follows from the initiation of proceedings under the relevant provisions and was recorded as part of the Tribunal's order. [Paras 6]

Interim moratorium commenced from 17.06.2022.

Appointment of a resolution professional and his duties under Section 99 - examination of application by resolution professional - A named insolvency professional was appointed as Resolution Professional, with directions to examine the application and file a report recommending acceptance or rejection in accordance with the Code and to perform statutory functions under Section 99 and related regulations. - HELD THAT: - Having found the application complete, the Tribunal appointed Mr. Sandeep Khaitan as Resolution Professional and directed him to file the assignment declaration within two days. The Tribunal set out the RP's statutory obligations: to examine the application within ten days, require the debtor to produce proof of repayment where necessary, accept that debts registered with an information utility cannot be disputed by the debtor, seek further information as needed, and to record reasons in his report recommending acceptance or rejection of the application. These directions mirror the procedural mandates of the Code and Rules and were given for the RP to follow in assessing the merits of the creditor's claim. [Paras 8, 9]

Mr. Sandeep Khaitan is appointed Resolution Professional; he is directed to examine the application, report within the statutory timeframe, and discharge duties in accordance with Section 99 and applicable regulations.

Final Conclusion: The Tribunal recorded proof of debt and default against the personal guarantor, declared the application under Section 95 complete for appointment of a Resolution Professional, instituted an interim moratorium from 17.06.2022, appointed the nominated Resolution Professional and directed him to examine the application and submit a reasoned report under the Code and Rules; the matter is listed for perusal of the RP's report on 28.07.2022.

Admission under Section 10 - Corporate Insolvency Resolution Process - default threshold under Section 4 - limitation for initiation of CIRP - moratorium under Section 14 - appointment of Interim Resolution Professional - duties and powers of Interim Resolution Professional - public announcement and submission of claims - continuation of supply during moratorium

Admission under Section 10 - default threshold under Section 4 - limitation for initiation of CIRP - Admission of the Corporate Applicant to the Corporate Insolvency Resolution Process under Section 10 of the IBC, 2016. - HELD THAT: - The Tribunal found that the Corporate Applicant, a wholly-owned subsidiary in the IL&FS group, had committed a default in repayment of debts owed to financial and operational creditors aggregating the amount claimed in the application. The amount of default met the threshold requirement prescribed under Section 4 of the IBC, 2016 and the claim for initiation of CIRP was within the limitation period. The application was complete and defect-free, and necessary corporate approvals including consent from parent entities and supervisory clearance were placed on record and noted. On these findings the application for initiating CIRP was admitted under Section 10.

The Corporate Applicant is admitted into CIRP under Section 10 of the IBC, 2016.

Moratorium under Section 14 - continuation of supply during moratorium - Declaration and scope of the moratorium consequent to admission to CIRP. - HELD THAT: - Upon admission to CIRP, the Tribunal declared the moratorium under Section 14(1) of the IBC, 2016. The order prohibited institution or continuation of suits or proceedings against the Corporate Applicant, transfer or encumbrance of its assets, actions to enforce security interests (including remedies under SARFAESI), and recovery of property from the Corporate Applicant during the moratorium period. The Tribunal also directed that ongoing supply of goods or services, if continuing, shall not be terminated, suspended or interrupted during the moratorium.

Moratorium under Section 14 is declared with the stated prohibitions and with protection for continuation of supply.

Appointment of Interim Resolution Professional - duties and powers of Interim Resolution Professional - public announcement and submission of claims - Appointment of the Interim Resolution Professional and directions regarding her functions, public announcement, and interim funding. - HELD THAT: - The Tribunal appointed the proposed insolvency professional as Interim Resolution Professional to conduct the CIRP and perform functions under the Code and regulations, including making the public announcement and calling for submission of claims. The IRP was directed to protect and preserve the value of the corporate applicant's property and manage operations as a going concern. The Tribunal recorded that the IRP had given consent and no disciplinary proceedings were pending against her. The Corporate Applicant was directed to pay an initial advance to the IRP for smooth conduct of the CIRP, with provision for further interim funds as per rules. The Tribunal also emphasized the statutory obligation of personnel, promoters and management to extend assistance to the IRP and permitted the IRP to approach the Tribunal in case of non-cooperation.

