TaxTMI Updates e-Newsletter
Jul 09,2025

The core legal questions considered by the Court in this matter include:

• Whether anticipatory bail should be granted to the petitioner accused under the relevant provisions of BNSS, 2023, in the context of the FIR lodged against her.
• Whether the petitioner has any substantive connection with the alleged offences under Sections 316(4), 318(4), 61 and Sections 3(4), 318(2), 61(2) of BNSS, 2023.
• Whether custodial interrogation of the petitioner is necessary or justified given the facts and circumstances of the case.
• Whether the FIR appears to be motivated by ulterior considerations, particularly arising from internal company disputes and personal conflicts.
• What conditions, if any, should be imposed on the petitioner while granting anticipatory bail, consistent with Section 482(2) of BNSS, 2023.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Grant of anticipatory bail under BNSS, 2023

Relevant legal framework and precedents: The Court invoked its jurisdiction under Section 482 of BNSS, 2023, which empowers it to grant anticipatory bail and impose conditions to ensure the investigation proceeds without obstruction. The Court referred to the conditions enumerated under Section 482(2) of BNSS, 2023, which are designed to balance the rights of the accused with the interests of justice.

Court's interpretation and reasoning: The Court examined the nature of the allegations and the role of the petitioner in the alleged offences. It noted that the petitioner was employed as a receptionist with limited duties and no direct involvement in the alleged criminal acts. The Court observed that the FIR appeared to be lodged with an ulterior motive, possibly as a counterblast arising from the petitioner's resistance to unethical demands by the company owner.

Key evidence and findings: The petitioner's testimony and the circumstances of her appointment on 05.03.2024, along with the absence of any incriminating material linking her to the offences, were pivotal. The Court noted the petitioner's allegations of coercion and threats by the company owner, which contextualized the dispute and cast doubt on the FIR's bona fides.

Application of law to facts: Given the petitioner's limited role and lack of involvement, the Court concluded that custodial interrogation was unnecessary. The petitioner's willingness to cooperate and join the investigation further supported the grant of anticipatory bail.

Treatment of competing arguments: The State and complainant argued that the petitioner, along with co-accused, cheated the complainant. However, the Court found no incriminating evidence against the petitioner specifically, and hence rejected the contention that custodial interrogation was warranted.

Conclusions: The Court held that anticipatory bail was appropriate, subject to conditions ensuring the petitioner's cooperation with the investigation.

Issue 2: Examination of the FIR's motive and petitioner's involvement

Relevant legal framework and precedents: Courts have consistently held that the motive behind lodging an FIR is relevant in assessing the necessity of custodial interrogation and bail. The Court considered the principle that FIRs motivated by personal vendettas or internal disputes require careful scrutiny.

Court's interpretation and reasoning: The Court discerned that the FIR was likely a retaliatory measure following the petitioner's refusal to comply with unethical demands and her resistance to coercion. The internal company dispute, including alleged GST evasion and threats by the owner, formed the backdrop of the FIR.

Key evidence and findings: The petitioner's role as receptionist, the timeline of events, and the absence of any recovery or direct involvement in the alleged offences were significant. The Court highlighted the petitioner's claims of attempts to coerce her into a sexual relationship and threats issued upon refusal.

Application of law to facts: The Court applied the principle that when an FIR is lodged with an ulterior motive, custodial interrogation of a peripheral accused is unwarranted. The petitioner's limited role and the nature of allegations negated the need for custody.

Treatment of competing arguments: While the State maintained the petitioner's complicity, the Court found the evidence insufficient and the FIR's motive questionable, thus favoring the petitioner's position.

Conclusions: The Court concluded that the FIR was motivated by personal and internal company disputes, and the petitioner's involvement was minimal or non-existent.

Issue 3: Conditions to be imposed on anticipatory bail

Relevant legal framework and precedents: Section 482(2) of BNSS, 2023 permits the Court to impose conditions on bail to ensure the accused's availability for interrogation, prevent interference with witnesses or evidence, and restrict travel without permission.

Court's interpretation and reasoning: The Court mandated that the petitioner shall join the investigation within one week and furnish personal or surety bonds. The Court emphasized adherence to conditions including availability for interrogation, refraining from inducement or threats to witnesses, and not leaving India without prior permission.

Key evidence and findings: The petitioner's undertaking to cooperate and the absence of any recovery from her justified these conditions rather than custodial detention.

Application of law to facts: The Court balanced the petitioner's right to liberty with the need to ensure a smooth investigation by imposing appropriate bail conditions.

Treatment of competing arguments: No specific objections were raised against the conditions, and the Court's approach reflected standard bail practice under BNSS, 2023.

Conclusions: The Court imposed conditions consistent with Section 482(2) of BNSS, 2023, making the bail conditional on cooperation and compliance.

3. SIGNIFICANT HOLDINGS

The Court held that:

"The FIR appears to be lodged with an ulterior motive, arising out of a personal dispute and internal conflict within the company."

"The petitioner has no role in the alleged offence(s) and there is no recovery to be made from her, hence this Court is of the view that custodial interrogation of the petitioner would serve no useful purpose and would only result in unnecessary harassment."

"The petitioner is directed to be released on anticipatory bail subject to her joining investigation with the Investigating Officer concerned within a period of one week from today, on furnishing of personal/surety bonds to his satisfaction."

"The petitioner shall also abide by the terms and conditions as envisaged under Section 482(2) of BNSS, which include making herself available for interrogation, refraining from inducement or threats to persons acquainted with the facts, and not leaving India without prior permission."

Core principles established include the necessity of scrutinizing the motive behind FIRs, especially when lodged in the context of internal disputes; the limited role of custodial interrogation where the accused's involvement is minimal; and the imposition of reasonable bail conditions to balance liberty and investigation integrity.

Final determinations were that anticipatory bail was granted to the petitioner with conditions, and that failure to comply with the direction to join investigation within one week would result in automatic cancellation of the bail order.

Issues: Whether the petitioner was entitled to de-freezing of the bank account, permission to file a reply to the notice, and fresh consideration of the GST recovery proceedings.

Outcome: The writ petition was disposed of with directions to de-freeze the account on deposit of the tax due without interest and penalty within the stipulated time, permit the petitioner to file a reply, and require the first respondent to pass fresh orders on merits in accordance with law.

Outcome: The petition was dismissed as withdrawn with liberty to file a reply to the audit report and seek a hearing before the GST Department proceeds in accordance with law.

ISSUES PRESENTED AND CONSIDERED

1. Whether an assessment order under the GST law which does not bear the signature of the assessing officer is valid or is vitiated for want of signature.

2. Whether absence of a Document Identification Number (DIN) on GST assessment orders and related proceedings renders such orders invalid.

3. Whether statutory provisions (notably Sections 160 & 169 of the Central/State GST Act) or CBIC circulars can cure defects arising from absence of signature or DIN.

4. Consequential question: Whether garnishee notices and subsequent recovery actions based on an assessment order lacking signature or DIN must be set aside, and what remediative directions are appropriate (remand, fresh adjudication, exclusion of limitation period).

ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of an assessment order lacking the assessing officer's signature

Legal framework: Assessment orders under the GST law must be authenticated in accordance with the statute and rules; authentication by signature is a conventional mode of attesting official orders.

Precedent Treatment: This Court in earlier Division Bench decisions held that absence of signature renders the assessment order invalid; those decisions were relied upon by the Court here. Specifically, earlier Bench rulings found that Sections 160 & 169 could not cure absence of signature.

Interpretation and reasoning: The Court examined the impugned assessment order and its summary and found no signature of the assessing officer. Following the prior Division Bench decisions, the Court treated signature as an indispensable formality for validity. The Court reasoned that signature is necessary to authenticate the order, and its absence is not merely a procedural irregularity but vitiates the order.

Ratio vs. Obiter: The holding that absence of signature invalidates an assessment order is treated as ratio by the Court (binding on the issue presented here), since the Court applied and followed prior binding appellate authority of the same High Court on the precise question.

Conclusions: The assessment order dated 02.02.2022 and its summary dated 01.02.2022, lacking the assessing officer's signature, are invalid and must be set aside.

Issue 2: Effect of non-inclusion of DIN on GST proceedings

Legal framework: The GST administration uses a DIN to uniquely identify and authenticate electronically issued orders; CBIC issued a circular (No.128/47/2019-GST, dated 23.12.2019) emphasizing the use of DIN; statutory scheme contemplates proper identification of orders.

Precedent Treatment: The Supreme Court has held that orders without DIN are non-est and invalid. Division Bench decisions of this Court have followed that principle, holding non-mention of DIN to mitigate against validity of proceedings.

Interpretation and reasoning: The Court reviewed the impugned proceedings and observed that the DIN was absent except on the garnishee proceeding dated 15.05.2023. Relying on the authoritative pronouncement of the Supreme Court and the CBIC circular, the Court concluded that absence of DIN vitiates the assessment proceedings.

Ratio vs. Obiter: The determination that absence of DIN renders the order invalid is treated as ratio, anchored on the Supreme Court ruling and followed by this Court's precedents; it is applied to invalidate the impugned assessment order.

Conclusions: Lack of DIN on the assessment order and its summary is a fatal defect; the impugned assessment order and its summary are set aside on this ground as well.