Ms. Prajakta Menezes is appointed as IRP with specified duties; directions given for public announcement, claim submission and interim funding; personnel to cooperate with the IRP.

Admission under Section 10 - supervisory approval from group resolution supervisor - Recognition of corporate/parent approvals and supervisory clearance as part of record supporting initiation of CIRP. - HELD THAT: - The Tribunal noted that the Board of the Corporate Applicant resolved to file for CIRP subject to approvals; the holding companies IEDCL and IL&FS gave their consent and Hon'ble Justice (Retd.) D.K. Jain, supervising IL&FS group resolutions, granted approval subject to NCLT's concurrence. The NCLT, Mumbai had earlier granted approval for initiation of CIRP for the Corporate Applicant. These approvals and supervisory clearances were noted as part of the factual matrix supporting the application and did not bar admission.

Corporate and supervisory approvals were recorded and did not preclude admission to CIRP.

Final Conclusion: The application under Section 10 is admitted and the Corporate Applicant is placed in CIRP; moratorium is declared; an Interim Resolution Professional is appointed with directions for public announcement, claim submission, protection and management of assets, and interim funding, and registry is directed to communicate and upload the order.

Non-cooperation by suspended directors - exclusion of period from CIRP - corporate insolvency resolution process - duties of resolution professional - authority of Committee of Creditors - expedition of CIRP and status reporting

Exclusion of period from CIRP - non-cooperation by suspended directors - corporate insolvency resolution process - Exclusion of 147 days from the 180-day CIRP period on account of non-cooperation by the suspended directors was allowed. - HELD THAT: - The Tribunal found that the resolution professional was unable to take charge, obtain records, or operate the corporate debtor because the promoters/suspended board did not cooperate, the registered office appeared to be a dummy and material records were not handed over. The RP made all reasonable efforts, including visiting addresses, contacting statutory auditor and filing a separate application for non-cooperation. Once limited financial information was received from the statutory auditor, the RP was placed in a position to prepare the information memorandum and proceed with inviting expressions of interest. In the circumstances and to promote the ends of justice, the Tribunal allowed exclusion of the period from 10.12.2021 (visit of registered office by RP) to 07.05.2022 on account of time lost due to non-cooperation, thereby excluding 147 days from computation of the CIRP period of 180 days. [Paras 3, 4, 5]

Exclusion of 147 days from the CIRP period allowed to enable completion of the CIRP.

Duties of resolution professional - authority of Committee of Creditors - expedition of CIRP and status reporting - Directions to the resolution professional to expedite the CIRP and to file quarterly status reports were issued. - HELD THAT: - Having allowed the exclusion and observed that the RP, after receiving auditor information, could proceed with preparing the information memorandum and other CIRP steps, the Tribunal directed the RP to expedite the process. The Tribunal also required the RP to file quarterly status reports regarding actions taken in running the CIRP, thereby imposing an ongoing reporting obligation to the Adjudicating Authority to monitor progress. [Paras 5, 6]

RP directed to expedite CIRP and file quarterly status reports.

Final Conclusion: The Tribunal allowed the interlocutory application and excluded 147 days (10.12.2021 to 07.05.2022) from the 180-day CIRP period on account of non-cooperation by the suspended directors; the resolution professional was directed to expedite the CIRP and submit quarterly status reports.

Triple test under Section 45 of the Prevention of Money Laundering Act, 2002 - regular bail - proceeds of crime - scheduled offence - investigation complete and charge-sheet filed - risk of tampering with evidence

Triple test under Section 45 of the Prevention of Money Laundering Act, 2002 - risk of tampering with evidence - investigation complete and charge-sheet filed - Whether the petitioner qualifies for grant of regular bail under Section 45 of the PMLA - HELD THAT: - The Court applied the three conditions of Section 45 and concluded that the public prosecutor had been heard. On the facts, the petitioner was not named in the FIR of 07.03.2018 nor challaned therein, the investigation was complete and the documents were in custody of the investigating agency, reducing the possibility of tampering. The Court observed that, unlike offences where repetition is easy, a PMLA accused remains under the ED's radar, diminishing the prospect of re-offending. Taking into account that the petitioner was a first offender, the passage of time since arrest, and that a formal complaint/charge-sheet had been filed, the Court was satisfied that reasonable grounds existed to believe the petitioner was not guilty and was not likely to commit an offence while on bail.

Petitioner satisfies the Section 45 triple test and is entitled to regular bail.

Proceeds of crime - scheduled offence - Whether the recovered cash has been sufficiently linked to a scheduled offence or established as proceeds of crime so as to preclude bail - HELD THAT: - The Court noted factual gaps in the ED's case: the predicate FIR dated 07.03.2018 pre-dated the challenged recovery by several years, the petitioner was not an accused in that FIR or the subsequent challan, and no recovery was shown to have been effected from the nominal lessee in 2018. The Court observed the ED had relied on an extrapolated calculation and statements to connect the petitioner to illegal mining, but also recorded that proceedings under the Prevention of Corruption Act were dropped and that the timing of ED's complaint (in 2022) raised questions. Having regard to these lacunae and the pendency of the petition/appeal before the adjudicating authority under the Act, the Court accepted that the petitioner had raised a prima facie defence that the recovered cash may not constitute proceeds of crime.

The linkage between the seized cash and a scheduled offence / proceeds of crime is not shown to be conclusive; this factor does not defeat the grant of bail.

Regular bail - investigation complete and charge-sheet filed - Whether custodial detention should continue having regard to custodial period, health of the accused and prospects of a protracted trial - HELD THAT: - The Court took into account that the petitioner had been in custody since early February 2022, was a first offender, and that trial and adjudication were likely to be protracted following filing of the complaint. The medical records indicated treatment for heart ailment and need for specialist attention. Balancing these considerations and relying on precedent that bail may be granted where investigation is complete and trial will be lengthy, the Court found continued detention unnecessary subject to safeguards.

Custodial detention is not required; petitioner to be released on bail subject to conditions.

Final Conclusion: Petition allowed. Petitioner released on regular bail upon furnishing bail and two sureties (one local), deposit of passport with the court or prosecuting agency and undertakings to attend investigation and trial and not to leave the country without prior permission; other statutory and court-ordered safeguards to apply.

Regular bail under Section 439 of the Code of Criminal Procedure, 1973 - offence of money laundering under the Prevention of Money Laundering Act, 2002 - cognizable and non-bailable offence - provisional attachment under the PMLA and confirmation by Adjudicating Authority - reasons to believe - custodial interrogation and cooperation with investigation - criminal liability of a chairman/office-bearer in economic offences involving depositors' money - precedent of denial/cancellation of bail in large-scale economic frauds involving siphoning of depositors' funds

Regular bail under Section 439 of the Code of Criminal Procedure, 1973 - offence of money laundering under the Prevention of Money Laundering Act, 2002 - cognizable and non-bailable offence - provisional attachment under the PMLA and confirmation by Adjudicating Authority - reasons to believe - criminal liability of a chairman/office-bearer in economic offences involving depositors' money - Whether the petitioner is entitled to be released on regular bail in the ECIR under the PMLA. - HELD THAT: - The petition for regular bail was considered in the context of allegations that, while serving as Chairman (and earlier Vice President) of a cooperative bank and of a related society, the petitioner had supervisory control and that large scale misappropriation and creation of fictitious loan accounts resulted in alleged siphoning of depositors' funds. The Enforcement Directorate registered ECIR/BGZO/09/2020 after receiving material from the Registrar of Co-operative Societies and the Adjudicating Authority confirmed provisional attachment of properties. The record discloses that family members were also accused, that properties allegedly acquired by the petitioner and family were admitted in written answers and that custodial interrogation disclosed material prima facie indicating the petitioner's involvement in dispersal and misuse of depositors' money. In these circumstances the Court applied the settled approach that, for cognizable and non bailable offences under the PMLA, the accused must make out a case for bail; where the investigation prima facie shows a central role of the accused in a scheme causing massive loss to depositors, the public interest and risk of further prejudice weigh against enlargement on bail. The Court also relied on the reasoning in precedents refusing bail in large scale economic frauds in which the accused played a key decision making role and funds were siphoned off. Having regard to the nature and magnitude of the allegations, the admissions in the record regarding acquisition of properties, the involvement of family members, the confirmed provisional attachment and the material obtained during custodial interrogation, the Court concluded that the petitioner has not made out sufficient grounds for exercise of discretion in favour of bail.