Issue 3: Whether statutory provisions (Sections 160 & 169) or administrative/circular provisions can cure defects of signature/DIN

Legal framework: Sections 160 and 169 (identified in the judgment) were argued as possible curative provisions; CBIC circular prescribes DIN usage.

Precedent Treatment: Earlier Division Bench rulings of this Court held that Sections 160 & 169 do not cure the absence of signature. The Supreme Court's ruling on DIN emphasized invalidity where DIN is not mentioned.

Interpretation and reasoning: The Court accepted the prior High Court conclusions that statutory provisions relied upon cannot retrospectively validate an order that lacks signature. Similarly, absence of DIN cannot be cured by internal administrative provisions; instead, compliance is mandatory per the CBIC circular and higher court precedent.

Ratio vs. Obiter: The denial of curative effect to Sections 160 & 169 (and to casual reliance on circulars as a substitute for statutory authentication requirements) is part of the operative ratio when addressing validity of the impugned order.

Conclusions: Sections 160 & 169 do not rectify the absence of signature; non-mention of DIN is also incurable and renders proceedings invalid.

Issue 4: Consequential relief - invalidity's effect on garnishee notice, remand, and limitation

Legal framework: When foundational adjudicatory orders are invalidated, consequential actions founded on them (like garnishee notices and recovery proceedings) fall with the principal order. Principles of natural justice require opportunity and notice in fresh adjudication.

Precedent Treatment: Court followed its own prior decisions setting aside consequential notices where underlying orders were vitiated for similar defects.

Interpretation and reasoning: Because the garnishee notice of 15.05.2023 derives from and is based on the impugned assessment order, the Court concluded it is also invalid. The appropriate remedial step is to set aside the defective proceedings and remand the matter for fresh adjudication with adequate notice and opportunity to the petitioner. Further, equitable relief requires exclusion of the period between the impugned order and receipt of the present order for limitation purposes.

Ratio vs. Obiter: The directive to set aside consequential recovery measures and remand for fresh adjudication (with notice and opportunity) is ratio in the context of these statutory defects; the exclusion of the intervening period for limitation is an ancillary but operative remedial direction.

Conclusions: The garnishee notice is set aside; the assessment proceedings are remitted to the assessing authority to re-adjudicate after giving adequate notice and opportunity. The petitioner may raise all grounds on facts and law anew; the period between the impugned order and receipt of the present order is excluded for limitation. No order as to costs.

Cross-references and final operative application

The Court's conclusions rest on consolidated reasoning: (i) absence of signature invalidates assessment orders (following earlier Division Bench precedent), (ii) absence of DIN likewise vitiates orders (following the Supreme Court and CBIC circular), and (iii) consequential recovery mechanisms based on such orders must be set aside and the matter remanded for fresh adjudication with procedural protections and exclusion of the intervening period for limitation.

Issues: Whether the appellant could submit an application for provisional release of the goods and have it decided by the competent authority in the light of the proceedings referred to under the GST enactment.

Outcome: The appellant was permitted to submit an application for provisional release within one week, and the competent authority was directed to decide it within two weeks after considering the legal contentions raised, including the cited decision.

1. Whether the impugned order confirming the GST demand was vitiated by non-application of mind and failure to consider the detailed submissions made by the Petitioner.

2. Whether the impugned order was unreasoned and violated principles of natural justice by merely reproducing the allegations in the show cause notice without independent analysis.

3. Whether the Petitioner was required to exhaust alternate statutory remedies such as appeal before approaching the Court directly.

4. The correct legal interpretation of the classification of the services provided by the Petitioner under GST law, specifically whether the services qualify as export of services or are intermediary services liable to IGST.

Issue-wise Detailed Analysis:

Issue 1: Non-application of mind and failure to consider submissions

The legal framework governing this issue includes the requirement under Section 73(9) of the CGST Act, 2017, which mandates that the proper officer must consider the representations made by the taxable person before issuing an order determining tax liability. The term "consider" has been judicially interpreted to mean a deliberate, attentive mental process involving weighing and reflecting upon the merits of the submissions.

The Court examined the show cause notice, the Petitioner's replies, and the impugned order. It was found that the adjudicating authority had not applied its mind independently but had instead copied verbatim large portions of the show cause notice into the impugned order. This "cut and paste" approach was demonstrated through a comparative chart submitted by the Petitioner, which showed identical language and findings in both documents.

Precedent was drawn from a co-ordinate Bench decision involving similar facts, where an order was set aside for non-application of mind due to verbatim copying of a service tax demand notice by VAT authorities. The Court emphasized that merely reproducing allegations without addressing the Petitioner's detailed replies or providing reasons for rejecting their contentions amounts to a lack of deliberation and is violative of natural justice.

The Court rejected the Respondents' contention that the Petitioner had not raised this ground, noting that the petition clearly alleged non-application of mind and failure to consider submissions, supported by relevant case law.

The Court underscored that the proper application of mind requires the adjudicating authority to state reasons supporting its decision, not just transcribe the show cause notice. The impugned order's failure to analyze or distinguish the precedents and Board Circular cited by the Petitioner further demonstrated the lack of proper consideration.

Issue 2: Whether the impugned order was unreasoned and violated natural justice

The Court reiterated the settled principle that an order must be reasoned, stating relevant facts and the basis for the decision. Section 75(6) of the CGST Act requires the proper officer's order to set out the basis of the decision, which was not done in the impugned order.

The Court referred to authoritative dictionary definitions and judicial pronouncements clarifying that "consider" entails careful thought and weighing of factors. The impugned order's mechanical reproduction of allegations without addressing the Petitioner's contentions or legal authorities was found to be a breach of natural justice and fair play.

The Court emphasized the focus on the decision-making process rather than the substantive correctness of the outcome, holding that a fair procedure is fundamental to the validity of administrative orders.

Issue 3: Requirement to exhaust alternate remedies

The Respondents argued that the Petitioner should have pursued appeal remedies instead of directly approaching the Court. The Court held that this objection did not hold in the circumstances of this case because:

• No appeal had been filed against the impugned order under challenge.
• An earlier appeal against a different order dated 1 April 2022 was not determinative of the present matter.
• The present case involved a clear breach of natural justice due to non-application of mind, which is an exception to the general rule of exhausting statutory remedies before seeking judicial intervention.

Thus, the Court found it appropriate to intervene directly without relegating the Petitioner to pursue alternate remedies.

Issue 4: Classification of services under GST law

The substantive question related to whether the services provided by the Petitioner qualified as "export of services" or were "intermediary services" liable to IGST. The relevant legal provisions considered included Sections 2(6), 7, 8, and 13(8)(b) of the Integrated Goods and Services Tax Act, 2017 (IGST Act).

The adjudicating authority's reasoning, as reflected in the impugned order, was that the Petitioner's services involved direct access to the contractor's customers and their documents, thereby constituting intermediary services rather than export of services. Under Section 13(8)(b), the place of supply of intermediary services is the location of the supplier, which in this case was India, making the services taxable under IGST.

The Court noted that the impugned order reproduced this reasoning verbatim from the show cause notice without independent analysis. While the Court did not decide the substantive correctness of this classification, it acknowledged the legal framework and the adjudicating authority's view that the services did not qualify as export of services.

Significant Holdings:

The Court held that:

"The adjudicating authority has failed to independently apply its mind to the various contentions raised in the replies filed on behalf of the Petitioner. Instead, the adjudicating authority has chosen to copy or rather cut and paste verbatim the allegations in the show cause notice dated 28 November 2024 to pass them off as reasons supporting the impugned order."

It was further held that:

"The term 'consider' means examining or weighing the merits of matters. Merely transcribing the contents of the representation without any discussion on the contentions raised, and reaching a conclusion is not consideration. The impugned order's cut-and-paste approach does not amount to application of mind."

On the natural justice aspect, the Court stated:

"Simply cutting and pasting the allegations in the show cause notice or mechanically reciting them verbatim does not inspire confidence that due consideration has been shown to the cause, and the decision is made after its due consideration. These are aspects of natural justice principles that should guide the decision-making process."

Regarding the alternative remedy, the Court observed:

"A clear breach of natural justice is an exception to the general rule that statutory remedies should usually be exhausted before seeking this Court's extraordinary intervention."

Consequently, the Court quashed and set aside the impugned order dated 24 February 2025 and remanded the matter for fresh consideration in accordance with the principles of natural justice, directing the adjudicating authority to give an opportunity of hearing and consider all contentions on merits within three months.

The core legal questions considered by the Court in this matter include:

• Whether the impugned order passed by the respondents under the GST framework suffers from non-application of mind and procedural infirmities, particularly regarding the consideration of the petitioner's reply and the absence of a hearing;
• Whether the penalty, interest, and tax liabilities imposed in the impugned order are justified and supported by valid documentary evidence as required under the relevant GST provisions;
• The propriety and legality of the respondents' reliance solely on the petitioner's reply dated 08.11.2024 without adequate evaluation or verification;
• The adequacy of the appellate process, including the petitioner's belated appeal and the dismissal thereof, and the implications for the petitioner's rights;
• The appropriate remedial course of action in light of the procedural lapses and the petitioner's partial payment of disputed tax amounts during the appeal process.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Non-application of mind and procedural lapses in the impugned order

Relevant legal framework and precedents: Under the GST laws (CGST, SGST, and IGST Acts of 2017), any order imposing tax, penalty, or interest must be passed after due consideration of the taxpayer's submissions and evidence, and after affording an opportunity of hearing. Principles of natural justice require that a show cause notice and reply be properly evaluated before finalizing an order.