The petition for regular bail is rejected.

Final Conclusion: Bail under Section 439 Cr.P.C. is refused: on the material before the Court the petitioner, as chairman and key office bearer, is prima facie implicated in large scale misappropriation of depositors' funds and has not established entitlement to be released on regular bail; provisional attachment has been confirmed and the petition is dismissed.

Entitlement to CENVAT credit as an alternative to exemption/refund for SEZ units - retrospective clarification of benefit by a subsequent notification - reverse charge liability on outward recovery of expenses - no penalty where service tax and interest paid before service of show cause notice - rule 4(7) CENVAT Credit Rules - reversal within three months eliminates liability - inapplicability of interest and penalty under rule 14 and rule 15(3) where reversal complies with rule 4(7) - remand for fresh adjudication on admissibility and nexus of input services

Entitlement to CENVAT credit as an alternative to exemption/refund for SEZ units - retrospective clarification of benefit by a subsequent notification - Disallowance of CENVAT credit taken on service tax paid on input services received by the SEZ unit - HELD THAT: - The Notifications dated 01.03.2011 and 20.06.2012 granted conditional exemption but expressly recognized that an SEZ unit could claim refund or alternatively take CENVAT credit; the Department did not dispute that the services were eligible input services. The Tribunal followed precedents holding that where an exemption notification and a credit scheme coexist the assessee may elect the alternative most beneficial to it, and a later clarificatory notification (10.07.2013) confirming the option applies retrospectively to the period in issue. Consequently the Commissioner (Appeals) erred in disallowing CENVAT credit solely because exemption by refund existed for the prior period. [Paras 6, 11, 12, 13, 16]

The disallowance of CENVAT credit on the ground that the SEZ unit should have claimed refund is set aside.

Reverse charge liability on outward recovery of expenses - reverse charge liability on rent-a-cab services - Service tax liability under reverse-charge mechanism on rent-a-cab services claimed by the Department - HELD THAT: - The Department's demand was founded on an interpretation of an internal ledger entry described as 'Recovery of expenses' but the appellant demonstrated that the total taxable value and the abated value on which tax was paid were correctly disclosed in the service tax returns. The additional demand sought to tax amounts already subjected to service tax, arising from misreading of a re-classification entry. The Commissioner (Appeals) failed to appreciate that the appellant had already paid service tax on the abated value shown in returns. [Paras 20, 21, 22, 23, 24]

The demand under the reverse-charge head is unsustainable and is set aside.

No penalty where service tax and interest paid before service of show cause notice - Imposition of penalty under section 73(4A) of the Finance Act for late disclosure of reverse-charge liability - HELD THAT: - Section 73(3) read with Explanation 2 (as then in force) provides that where an assessee pays the service tax and interest before service of notice, no penalty shall be imposed. The appellant had paid the disputed service tax and interest prior to issuance of the show cause notice. Therefore the statutory bar on imposing penalty applied and the confirmation of penalty under section 73(4A) was without basis. [Paras 25, 26, 27, 28]

The penalty under section 73(4A) is set aside.

Rule 4(7) CENVAT Credit Rules - reversal within three months eliminates liability - inapplicability of interest and penalty under rule 14 and rule 15(3) where reversal complies with rule 4(7) - Levy of interest under rule 14 and penalty under rule 15(3) for CENVAT credit taken on invoice dated 31.03.2014 and reversed on 01.07.2014 - HELD THAT: - Rule 4(7) permits CENVAT credit in respect of input service after receipt of invoice and provides that where payment (value and tax) is not made within three months the credit must be paid back, with an entitlement to re-credit on payment. The appellant reversed the wrongly taken credit within three months of the invoice by voucher dated 01.07.2014, complying with rule 4(7). There was no allegation of fraud, collusion, wilful mis-statement or suppression of facts. Consequently interest under rule 14 and penalty under rule 15(3) could not be sustained. [Paras 30, 31, 32, 33, 34]

The demand of interest and penalty in respect of the CENVAT credit reversed under rule 4(7) is set aside.