Court's interpretation and reasoning: The Court observed that the impugned order explicitly states that the petitioner's reply was "not convincing and not acceptable" due to lack of valid documentary evidence, yet the order does not reflect any detailed examination or discussion of the petitioner's submissions. The operative portion reveals a mechanical rejection without adequate reasoning or application of mind. Furthermore, the petitioner was not heard prior to passing the order, which is a fundamental procedural lapse.

Key evidence and findings: The petitioner had filed a reply dated 08.11.2024 to the show cause notices issued in Forms GST DRC 01A and DRC-01. However, the impugned order dismisses the reply summarily. The Court noted that the petitioner was not afforded a hearing before the order was passed.

Application of law to facts: The failure to provide a hearing and the absence of reasoned consideration of the petitioner's reply contravene principles of natural justice and statutory requirements under the GST regime.

Treatment of competing arguments: The respondents contended that the reply was examined and found insufficient, justifying confirmation of the proposals. The Court found this approach inadequate, emphasizing that mere rejection without detailed evaluation and hearing is impermissible.

Conclusion: The impugned order suffers from non-application of mind and procedural unfairness, warranting its quashing and remand for fresh consideration.

Issue 2: Validity of tax, penalty, and interest liabilities imposed

Relevant legal framework and precedents: The tax liability arises from discrepancies between GSTR 3B returns and E-Way Bills, attracting penalties under Section 73(5) and Section 73(9) of the CGST/SGST Acts, and Section 20 of the IGST Act. Interest is imposed under Section 50(1) of the TNGST Act, 2017. General penalty under Section 125 is levied for non-maintenance of accounts and registers.

Court's interpretation and reasoning: The Court noted that the impugned order imposed a total liability of Rs. 50,48,632/- comprising tax, penalty, and interest. However, the petitioner's reply, which presumably challenged these liabilities, was summarily rejected without supporting documentary evidence being considered. The Court did not delve into the substantive correctness of the tax and penalty amounts but emphasized that such liabilities must be imposed only after proper evaluation of evidence.

Key evidence and findings: The discrepancy in tax liability was based on comparison between GSTR 3B returns and E-Way Bills. The petitioner had contested these discrepancies. The respondents' order imposed penalties at 10% of tax due or the prescribed minimum, and interest at 18% per annum, calculated up to the date of the order.

Application of law to facts: The imposition of penalty and interest is statutory, but contingent upon proper determination of tax liability and procedural fairness. Since the petitioner's contentions were not duly considered, the validity of imposed liabilities remains unsubstantiated.

Treatment of competing arguments: The respondents relied on statutory provisions to justify penalties and interest. The petitioner argued that the liabilities were incorrectly assessed and that procedural lapses vitiated the order. The Court sided with the petitioner on procedural grounds, without adjudicating the substantive tax liability.

Conclusion: The penalty, interest, and tax liabilities imposed cannot stand without proper adjudication on merits and evidence; the matter requires fresh determination.

Issue 3: Adequacy of appellate process and petitioner's partial payment of disputed tax

Relevant legal framework and precedents: The GST Acts provide for an appellate mechanism to challenge orders passed by tax authorities. Timely filing of appeals is mandated, but courts have discretion to consider belated appeals under certain circumstances. Deposit of a portion of disputed tax is often a condition precedent to maintain the appeal.

Court's interpretation and reasoning: The petitioner had filed a belated appeal before the appellate Commissioner, which was dismissed. The petitioner subsequently filed a writ petition but did not press for relief therein. The Court noted that at the time of filing the appeal, the petitioner had deposited 10% of the disputed tax, and over 25% of the disputed amount had been recovered during the proceedings.

Key evidence and findings: The partial payment of disputed tax by the petitioner reflects an attempt to comply with procedural requirements and mitigate the liability.

Application of law to facts: The Court observed that such partial compliance and the circumstances of the appeal warranted a remedial approach rather than outright dismissal or upholding of the impugned order.

Treatment of competing arguments: The respondents maintained the dismissal of the appeal was proper. The petitioner sought relief based on procedural irregularities and partial compliance. The Court took a balanced view, acknowledging the petitioner's partial payments and procedural lapses by the respondents.

Conclusion: The appellate process and partial payments justify remitting the matter for fresh adjudication rather than sustaining the impugned order.

3. SIGNIFICANT HOLDINGS

The Court held that

The core legal questions considered by the Court are:

• Whether the petitioner's claim for input tax credit (ITC) availed belatedly for the tax period 2018-2019 can be sustained in view of the statutory provisions governing the time limits for availing ITC under Section 16 of the Central Goods and Services Tax (CGST) Act, 2017.
• The impact and applicability of the amendment to Section 16 of the Tamil Nadu Goods and Services Tax Act, 2017, specifically the insertion of sub-section (5) by the Finance (No.2) Act, 2024, on the petitioner's entitlement to avail ITC beyond the previously prescribed time limits.
• The correctness and legality of the impugned orders dated 26.07.2021 and 19.12.2022 passed by the respondent denying the petitioner's claim for ITC on the ground of belated availing.
• The procedural propriety of the writ petition filed belatedly challenging the impugned orders.
• The appropriate remedy and course of action in light of the legislative amendment and judicial precedents addressing similar issues of belated ITC claims.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Legality of belated availing of Input Tax Credit under Section 16 of CGST Act

The relevant legal framework initially governing the availing of ITC was Section 16(4) of the CGST Act, 2017, which prescribed strict timelines for claiming ITC. The impugned orders held that the petitioner contravened these provisions by availing ITC beyond the due date for filing the relevant GSTR-3B returns, specifically beyond 20-10-2019 for the September 2019 period. The orders further held that such ineligible ITC was recoverable under Section 73(1) of the CGST Act read with Section 20 of the IGST Act, and Rule 142(1)(a) of the CGST Rules, 2017.

The Court noted that the petitioner's claim was initially disallowed based on the strict interpretation of Section 16(4), which did not permit ITC claims beyond the prescribed time limits. The respondent's orders emphasized the need for reversal of ITC availed belatedly and recovery in cash due to insufficient electronic credit ledger balance.

Issue 2: Impact of the Amendment by Finance (No.2) Act, 2024 - Insertion of Section 16(5) and (6)

Parliament intervened by amending Section 16 of the CGST Act through the Finance (No.2) Act, 2024, inserting sub-sections (5) and (6) with retrospective effect from 1st July 2017. This amendment explicitly extended the time limit for availing ITC for invoices or debit notes pertaining to the financial years 2017-18 to 2020-21, allowing registered persons to claim ITC in returns filed up to 30th November 2021.

The Court relied heavily on this legislative amendment, which effectively overruled the strict time bar imposed by Section 16(4) for the relevant financial years. The amendment also addressed situations involving cancellation and revocation of registration, providing further clarity on ITC entitlement.

The Court referenced recent judicial pronouncements, notably the decision in M/s. SJB Automobiles Private Limited, where similar issues were adjudicated in favor of the taxpayer based on the same amendment. Additionally, the Court cited the order in M/s. Sagar Brush Industries, where assessment and appellate orders denying belated ITC claims were set aside, and cases remanded for fresh consideration in light of the amendment.

The Court took note of the Central Government's notification (No.22/2024-CENTRAL TAX dated 08.10.2024) formally notifying the amendment, thereby making Section 16(5) a binding statutory provision.

Issue 3: Validity of the impugned orders and procedural propriety of the writ petition

The petitioner's writ petition was filed belatedly, long after issuance of the impugned orders. However, the Court observed that the issue was squarely covered in favor of the petitioner by the recent amendment and judicial precedents. With the consent of both parties, the writ petition was disposed of at the admission stage.

The Court quashed the impugned orders and remitted the matter back to the respondent for fresh adjudication on merits and in accordance with the amended Section 16 of the CGST Act. No costs were imposed, and connected miscellaneous petitions were closed.

Application of Law to Facts and Treatment of Competing Arguments

The respondent's argument rested on the strict application of Section 16(4) and the consequent disallowance of ITC claimed after the prescribed deadline. The petitioner relied on the retrospective amendment to Section 16(5) as a legislative relief enabling belated ITC claims for the relevant financial years.

The Court gave primacy to the legislative intent manifested through the amendment, recognizing Parliament's "olive branch" to taxpayers who had availed ITC belatedly for the specified period. The Court found that the amendment superseded the earlier restrictive provisions and rendered the impugned orders unsustainable.

The Court's reasoning was supported by the consistent judicial approach in related cases, which had set aside orders denying belated ITC claims and remitted matters for reconsideration under the amended law.

3. SIGNIFICANT HOLDINGS

The Court held:

"Notwithstanding anything contained in subsection (4), in respect of an invoice or debit note for supply of goods or services or both pertaining to the Financial Years 2017-18, 2018-19, 2019-20 and 2020-21, the registered person shall be entitled to take input tax credit in any return under section 39 which is filed upto the thirtieth day of November, 2021."

This principle enshrined in Section 16(5) of the CGST Act, as inserted by the Finance (No.2) Act, 2024, was pivotal in the Court's decision.

The Court concluded that the impugned orders denying ITC on the ground of belated availing were unsustainable in light of the statutory amendment and relevant judicial precedents. The orders were quashed, and the matter remanded to the respondent to pass fresh orders consistent with the amended law.

The Court emphasized that the amendment was a legislative recognition of the need to extend relief to taxpayers who had failed to claim ITC within the earlier prescribed timelines, thereby establishing a core principle of statutory relief through retrospective amendment.

Issues: Whether the impugned order confirming the GST demand could be sustained when the supplier was treated as non-existent without proper consideration of the reply and supporting materials, and whether the matter required remand for fresh consideration.

Analysis: The respondent proceeded on the footing that the supplier was a fictitious and non-existent entity, but the materials placed before the Court indicated that the petitioner had furnished a reply, invoices, and supporting documents, including a claim that the input tax credit reflected in the returns. The order impugned showed non-application of mind in treating a large business concern as non-existent without tangible basis. In these circumstances, the adverse order could not be sustained.

Conclusion: The impugned order was set aside and the matter was remanded to the respondent for fresh consideration after allowing the petitioner to file additional reply and after issuing notice and granting personal hearing.

Issues: Whether the assessment order could be quashed and the matter remitted for fresh consideration in the light of the petitioner's claim of unutilised input tax credit under the Tamil Nadu Value Added Tax regime and the transition requirement under the GST law.

Analysis: The petitioner had carried forward unutilised input tax credit under the Tamil Nadu Value Added Tax Act, 2006 and had not followed the transition procedure contemplated under Section 140 of the Tamil Nadu Goods and Services Tax Act, 2017. The Court also noted the absence of a reply to the show cause notice. Taking note of its consistent approach in similar matters, the Court exercised discretion to set aside the impugned assessment and require fresh adjudication. The relief was made conditional upon payment of 25% of the disputed tax as pre-deposit, filing of a reply to the notice, and a fresh decision by the assessing authority after hearing the petitioner.

Conclusion: The assessment order was quashed and the matter was remitted for fresh decision, subject to pre-deposit and compliance with the directions issued by the Court.

The core legal questions considered by the Court are:

• Whether the delay of 67 days in filing the appeal against the impugned assessment order dated 28.08.2024 can be condoned on the grounds of pursuing a rectification application.
• Whether the appellate authority was justified in rejecting the appeal on the ground of limitation without considering the merits of the case.
• Whether the petitioner is entitled to have the appeal admitted subject to payment of a pre-deposit, and if so, the quantum of such pre-deposit.
• Whether the petitioner's bank account, which was frozen pursuant to the tax demand, should be directed to be unfrozen upon compliance with the pre-deposit conditions.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Condonation of Delay in Filing Appeal

Relevant Legal Framework and Precedents: The limitation period for filing an appeal against an assessment order is prescribed under the relevant tax statutes and rules. Courts have consistently held that delay caused due to genuine reasons such as pendency of rectification applications may be condoned if the appellant acts promptly after rejection of such applications. The principle of substantial justice governs the exercise of discretion to condone delay.

Court's Interpretation and Reasoning: The Court observed that the petitioner had filed a rectification application on 25.11.2024, which was rejected on 06.02.2025. The appeal was filed immediately thereafter on 07.03.2025, resulting in a delay of 67 days. The Court found this delay to be attributable to the petitioner's bona fide attempt to seek rectification before filing the appeal. Hence, the reason assigned for the delay was held to be genuine.

Application of Law to Facts: The Court applied the principle that delay caused by pursuing a rectification remedy can be excused, especially when the appeal is filed promptly after rejection. The petitioner's conduct was consistent with this principle, justifying condonation of the delay.

Treatment of Competing Arguments: The respondents did not dispute the genuineness of the petitioner's explanation but relied on the limitation bar to reject the appeal. The Court found the petitioner's explanation more persuasive and equitable.

Conclusion: The Court condoned the 67-day delay in filing the appeal.

Issue 2: Validity of Rejection of Appeal on Limitation Grounds

Relevant Legal Framework and Precedents: Appeals are required to be filed within a prescribed time limit. However, the appellate authority has discretion to condone delay if sufficient cause is shown. The rejection of appeal solely on limitation without consideration of merits or reasons for delay may be subject to judicial review.

Court's Interpretation and Reasoning: The Court noted that the 2nd respondent/Appellate Authority had rejected the appeal at the threshold on limitation grounds without considering the petitioner's explanation or the pendency of the rectification application. This was deemed to be a mechanical and rigid approach inconsistent with principles of equity and justice.

Application of Law to Facts: Since the petitioner had a genuine cause for delay, the appellate authority's rejection of the appeal without condonation of delay was not justified.

Treatment of Competing Arguments: The respondents' reliance on limitation was overridden by the Court's view that the delay was excusable.

Conclusion: The Court set aside the rejection order and directed the appellate authority to admit the appeal.

Issue 3: Conditions for Admission of Appeal and Pre-Deposit

Relevant Legal Framework and Precedents: Tax statutes often require a pre-deposit of a percentage of the disputed tax demand as a condition for admission of appeal. Courts have discretion to fix the quantum of pre-deposit, balancing the interest of revenue and the appellant.

Court's Interpretation and Reasoning: The Court directed that the appeal be admitted subject to the payment of 15% of the disputed tax demand, comprising the 10% statutory pre-deposit and an additional 5% as agreed by the petitioner. The Court's direction reflects a compromise ensuring protection of revenue while allowing the petitioner to pursue the appeal.

Application of Law to Facts: The petitioner agreed to the additional pre-deposit condition, and the Court imposed a timeline of two weeks for compliance.

Treatment of Competing Arguments: The respondents' consent to the Court's order facilitated this balanced direction.

Conclusion: The appeal shall be admitted on condition of payment of 15% of the disputed tax demand within two weeks.

Issue 4: Direction for Unfreezing Bank Account

Relevant Legal Framework and Precedents: Tax authorities may freeze bank accounts to secure tax demands. Courts have held that such coercive measures should be lifted once the appellant complies with pre-deposit conditions.

Court's Interpretation and Reasoning: The Court ordered that upon proof of payment of the pre-deposit, the respondents shall issue directions to the petitioner's banker to unfreeze the bank account forthwith, thus protecting the petitioner's business interests.

Application of Law to Facts: The petitioner's compliance with pre-deposit conditions triggers the lifting of the freeze.

Treatment of Competing Arguments: The respondents agreed to comply with the Court's directions.

Conclusion: The petitioner's bank account shall be unfrozen upon payment of the pre-deposit.

3. SIGNIFICANT HOLDINGS

The Court held:

"The reason assigned by the petitioner for the delay in filing the appeal against the assessment order, appears to be genuine. Therefore, this Court is inclined to condone the delay of 67 days in filing the appeal against the impugned assessment order."

"The 2nd respondent/Appellate Authority is directed to take the appeal on record without insisting upon the limitation aspect, subject to the payment of 5% of the disputed tax demand as agreed by the petitioner in addition to 10% statutory pre-deposit, i.e totally 15% of the disputed tax amount in respect of the impugned assessment period, within a period of two weeks from the date of receipt of a copy of this order."

"Upon production of proof with regard to the payment of 15% of the disputed tax made by the petitioner, the respondents- Department is directed to issue appropriate direction on the petitioner's banker towards de-freezure of the petitioner's bank account forthwith."

Core principles established include the equitable condonation of delay caused by bona fide pursuit of rectification remedies, the necessity for appellate authorities to consider explanations for delay before rejecting appeals on limitation grounds, and the balancing of revenue protection with the appellant's right to appeal through conditional admission subject to pre-deposit.

Final determinations were that the delay in filing appeal was condoned, the rejection of appeal on limitation grounds was set aside, the appeal was admitted subject to a

The core legal questions considered by the Court in this petition are:

• Whether the transfer of leasehold rights in an industrial plot by the petitioner to a third party amounts to a taxable supply of service under the Goods and Services Tax (GST) regime, thereby attracting GST liability.
• Whether the impugned order passed under section 73 of the CGST Act, 2017, demanding GST on such transfer, is legal and within jurisdiction.
• Whether the petitioner was liable to pay GST on the consideration received for the assignment of leasehold rights, despite not charging or recovering GST from the transferee.
• Whether the adjudicating authority was justified in proceeding with the demand despite a prior decision of the same High Court (Special Civil Application No.11345 of 2023) holding that no GST is payable on such transfers, and in light of the Government's intention to challenge that decision.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Whether the transfer of leasehold rights in an industrial plot amounts to a taxable supply of service under GST law.

Relevant legal framework and precedents: The GST framework under the CGST Act, 2017, and relevant notifications, particularly Notification No.11/2017 - State Tax (Rate) dated 30.6.2017, Entry No.16 Heading No.9972, which covers Real Estate Services taxable at 9% SGST and 9% CGST, were considered. The Court relied heavily on prior rulings including Gujarat Chamber of Commerce and Industries Vs Union of India, Kabir Instrument and Technology Vs Union of India, and Alfa Tools Private Limited Vs Union of India, where it was held that assignment or transfer of leasehold rights in industrial plots does not constitute a supply liable to GST.