Remand for fresh adjudication on admissibility and nexus of input services - Recovery of CENVAT credit on various input services alleged to be inadmissible - HELD THAT: - The Department disallowed credit on five categories of input services. The Orders below merely reproduced audit objections and failed to address the appellant's detailed explanations showing nexus between those input services and the output IT services, and did not consider submissions that the inclusive definition of 'input service' applied. As the appellate orders did not deal with the appellant's specific replies or give reasons why nexus was lacking, the matter requires fresh consideration. [Paras 36, 37, 39, 40, 41]

This issue is remitted to the Commissioner (Appeals) for fresh decision after considering the appellant's replies on admissibility and nexus.

Final Conclusion: The appeal is allowed in part: confirmations under heads I, II, III and IV are set aside; the demand under head V is remitted to the Commissioner (Appeals) for fresh adjudication on admissibility and nexus of specified input services; the appeal is otherwise allowed as indicated.

Classification of services as air travel agent service versus Business Auxiliary Service - taxability of target incentives / Performance Linked Bonus (PLB) and CRS commission - promotion or marketing of client's services - consideration under Section 67 of the Finance Act - OIDAR services of CRS companies and pass through of commissions - extended period of limitation

Classification of services as air travel agent service versus Business Auxiliary Service - promotion or marketing of client's services - PLB and CRS commission received by IATA agents are not taxable as Business Auxiliary Service but fall under air travel agent services. - HELD THAT: - The Tribunal followed the Larger Bench decision in Kafila Hospitality & Travels Pvt. Ltd. and accepted the reasoning that IATA agents render services to passengers by providing booking and related options; any incidental benefit to airlines or CRS companies does not convert those services into promotional or marketing services of the airlines/CRS. For an activity to qualify as promotion, the service provider must actively promote or endorse the client's service before an audience capable of using that service; passengers neither use CRS software nor are influenced to choose a particular CRS or airline by the agent. The receipt of incentives/commissions upon achievement of booking targets does not alter the nature of the core service rendered by the travel agent, which remains an "air travel agent" service rather than BAS. [Paras 6]

Impugned demand treating PLB and CRS commission as BAS is set aside; such receipts are not taxable under Business Auxiliary Service.

Taxability of target incentives / Performance Linked Bonus (PLB) and CRS commission - consideration under Section 67 of the Finance Act - Incentives/target linked payments are not "consideration" transaction specific under Section 67 and therefore are not leviable to service tax as consideration for a taxable service. - HELD THAT: - The Tribunal (through the Larger Bench reasoning) distinguished transaction specific commission from performance based incentives. Commission depends on individual bookings and is tied to specific transactions, whereas incentives/PLB are contingent on aggregate performance or attainment of targets and are not referable to any particular service transaction. Since taxable service tax under Section 67 attaches to consideration for a specific taxable service, target incentives cannot be treated as consideration liable to service tax. [Paras 6]

Target incentives/PLB and CRS target commissions are not taxable as consideration under Section 67 and therefore not subject to service tax.

Extended period of limitation - Extended period of limitation is not available to the Revenue in the facts and circumstances of the case. - HELD THAT: - The Tribunal held, following its acceptance of the Larger Bench decision and the facts before it, that the Revenue could not invoke the extended period of limitation for the show cause period pleaded. Having set aside the substantive demand, the Tribunal further recorded that extended limitation did not apply to sustain the impugned demand. [Paras 7]

Extended period of limitation held not available to Revenue.

Final Conclusion: The appeal is allowed; the demand treating PLB and CRS commission as taxable under Business Auxiliary Service and as consideration under Section 67 is set aside for the period 2005-06 to 2009-10, and the extended period of limitation is held not available to the Revenue, with consequential relief to the appellant.