Court's interpretation and reasoning: The Court interpreted the assignment of leasehold rights as a transfer of benefits arising out of immovable property, which is not covered under the scope of supply under GST. The assignment does not amount to a service but is akin to a sale or transfer of rights in immovable property. The Court emphasized that the lessee-assignor transfers the leasehold rights to a third party-assignee, who steps into the shoes of the original lessee, and such transaction does not attract GST.

Key evidence and findings: The assignment deed dated 24.2.2021 was examined, which clearly indicated that only leasehold rights were transferred. The petitioner had not charged or collected GST on the consideration received. The petitioner's reliance on the decision in Special Civil Application No.11345 of 2023 was noted, which had held similarly.

Application of law to facts: Applying the legal principles and precedents to the facts, the Court found that the petitioner's transaction was squarely covered by the established legal position that no GST is payable on such transfers.

Treatment of competing arguments: The revenue argued that the assignment of leasehold rights constituted a taxable supply of service under GST and that the impugned order was justified. However, the Court rejected this argument based on binding precedents and the nature of the transaction.

Conclusion: The transfer of leasehold rights in the industrial plot by the petitioner to the third party is not a taxable supply under GST and hence no GST liability arises on the consideration received.

Issue 2: Legality and jurisdiction of the impugned order passed under section 73 of the CGST Act, 2017.

Relevant legal framework and precedents: Section 73 of the CGST Act deals with determination of tax not paid or short paid or erroneously refunded. The Court referred to the procedural safeguards and the need for the adjudicating authority to act within jurisdiction and in accordance with law.

Court's interpretation and reasoning: The Court found the impugned order to be ex-facie illegal and without jurisdiction because it contradicted the binding precedent of the High Court and was passed despite the absence of any stay on that precedent. The adjudicating authority's reliance on the Government's intention to challenge the precedent was held to be insufficient justification for proceeding with the demand.

Key evidence and findings: The impugned order dated 28.2.2025 and the show cause notice dated 26.11.2024 were examined. The Court noted the absence of any stay order against the precedent relied upon by the petitioner.

Application of law to facts: Given the binding nature of the precedent and the absence of any stay, the adjudicating authority ought to have dropped the proceedings instead of confirming the demand.

Treatment of competing arguments: The revenue contended that the order was valid as the Government intended to challenge the precedent. The Court rejected this, emphasizing that mere intention to challenge does not override binding judicial decisions.

Conclusion: The impugned order under section 73 is illegal and without jurisdiction and is liable to be quashed.

Issue 3: Liability of the petitioner to pay GST on consideration received without charging or recovering GST from the transferee.

Relevant legal framework and precedents: Under GST law, liability to pay tax arises on supply of goods or services. The Court referred to the principles established in the aforementioned precedents denying GST on assignment of leasehold rights.

Court's interpretation and reasoning: Since the assignment of leasehold rights is not a taxable supply, the petitioner was not liable to pay GST, regardless of whether GST was charged or recovered from the transferee.

Key evidence and findings: The petitioner's admission of not charging or recovering GST was considered. The Court found no legal infirmity in this as no GST was payable.

Application of law to facts: The petitioner's conduct was consistent with the legal position that no GST was payable on the transaction.

Treatment of competing arguments: The revenue's demand for GST was rejected based on the legal principle that no tax liability arises on such transactions.

Conclusion: The petitioner was not liable to pay GST on the consideration received for assignment of leasehold rights.

Issue 4: Whether the adjudicating authority was justified in proceeding despite the prior High Court decision and the Government's intention to challenge it.

Relevant legal framework and precedents: The principle of judicial precedent and binding effect of High Court decisions until set aside or stayed by a competent court was considered.

Court's interpretation and reasoning: The Court held that in the absence of any stay or reversal of the prior decision, the adjudicating authority was bound to follow the precedent and drop the proceedings. The mere intention of the Government to challenge the decision does not empower the authority to ignore it.

Key evidence and findings: No stay order or contrary judicial order was placed on record by the respondents.

Application of law to facts: The adjudicating authority's reliance on the Government's future challenge was misplaced and legally untenable.

Treatment of competing arguments: The respondents' argument was dismissed as lacking legal basis.

Conclusion: The adjudicating authority was not justified in proceeding with the demand and passing the impugned order.

3. SIGNIFICANT HOLDINGS

"GST would not be leviable on the assignment of lease hold rights of plot or the land allotted on lease by the industrial concern and building constructed thereon by the lessee or its successor (assignor) to a third party (assignee) on payment of lumpsum because such an assignment by sale and transfer of leasehold rights of plot for a consideration would be assignment/sale/transfer of benefits arising out of immovable property by lessee - assignor in favour of third party - assignee who would become lessee of GIDC in place of original allottee - lessee and such assignment would not be covered under scope of supply."

"There is no positive order of stay placed on record and considering the judgment of this Court in Special Civil Application No.11345 of 2024, this Court is bound to decide the same in accordance with law. Hence, the said contention of the respondent department that the order is passed because the aforesaid order would be challenged does not hold good."

The Court conclusively held that the impugned order passed under section 73 of the CGST Act, 2017, demanding GST on assignment of leasehold rights, is illegal and without jurisdiction and is hereby quashed and set aside.

Issues: (i) Whether the assessment order could be quashed for violation of the principles of natural justice when an opportunity of hearing had been fixed but not availed. (ii) Whether the writ petition was liable to be entertained notwithstanding the statutory appellate remedy.

Issue (i): Whether the assessment order could be quashed for violation of the principles of natural justice when an opportunity of hearing had been fixed but not availed.

Analysis: The notice granted time to file objections and fixed a specific date, time, and venue for hearing. The petitioner filed a reply, but no one appeared on the scheduled date. Failure to avail an opportunity already granted is different from denial of an opportunity. The request for additional time related to production of one record and did not show that a hearing had been refused.

Conclusion: The plea of violation of natural justice was rejected and is against the petitioner.

Issue (ii): Whether the writ petition was liable to be entertained notwithstanding the statutory appellate remedy.

Analysis: The challenge to the impugned order involved disputed facts. A statutory appeal was available under the tax law, and such issues were more appropriately pursued in the appellate forum.

Conclusion: The writ petition was not entertained in view of the available statutory remedy and is against the petitioner.

Final Conclusion: The impugned order was left undisturbed, and the petitioner was relegated to the statutory remedy.

Ratio Decidendi: A writ court will not treat a litigant's failure to attend a duly fixed hearing as a breach of natural justice, and where the controversy turns on disputed facts, the statutory appellate remedy should ordinarily be pursued.

Issues: Whether, in view of the corresponding notification reducing the pre-deposit requirement, the petitioner was entitled to deposit 10% of the disputed tax for the impugned first appellate order to remain stayed.

Analysis: The petitioner sought disposal of the writ petition on the footing that the deposit requirement applicable to the impugned appellate order stood correspondingly reduced to 10% of the disputed tax, consistent with the revised notification regime referred to before the Court.

Conclusion: The request was accepted and the petitioner was permitted to make the deposit accordingly so that the impugned order would remain stayed.

The core legal questions considered by the Authority for Advance Ruling (AAR) are:

- Whether various transactions undertaken by a Government stationery department constitute a 'supply' under Section 7 of the CGST Act, 2017.

- If such transactions amount to supply, whether they are supply of goods or services.

- The appropriate classification, rate of tax, and valuation applicable to these supplies.

- Whether the department is entitled to avail Input Tax Credit (ITC) on all procurements of goods and services related to its activities.

- Whether the department is liable to reverse ITC availed and, if so, the manner and extent of such reversal.

- Whether the department's activities are covered under exemption notifications 2/2017-CT (goods) or 12/2017-CT (services) as amended.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Whether various transactions constitute 'supply' under Section 7 of the CGST Act, 2017

Legal framework and precedents: Section 7(1)(a) defines 'supply' to include all forms of supply of goods or services made for a consideration in the course or furtherance of business. Section 2(17)(i) defines 'business' to include activities undertaken by government departments as public authorities. However, supplies without consideration generally do not constitute supply unless specifically covered under Schedule I. CBIC explanatory notes clarify that GST applies only to commercial transactions in the course or furtherance of business.

Court's interpretation and reasoning: The AAR examined each category of transaction:

• Supply of stationery without consideration: These are statutory supplies to other government departments without consideration. The AAR held these do not fall within 'supply' as they are not in the course or furtherance of business and are not covered under Schedule I. Hence, no GST applies.
• Supply of stationery for consideration: Supplies made against payment to entities other than government departments constitute commercial transactions and fall squarely within 'supply' under Section 7.
• Facilitating procurement as intermediaries without consideration: Such facilitation without consideration is not supply under Section 7.
• Levy of recoveries/fines/penalties for undue loss of stationery from departmental staff: These are recoveries for loss or penalties imposed under disciplinary proceedings without any supply of goods or services for consideration. The AAR held these do not amount to supply under Section 7, supported by CBIC Circular No. 178/10/2022-GST and earlier service tax precedents clarifying penalties and fines imposed for violation of law are not consideration for supply.
• Levy of recoveries/fines/penalties from suppliers as liquidated damages, EMD/SD forfeiture for breach of contract: The AAR distinguished these as recoveries pursuant to contracts. It relied on Schedule II and CBIC Circular No. 178/10/2022-GST which clarified that liquidated damages are taxable only if they arise from an agreement to tolerate or refrain from an act. Mere compensation for breach without such agreement is not taxable. Therefore, taxability depends on the specific contract terms and must be decided case-by-case.
• Repair services for stationery-related equipment: No definitive ruling was given due to lack of information on whether the service is for consideration. If for consideration, it is supply; if not, it is not supply.
• Disposal of waste paper, scrap, auction of used goods: These are supplies made for consideration in the course of business and fall within the scope of supply under Section 7. The AAR referred to Notification 36/2017-CT (Rate) and Circular No. 76/50/2018-GST clarifying such supplies by government entities to registered persons attract GST under reverse charge mechanism.
• Sale of physical tender forms: Sale against consideration ancillary to business activities is supply under Section 7.
• Sale of used motor vehicles: Sale of used vehicles by the department is supply under Section 7.

Application of law to facts: The AAR applied the definitions and CBIC clarifications to the department's activities, differentiating between supplies with and without consideration and between compensatory penalties and contractual liquidated damages.

Treatment of competing arguments: The applicant argued that supplies without consideration are statutory functions and not business activities. The AAR agreed for supplies without consideration but held that supplies for consideration are taxable. On penalties and fines, the AAR distinguished between penalties imposed for violation of law (non-supply) and contractual liquidated damages (potentially supply).

Conclusions: Supplies without consideration do not amount to supply under GST. Supplies for consideration are taxable supplies. Liquidated damages are taxable only if they arise from an independent contract to tolerate or refrain from an act. Penalties and fines imposed for breach of law or disciplinary action are not supplies.

Issue 2: Whether the supplies are goods or services

Legal framework: Section 2(52) defines 'goods' as movable property excluding money and securities; Section 2(102) defines 'services' as anything other than goods, money, and securities.

Court's reasoning: The AAR held that supplies of stationery items, waste, scrap, auctioned goods, tender forms, and used motor vehicles constitute supply of goods. Liquidated damages, EMD/SD forfeiture for breach of contract, and repair and maintenance services constitute supply of services.

Issue 3: Classification, rate of tax, and valuation

The applicant did not provide the annexure listing the specific items for classification. Hence, the AAR declined to provide any ruling on classification, rate, or valuation.

Issue 4: Entitlement to avail ITC on all procurements

Legal framework: Section 16 entitles registered persons to ITC on inputs and input services used in the course or furtherance of business, except those barred under Section 17(5). Rule 42/43 provides for apportionment and reversal of ITC where inputs are used partly for business and partly for other purposes or for exempt supplies.

Court's reasoning: The AAR held that the applicant is entitled to avail ITC on all procurements except:

• Input tax attributable exclusively to non-business purposes.
• Input tax attributable exclusively to exempt supplies.
• Input tax on goods or services barred under Section 17(5).

Therefore, ITC must be appropriately apportioned and reversed as applicable.

Issue 5: Liability to reverse ITC and manner of reversal

Legal framework: Section 17(1) and (2) and Rule 42/43 of CGST Rules govern ITC reversal where inputs are used partly for taxable and partly for exempt supplies.

Court's reasoning: Since the applicant undertakes both taxable and exempt/non-business activities, they are liable to reverse ITC attributable to exempt or non-business use. The reversal must be calculated as per the formula in Rule 42/43. The AAR declined to provide an arithmetic ruling, leaving it to the applicant to compute.

Issue 6: Applicability of exemption notifications 2/2017-CT (goods) or 12/2017-CT (services)

The applicant did not furnish an exhaustive list of activities. Hence, the AAR declined to provide a ruling on exemption applicability due to insufficient material.

3. SIGNIFICANT HOLDINGS

"Any transaction involving supply of goods or services without consideration is not a supply, barring few exceptions, in which a transaction is deemed to be a supply even without consideration."

"GST is essentially a tax only on commercial transactions. Hence, only those supplies that are in the course or furtherance of business qualify as supply under GST."

"Recovering the loss made to government or imposing fine for mistakes committed does not fall within the scope of Supply under Section 7. In order to be a supply within the meaning of this Section, goods or services or both should be supplied against a consideration."

"Where the amount paid as 'liquidated damages' is an amount paid only to compensate for injury, loss or damage suffered by the aggrieved party due to breach of the contract and there is no agreement, express or implied, by the aggrieved party receiving the liquidated damages, to refrain from or tolerate an act or to do anything for the party paying the liquidated damages, in such cases liquidated damages are mere a flow of money... Such payments do not constitute consideration for a supply and are not taxable."

"The key in such cases is to consider whether the impugned payments constitute consideration for another independent contract envisaging tolerating an act or situation or refraining from doing any act or situation or simply doing an act. If the answer is yes, then it constitutes a 'supply' within the meaning of the Act, otherwise it is not a "supply"."

"The applicant is entitled to avail ITC on all procurements of goods and services other than on the following supplies: (a) input tax attributable to inputs and input services intended exclusively for purposes other than business; (b) input tax attributable exclusively for effecting exempt supplies; (c) input tax on goods or services barred under Section 17(5)."

"Since the applicant has both taxable and exempted supplies, the applicant is liable to reverse the ITC availed by them, from 01-07-2017 onwards, as per the formula stipulated under Rule 42/43 of the CGST Rules, 2017."

The core legal questions considered in this appeal pertain to the validity and jurisdiction of the reassessment notice issued under section 148 of the Income Tax Act, 1961, particularly in the context of the transitional period between the "Old Regime" and the "New Regime" of reassessment procedures effective from 1 April 2021. Specifically, the issues are:

• Whether the notice issued under section 148 of the Act dated 28.07.2022, under the New Regime, is time barred as it was issued beyond the "surviving period" prescribed by the Supreme Court in the case of Rajeev Bansal vs Union of India.
• The applicability and effect of the Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 (TOLA) in extending limitation periods for issuance of reassessment notices under the Old Regime during the COVID-19 pandemic.
• The validity of issuance of reassessment notices under the Old Regime during the period 1 April 2021 to 30 June 2021, which is after the Old Regime had officially ended.
• The procedural compliance required under the New Regime, including issuance of notices under section 148A(b) and passing of orders under section 148A(d) before issuance of reassessment notices under section 148.
• The proper computation and application of the "surviving period" for issuance of reassessment notices post receipt of the assessee's response, as laid down in judicial precedents, especially the Supreme Court's judgment in Rajeev Bansal.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity and limitation of reassessment notice issued under section 148 dated 28.07.2022

Relevant legal framework and precedents: The reassessment procedure under the Income Tax Act underwent significant changes effective 1 April 2021, with the introduction of a New Regime under sections 147 to 151. The Old Regime ceased on 31 March 2021. The Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 (TOLA) extended the limitation period for issuance of reassessment notices under the Old Regime for notices falling due between 20 March 2020 and 31 March 2021, extending the time to 30 June 2021. The Supreme Court's judgment in Union of India vs Ashish Agarwal clarified that reassessment notices issued under the Old Regime between 1 April 2021 and 30 June 2021 shall be deemed to be show cause notices under section 148A(b) of the New Regime. Subsequently, in Union of India vs Rajeev Bansal, the Supreme Court held that reassessment notices under the New Regime must be issued within the "surviving period" calculated from the date of receipt of the assessee's response, failing which such notices are time barred and liable to be set aside.

Court's interpretation and reasoning: The Tribunal noted that the original notice under the Old Regime was issued on 30.06.2021, within the extended TOLA period. The information and material forming the basis of reassessment was communicated to the assessee on 02.06.2022, who replied on 11.06.2022. The order under section 148A(d) and the reassessment notice under the New Regime were both issued on 28.07.2022. Applying the Supreme Court's guidelines in Rajeev Bansal, the Tribunal computed the surviving period as 7 days (higher of the balance days from issuance of deemed notice to 30.06.2021 or the minimum 7 days as per proviso to section 149(1)). The surviving period started from the date of receipt of the assessee's response (11.06.2022) plus the two-week period allowed to the assessee to respond, ending on 16.06.2022, plus 7 days extension, culminating in 23.06.2022 as the last valid date for issuance of the reassessment notice. Since the notice was issued on 28.07.2022, it was held to be time barred by 35 days.

Key evidence and findings: The dates of notices, communications, responses, and orders were undisputed and corroborated by the Assessing Officer's report. The AO did not dispute the calculation of the surviving period but contended that the order under section 148A(d) and notice under section 148 were issued within the one-month period prescribed under section 148A(d). However, the Tribunal held that the Supreme Court's ruling in Rajeev Bansal and subsequent judicial pronouncements clarified that the time available under section 148A(d) is "necessarily truncated" by the surviving period, and cannot be extended beyond it.

Application of law to facts: The Tribunal applied the Supreme Court's principles strictly, emphasizing that the reassessment notice under the New Regime must be issued within the surviving period computed from the date of receipt of the assessee's reply to the deemed show cause notice. The notice issued beyond this period was invalid and liable to be quashed.

Treatment of competing arguments: The Department's argument that the notice was valid as it was issued within the one-month period under section 148A(d) was rejected on the basis of binding Supreme Court authority and consistent judicial precedents. The Tribunal relied on multiple judicial decisions from various High Courts and ITAT Benches upholding the Rajeev Bansal ratio, including the jurisdictional Madras High Court and Delhi High Court judgments.

Conclusion: The reassessment notice dated 28.07.2022 under the New Regime was held to be time barred and invalid.