Condonation of delay - low tax effect - remand to Tribunal for decision on merits - leaving substantial questions of law open for adjudication - validity of Rule 8(3A) of the Central Excise Rules

Condonation of delay - Application for condonation of delay in filing the appeal - HELD THAT: - The Court considered the explanation for a delay of 927 days in filing the appeal by the revenue. Although not fully satisfied with the explanation, the Court exercised its discretionary power to condone the delay because it proposed to dispose of the appeal on other grounds and the appeal could not effectively be pursued by the revenue due to the low tax effect. In view of these considerations the Court allowed the application for condonation.

Delay of 927 days in filing the appeal is condoned and the application is allowed.

Low tax effect - remand to Tribunal for decision on merits - leaving substantial questions of law open for adjudication - validity of Rule 8(3A) of the Central Excise Rules - Whether the appeal should be entertained on merits or disposed of on ground of low tax effect, and the consequential treatment of questions of law - HELD THAT: - The Tribunal had followed a Gujarat High Court decision and allowed five appeals without deciding merits. The aggregate demand in respect of five show-cause notices amounted to a larger sum, but each individual appeal involved a tax effect below the threshold fixed by the CBCE circular. The Court noted that the Gujarat High Court decision relied upon was under challenge before the Supreme Court and subject to interim stay. Even if the revenue were to succeed before the Supreme Court and this Court were required to decide the matter, the appropriate course would be to remit the matters to the Tribunal for adjudication on merits. However, because each of the five appeals involves tax effects below the prescribed monetary threshold, the Tribunal is precluded from deciding the matters on merits under the circular. Consequently, the Court disposed of the appeal on the basis of low tax effect, remitted the matter to the Tribunal for appropriate consideration, and deliberately left open the substantial questions of law, including observations touching upon the validity of Rule 8(3A) of the Central Excise Rules, for adjudication at an appropriate forum and time.

Appeal disposed of on the ground of low tax effect; matter remitted to the Tribunal for appropriate action and substantial questions of law (including validity of R.8(3A) of the Central Excise Rules) are left open for future adjudication.

Final Conclusion: The Court condoned the delay in filing the revenue's appeal and, in view of the low tax effect in each individual appeal, disposed of the appeal on that ground while remanding the matter to the Tribunal and leaving the substantial questions of law (including the validity of R.8(3A) of the Central Excise Rules) open for adjudication at an appropriate stage.

Unjust enrichment - refund of excise duty on account of retrospective price revision - rebuttable presumption of passing on incidence of duty - acceptance of debit note and accounting entries as evidence of reimbursement - area based exemption and non-availability of Cenvat credit to buyer - precedent on price variation after clearance (MRF)

Refund of excise duty on account of retrospective price revision - acceptance of debit note and accounting entries as evidence of reimbursement - Whether the appellant was entitled to refund of excise duty paid on account of a retrospective downward price revision where the buyer issued a debit note which was accepted and accounted for by the appellant. - HELD THAT: - The Tribunal found no dispute as to the facts: Hero Motor Corp issued a debit note recording price revision which the appellant accepted and booked in its books; the excise element was identified within the debit note and certified by the appellant's Chartered Accountant; the appellant reflected the amount as duty recoverable in its accounts and the buyer's account was credited. The Tribunal accepted the reconciliation chart and breakup submitted by the appellant showing the excise component within the debit note. On these facts the Tribunal held that the appellant had borne the excess duty and the formal acceptance and accounting of the debit note constituted sufficient evidence for grant of refund.

Refund claim allowed and impugned orders set aside on the ground that the appellant had reimbursed the excess duty as established by the debit note and accounting entries.

Unjust enrichment - rebuttable presumption of passing on incidence of duty - area based exemption and non-availability of Cenvat credit to buyer - precedent on price variation after clearance (MRF) - Whether the refund could be rejected on the ground of unjust enrichment or on authority of the MRF decision that price variation after clearance cannot affect excise liability. - HELD THAT: - The Tribunal acknowledged the legal presumption that incidence of duty, once reflected in the sales invoice, is passed on to the customer, but treated that presumption as rebuttable. The appellant produced the debit note, accounting entries, reconciliation and a CA certificate; the buyer operated under an area based exemption during the relevant period and therefore could not have taken Cenvat credit. On this evidence the Tribunal found no basis to infer unjust enrichment or that the incidence continued to rest with the buyer. The MRF observation about price variation after clearance was noted, but on the facts the Tribunal concluded that the formal adjustment and reimbursement established that the excise element had in effect been neutralised and thus the refund was admissible.