Issue 2: Validity of issuance of reassessment notices under the Old Regime during 1 April 2021 to 30 June 2021

Relevant legal framework and precedents: The Old Regime of reassessment ended on 31 March 2021. However, due to TOLA, the limitation period for issuance of notices under the Old Regime falling due between 20 March 2020 and 31 March 2021 was extended to 30 June 2021. The Supreme Court in Ashish Agarwal clarified that notices issued under the Old Regime during 1 April 2021 to 30 June 2021 shall be treated as deemed show cause notices under section 148A(b) of the New Regime.

Court's interpretation and reasoning: The Tribunal accepted the Supreme Court's directive that such notices issued under the Old Regime during the extended period are valid but are to be treated as show cause notices under the New Regime, triggering the procedural safeguards therein.

Key evidence and findings: The original notice under the Old Regime was issued on 30.06.2021, within the extended TOLA period, thus validly issued as per Ashish Agarwal judgment.

Application of law to facts: The Tribunal applied the Ashish Agarwal ruling to validate the original notice under the Old Regime and the subsequent procedural steps under the New Regime.

Treatment of competing arguments: No contrary submissions were found disputing the validity of the original notice under the Old Regime within the extended period.

Conclusion: The original notice under the Old Regime was validly issued and deemed to be a show cause notice under the New Regime.

Issue 3: Procedural compliance under the New Regime and computation of surviving period

Relevant legal framework and precedents: The New Regime requires issuance of notice under section 148A(b) and passing of order under section 148A(d) before issuance of reassessment notice under section 148. The Supreme Court in Rajeev Bansal elaborated the computation of surviving period, emphasizing that all procedural steps must be completed within this period, which starts from the date of receipt of the assessee's response to the deemed notice.

Court's interpretation and reasoning: The Tribunal noted that the AO issued the order under section 148A(d) and reassessment notice under section 148 on the same date (28.07.2022), which was beyond the surviving period. The Tribunal rejected the AO's contention that the one-month period under section 148A(d) could extend the surviving period.

Key evidence and findings: The dates of communication, response, and issuance of orders were undisputed. The Tribunal relied on authoritative judicial pronouncements to conclude that the surviving period truncates the time available under section 148A(d).

Application of law to facts: The Tribunal applied the Rajeev Bansal principles to hold that the procedural steps were not completed within the surviving period, rendering the reassessment notice invalid.

Treatment of competing arguments: The AO's argument based on section 148A(d) was rejected as inconsistent with the Supreme Court's ruling and other judicial precedents.

Conclusion: The procedural requirements under the New Regime were not complied with within the surviving period, invalidating the reassessment notice.

3. SIGNIFICANT HOLDINGS

"The notice u/s 148 of the Act issued under Old Regime between the period of 01.04.2021 to 30.06.2021, shall be deemed to be a show cause notice u/s 148A(b) of the New Regime."

"Only notices issued within the surviving period calculated from the date of receipt of response by AO is valid. The notices issued beyond surviving period is time barred and liable to be set-aside."

"The time available u/s 148A(d) was necessarily truncated and the same was required to be passed within the surviving period."

"The notice dated 28.07.2022 issued u/s 148 of the New Regime in respect of assessment year 2013-14 is time barred and re-assessment order pursuant to the same is set-aside."

Core principles established include:

• The transitional provisions relating to reassessment notices issued during the COVID-19 extended period must be treated as show cause notices under the New Regime.
• The surviving period is a strict limitation period computed from the date of receipt of the assessee's response and must be adhered to strictly.
• Procedural steps under the New Regime, including issuance of notices and passing of orders, must be completed within the surviving period.
• Any reassessment notice issued beyond the surviving period is invalid and liable to be quashed.

Final determinations:

• The reassessment notice dated 28.07.2022 under the New Regime is time barred.
• The reassessment order passed pursuant to such notice is set aside.
• The appeal filed by the assessee is allowed accordingly.

Issues: Whether the appellate orders were liable to be set aside for breach of Section 250(1) of the Income-tax Act, 1961 on the ground that the appellant was not given notice of personal hearing.

Analysis: Section 250(1) requires the Commissioner (Appeals) to fix a day and place for hearing the appeal and to give notice of the same to the appellant. The notices referred to in the impugned orders were issued for filing written submissions and did not amount to notice of personal hearing. In the absence of a hearing notice as mandated by the provision, the appellate orders were passed in violation of the principles of natural justice.

Conclusion: The impugned appellate orders were set aside and the matters were remanded for fresh consideration after granting a clear 14 days' notice and an opportunity of personal hearing.

The Court considered the following core legal questions:

(i) Whether the rejection of the claim for allowance of bad debts under Section 36(1)(vii) read with Section 36(2) of the Income Tax Act, 1961 (IT Act) was justified, specifically whether the amount written off could be treated as a revenue item or as a capital loss, without considering the applicability of Section 41(1) relating to charging to tax any recovery made subsequently.

(ii) Whether the rejection of the claim for allowable expenditure under Section 37 read with Section 57(iii) of the IT Act was justified, treating the claim as a revenue expenditure, again without considering the stand of charging to tax recovery under Section 41(1).

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Allowance of Bad Debts under Section 36(1)(vii) read with Section 36(2)

Relevant legal framework and precedents: Section 36(1)(vii) allows deduction of bad debts or part thereof written off as irrecoverable in the accounts of the assessee for the previous year, subject to conditions in Section 36(2). Section 36(2)(i) specifically requires that no deduction for bad debt shall be allowed unless the debt has been taken into account in computing the income of the assessee in the previous year in which it is written off or an earlier year, or it represents money lent in the ordinary course of banking or money-lending business carried on by the assessee.

Court's interpretation and reasoning: The Court noted that the appellant had claimed Rs. 10,50,000 as amount written off as unrealizable loans advanced to various parties. However, this amount was never taken into account in computing the appellant's income in any previous year. The appellant had shown interest income from these loans under the head "Income from other sources" rather than business income. The appellant was engaged in manufacturing electric stabilizers and rectifiers and was not in the business of money lending. The Court emphasized that the bad debt deduction is permissible only if the debt was part of business income or money lending business income previously recognized.

Key evidence and findings: The appellant's books of account and Auditor's Report (Form 3CD) consistently described the business as manufacturing, with no mention of money lending. Interest income was declared under "Income from other sources." There was no separate business of money lending, and loans were advanced from surplus capital. The appellant failed to establish that the loans were part of a money lending business or that the amounts written off were previously included in income.

Application of law to facts: Since the loans were not part of business income or money lending business income, and the amount written off was not previously taken into account in computing income, the deduction under Section 36(1)(vii) was not allowable. The appellant's attempt to classify the write-off as a bad debt deduction was therefore rejected.

Treatment of competing arguments: The appellant contended that the loans and advances were part of legitimate commercial activity and should be allowed as bad debts. The Court rejected this, noting that mere lending of money from surplus capital without a business of money lending does not qualify for bad debt deduction under Section 36(2). The appellant's post hoc claim of being engaged in money lending was not supported by the record.

Conclusion: The claim for deduction of Rs. 10,50,000 as bad debts under Section 36(1)(vii) read with Section 36(2) was rightly disallowed by the Assessing Officer and upheld by the Tribunal and the Court.

Issue 2: Allowance of Expenditure under Section 37 read with Section 57(iii)

Relevant legal framework and precedents: Income under the head "Income from other sources" is governed by Sections 56 to 59 of the IT Act. Section 57(iii) allows deduction of any expenditure (not being capital expenditure) incurred wholly and exclusively for earning such income.

Court's interpretation and reasoning: The appellant declared interest income from loans under "Income from other sources." Under Section 57(iii), only revenue expenses incurred for earning such income are deductible. Capital expenditure is explicitly excluded from deduction. The appellant sought to write off the principal amounts advanced as a deduction, which the Court held to be capital outflow and not an allowable deduction under Section 57(iii).

Key evidence and findings: The appellant's accounts showed interest income from unsecured loans, but no business income from money lending. The amounts written off were principal sums advanced and not expenses incurred in earning the interest income. The loans were not part of a business activity and no separate books of accounts for money lending were maintained.

Application of law to facts: Since the appellant's income from interest was treated as income from other sources, only revenue expenses related to earning that income could be deducted. The principal amount written off is capital in nature and cannot be deducted under Section 57(iii).

Treatment of competing arguments: The appellant argued that the write-off was necessary for commercial expediency and should be allowed as expenditure. The Court rejected this, holding that capital expenditure or capital loss is not deductible under Section 57(iii) when income is under "other sources."

Conclusion: The claim for deduction of the written-off amount as an allowable expenditure under Section 37 read with Section 57(iii) was rightly rejected.

Additional Observations:

The Court also noted that the appellant's attempt to treat the write-off as a capital loss was considered and rejected by the Tribunal. The Court found no merit in the appellant's contention that the recovery of the amount should be charged to tax under Section 41(1), as the basic condition for claiming deduction was not fulfilled.

3. SIGNIFICANT HOLDINGS

"The said claim of the assessee is not maintainable as firstly the said amount is to be offered as income from business and deduction is to be allowed of an amount written off which has been taken into account in computing the income of the assessee of the previous year in which the said amount has been so written off or in any of the previous year/s. Admittedly, the assessee has only shown the interest income arising on the advances made by it as its income and the capital advanced by the assessee is a capital outflow and has not been recognized as receipt/ income in its hands in the earlier years or even in the year under consideration."