Rejection on the ground of unjust enrichment and reliance on MRF were held inapplicable on the proved facts; refund allowed.

Final Conclusion: The appeal is allowed; the Tribunal set aside the orders below and held that, on the proved documentary and accounting evidence including acceptance of the debit note and the buyer's inability to take Cenvat, the appellant had not effected unjust enrichment and is entitled to the refund of the excise duty claimed, with consequential relief in accordance with law.

Bogus cenvat credit - requirement to prove receipt of cenvatable inputs with proper documents and payment - use of cenvat credit in manufacture of dutiable outputs - penalty under Rule 25 of Central Excise Rules - reliance on transporter GRs and alleged misuse - suspicion cannot take the place of evidence

Bogus cenvat credit - requirement to prove receipt of cenvatable inputs with proper documents and payment - use of cenvat credit in manufacture of dutiable outputs - penalty under Rule 25 of Central Excise Rules - suspicion cannot take the place of evidence - Whether the penalty imposed on the appellant under Rule 25 for allegedly passing on bogus cenvat credit was sustainable in view of the evidence produced by the appellant and the recipient-manufacturer. - HELD THAT: - The Tribunal found that the appellant produced cogent evidence showing supplies accompanied by cenvatable invoices and receipts of payment through banking channels. The recipient, M/s. Continental Engines, in its statement and by production of books of account, affirmed receipt of the inputs, their use in manufacture of dutiable outputs and clearance of such outputs on payment of duty. Although the investigation disclosed allegations of fraudulent networks and misuse of transporter GRs, the transporter's alleged misuse and related statements did not negate the documentary and ledger evidence produced by the appellant and the recipient. The Tribunal applied the principle that suspicion, however strong, cannot substitute for evidence and that under the cenvat regime the dealer/manufacturer need only establish receipt of cenvatable inputs with proper documents and payment and use in the manufacture of dutiable outputs. In those circumstances the imposition of penalty under Rule 25 was not sustainable. [Paras 17, 18]

Penalty under Rule 25 set aside; appeal allowed.

Final Conclusion: The Tribunal allowed the appeal, set aside the order imposing penalty under Rule 25, and held that documentary evidence of invoices, bank payments and recipient's records negated the allegation of passing on bogus cenvat credit; suspicion could not replace evidence.

Entitlement to purchase against declaration Form IV for use in processing/manufacturing (including repair) - Classification of 'repairing' as 'manufacture' under definition of manufacture - Clarificatory effect of departmental notification S.R.O. No.149/2001 - Binding nature of a tribunal's earlier decision and error in refusing to follow it

Entitlement to purchase against declaration Form IV for use in processing/manufacturing (including repair) - Classification of 'repairing' as 'manufacture' under definition of manufacture - Assessee entitled to purchase goods for use in processing/manufacturing of transformers against declaration Form IV, the activity of repairing falling within 'manufacture'. - HELD THAT: - The Court held that the definition of 'manufacture' in Section 2(ddd) of the OST Act is wide enough to include repairing, and noted that the Industries Department of Odisha had identified repairing of transformers as constituting manufacturing. Reliance was placed on earlier decisions treating works contracts involving use of material as amounting to sale of goods and permitting use of declaration forms by works contractors. On that basis the Tribunal's conclusion that acceptance of Form IV for transfer of property in the course of works contract was contrary to law for the year 2000-2001 was rejected and the question framed by the Court was answered in favour of the assessee. [Paras 3, 7, 8, 10]

Claim to purchase against Form IV for use in processing/manufacturing (including repair) is allowed.

Clarificatory effect of departmental notification S.R.O. No.149/2001 - Prospective versus clarificatory effect of statutory/executive clarification - S.R.O. No.149/2001 is clarificatory in nature and not purely prospective; the Tribunal was in error to treat it as creating a prospective change effective only from 01.04.2001. - HELD THAT: - The Court observed that the departmental Resolution S.R.O. No.149/2001 merely clarified applicability of Entry 81 to purchases through leasing or works contract w.e.f. 01.04.2001 and did not operate so as to deny prior applicability. Having treated the notification as clarificatory, the Court concluded that the Tribunal erred in holding that acceptance of Form IV under the relevant entry was impermissible for the period prior to 01.04.2001. [Paras 4, 9]

The notification S.R.O. No.149/2001 is clarificatory; it does not preclude application of Form IV prior to 01.04.2001.

Binding nature of a tribunal's earlier decision and error in refusing to follow it - The Tribunal erred in failing to follow its earlier decision in the assessee's own case and in dismissing the appeal for year 2000-2001. - HELD THAT: - The Court noted that for an earlier period (1999-2000) the Tribunal had held that transactions for repair of transformers constituted works contracts and that issuance of Form IV was valid; the impugned order in the present year took an opposite view without following that precedent. The Court found this to be an error of law and proceeded to set aside the Tribunal's order, as well as the corresponding orders of the ACST and the STO. [Paras 5, 9, 10]

Impugned orders of the Tribunal, ACST and STO set aside for failing to follow earlier Tribunal decision and for legal error.

Final Conclusion: The revision petition is allowed: the petitioner is entitled to purchase goods against declaration Form IV for use in processing/manufacturing (including repair) for the year 2000-2001; S.R.O. No.149/2001 is clarificatory and the Tribunal's contrary view and refusal to follow its earlier decision were set aside. No order as to costs.

Sale against declaration in Form IV - Concessional rate of tax under Entry 81 of List-C of the Schedule of rates under Section 5(1) of the OST Act - Doctrine of purchaser's liability for misuse of Form IV - Effect of subsequent change of use by the purchasing dealer on seller's entitlement to concessional rate

Sale against declaration in Form IV - Concessional rate of tax under Entry 81 of List-C of the Schedule of rates under Section 5(1) of the OST Act - Sale of size wood by the petitioner to a registered dealer against declaration in Form IV is eligible for the concessional rate of tax under Entry 81 of List-C. - HELD THAT: - The Court accepted that the purchasing dealer had furnished a declaration in Form IV stating the goods purchased would be used in manufacture/processing for sale (or related uses) and that the Form IV did not disclose purchase for use as packing materials. Relying on the principle that once the purchasing dealer furnishes Form IV the legal obligation of the selling dealer ceases, the Court held the selling dealer could not be made liable for a claim based on alleged misuse by the purchaser. The Court applied the ratio of Tilakraj Mediratta v. State of Orissa to conclude that the seller's entitlement to concessional rate upon receipt of a valid Form IV is not defeated by later contentions about actual use, and any contravention would render the purchasing dealer liable rather than the seller. [Paras 8, 9, 10]

The sale against the declaration in Form IV is eligible for the concessional rate of tax @4% under Entry 81 of Schedule 'C' of rates under Section 5(1) of the OST Act.

Doctrine of purchaser's liability for misuse of Form IV - Effect of subsequent change of use by the purchasing dealer on seller's entitlement to concessional rate - A subsequent change in the use of goods purchased against declaration in Form IV by the purchasing dealer does not disentitle the selling dealer to the concessional rate of tax. - HELD THAT: - The Court held that liability for a use contrary to the declaration rests on the purchasing dealer and not on the selling dealer who acted on the representation in Form IV. The judgment records that even if the purchasing dealer later uses the goods otherwise, the Department's remedy is to proceed against that dealer and to recover any differential tax from the purchaser under the 2nd proviso to Section 5(1); it is therefore not justified to pass that liability to the seller who had relied upon the Form IV. [Paras 7, 9, 10]

A subsequent change in use by the purchasing dealer will not disentitle the selling dealer's claim for concessional rate of tax.

Final Conclusion: The revision petition is allowed; the impugned order of the Tribunal and the corresponding orders of the ACST and STO are set aside insofar as they denied the concessional rate and held the seller liable; the questions are answered in favour of the assessee for the period 2001-02, with no order as to costs.