"The assessee is entitled to any expenditure incurred by it in relation to the interest income earned by it on the amounts advanced in view of the provisions of Section 57(iii) of the Act and no capital outflow is to be allowed as a deduction, while computing the income in the hands of the assessee under the head income from other sources."

"In the totality of the facts and circumstances of the case we find no merit in the claim of the assessee vis-`a-vis of the claim of deduction of Rs. 10,50,000/-. The grounds of appeal raised by the assessee are dismissed."

Core principles established include:

• Deduction of bad debts under Section 36(1)(vii) read with Section 36(2) is permissible only if the debt was previously taken into account in computing income or arises from money lending business carried on by the assessee.
• Interest income declared under "Income from other sources" permits deduction only of revenue expenditure under Section 57(iii), and capital outflows such as principal amounts written off are not deductible.
• Loans advanced from surplus capital, not forming part of a money lending business, do not qualify for bad debt deduction.
• The classification of income and expenditure heads is critical in determining allowable deductions under the IT Act.

Final determinations on each issue were against the appellant, with the Court upholding the disallowance of the Rs. 10,50,000 write-off both as bad debts and as allowable expenditure under the relevant provisions of the IT Act.

The Court considered the following core legal questions:

(a) Whether the Income Tax Appellate Tribunal was correct in holding that the order passed by the Commissioner of Income Tax under Section 263 of the Income Tax Act was time barred and not in accordance with the provisions of the Act;

(b) Whether the two-year limitation period prescribed under Section 263(2) of the Income Tax Act is to be reckoned from the date of the original assessment order or from the date of the reassessment order;

(c) Whether the Tribunal was correct in narrowing the scope of Section 263 and the powers of the Commissioner under that Section when the assessment was found to be erroneous and prejudicial to the interests of the Revenue.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Time-bar and Limitation Period under Section 263(2) of the Income Tax Act

Relevant legal framework and precedents: Section 263(1) empowers the Commissioner of Income Tax to revise an assessment order if it is erroneous and prejudicial to the interests of the Revenue. Section 263(2) prescribes a limitation period of two years from the end of the financial year in which the order sought to be revised was passed. The Bombay High Court in CIT vs. ICICI Bank [(2012) 343 ITR 74] held that if the issue under revision was covered by the original assessment order and not by the reassessment order, the limitation period must be reckoned from the date of the original assessment order and not from the reassessment order.

Court's interpretation and reasoning: The Court observed that the original assessment order dated 31.08.2006 dealt with the issue of deduction under Section 43B of the Act, which was the subject matter of the revision under Section 263. The reassessment order dated 30.12.2009 related solely to the computation of capital gains on the sale of land and building and did not address the Section 43B deduction. Therefore, the original assessment order and the reassessment order dealt with distinct issues.

The Court reasoned that the order under Section 263 was invoked with respect to an issue covered by the original assessment order and not by the reassessment. Hence, the limitation period for passing the revision order under Section 263 must be calculated from the date of the original assessment order, i.e., 31.08.2006.

Key evidence and findings: The original assessment order considered the Section 43B deduction. The reassessment order was limited to capital gains computation and did not revisit the Section 43B issue. The revision order under Section 263 was passed on 30.03.2012, which was beyond two years from the original assessment order date.

Application of law to facts: Since the revision order was passed more than two years after the original assessment order, it was time barred under Section 263(2). The doctrine of merger did not apply because the reassessment order did not subsume or replace the original order with respect to the Section 43B deduction issue.

Treatment of competing arguments: The Revenue argued that the limitation period should start from the date of reassessment order, contending that the reassessment order replaced the original order. The Assessee contended that since the Section 43B deduction was not part of the reassessment, the limitation period must be reckoned from the original assessment order. The Court accepted the Assessee's argument, relying on the precedent from the Bombay High Court, and rejected the Revenue's contention.

Conclusions: The Court held that the order under Section 263 was time barred as it was passed beyond the two-year period from the original assessment order date. The Tribunal was correct in setting aside the revision order on this ground.

Issue 3: Scope of Section 263 and Powers of the Commissioner

Relevant legal framework and precedents: Section 263 confers powers upon the Commissioner to revise an assessment order if it is erroneous and prejudicial to the interests of the Revenue. However, this power is subject to the limitation period prescribed under Section 263(2).

Court's interpretation and reasoning: The Court noted that while the Commissioner's power under Section 263 is wide, it is circumscribed by the statutory limitation period. The Tribunal's narrowing of the scope of Section 263 was not on the merits of the assessment but on the procedural ground of limitation. The Court did not find fault with the Tribunal's approach since the limitation period is a mandatory bar.

Key evidence and findings: The assessment was found to be erroneous and prejudicial to the Revenue's interests, but the revision order was passed after the expiry of the limitation period.

Application of law to facts: Despite the erroneous nature of the assessment, the Commissioner's order was invalid due to being time barred. The Court emphasized that procedural safeguards such as limitation periods cannot be ignored even when the assessment is flawed.

Treatment of competing arguments: The Revenue argued that the Commissioner's powers should not be curtailed by a narrow interpretation of limitation, especially when the assessment was prejudicial to Revenue. The Court rejected this, underscoring the mandatory nature of the limitation period.

Conclusions: The Tribunal was justified in restricting the Commissioner's power under Section 263 on the ground of limitation, notwithstanding the erroneous assessment.

3. SIGNIFICANT HOLDINGS

The Court held:

"The limitation of two years prescribed under Section 263(2) of the Act has to be reckoned from the date of the original assessment order under Section 143(3) of the Act, which is 31.08.2006."

"The order passed under 263(1) of the Act is with reference to an issue which is covered by the original assessment order and not with regard to the issue in the reassessment."

"Where the jurisdiction under Section 263(1) is sought to be exercised with reference to an issue which is covered by the original order of assessment under Section 143(3) and which does not form the subject matter of the reassessment, limitation must necessarily begin to run from the order under Section 143(3)."

"The Commissioner's power under Section 263 is subject to the limitation period prescribed under Section 263(2) and cannot be exercised beyond the statutory period."

The Court affirmed that the doctrine of merger does not apply to the original and reassessment orders when they deal with separate issues.

Final determination: The revision order passed under Section 263 was time barred and was rightly set aside by the Tribunal. The appeal by the Revenue was dismissed, and the substantial questions of law were answered in favour of the Assessee.

a. Whether the Income Tax Appellate Tribunal (ITAT) erred in law and on facts by rejecting the revenue's appeal without adjudicating the merits.

b. Whether the ITAT's order was perverse for failing to distinguish between the issues considered under section 263 and those forming the basis for reassessment under section 147, specifically regarding verification of identity and genuineness of share capital transactions versus alleged accommodation entries credited through layering.

c. Whether the ITAT wrongly relied on Supreme Court precedent relating to initiation of reassessment proceedings under section 147 pending proceedings under section 154, thereby misapplying the law.

2. Issue-wise Detailed Analysis:

Issue (a): Legality of ITAT's rejection of the revenue's appeal without adjudicating merits

The legal framework involves the powers of the ITAT to adjudicate appeals under the Income Tax Act, 1961, particularly under section 260A. The revenue contended that the ITAT improperly dismissed its appeal without examining the substantive merits.

The Court examined the procedural history: the assessee's original return declared a loss; the assessment officer added share capital on grounds of non-compliance with section 131; subsequent revisional proceedings under section 263 directed de novo assessment; reassessment was completed with acceptance of documents and statements; a second revisional order under section 263 was passed ex parte; reassessment notices under section 148 and 142(1) were issued based on information alleging accommodation entries; the assessee denied transactions with the alleged provider; and ultimately, the ITAT allowed the assessee's appeal.

The Court found that the ITAT had thoroughly considered the facts and the procedural history and had not simply rejected the appeal without adjudication. The Tribunal's order was based on detailed factual analysis and appreciation of evidence, including verification of share capital transactions and rejection of unsubstantiated allegations of accommodation entries.

The Court emphasized that the ITAT's decision was supported by the factual findings and was not a mere procedural dismissal. Thus, the ITAT's approach was justified both in law and fact.

Issue (b): Distinction between issues under section 263 and reassessment under section 147

The revenue argued that the ITAT failed to recognize that the order under section 263 directed verification limited to identity, creditworthiness, and genuineness of share capital transactions, whereas reassessment under section 147 was initiated on a different issue-an alleged accommodation entry of Rs. 2,48,50,000 credited through layering by a third party.

The Court examined the reasons recorded by the assessing officer for reopening the assessment. It noted that the assessee's name did not appear specifically in the reasons, only as a beneficiary in a general description of enquiries. No specific allegations or documentary evidence were disclosed regarding the layering or the nature of the alleged accommodation entry transaction.

The Court found that the assessing officer failed to specify whether the alleged accommodation entry was income, expense, share capital, loan, or otherwise. The assessee had produced bank statements and books of accounts denying any transaction with the alleged provider. The detailed enquiry under section 131 and acceptance of explanations in the second round of assessment further supported the genuineness of the share capital transactions.

The Court held that the ITAT correctly observed that the reassessment proceedings under section 147 were not justified on the basis of vague and unsubstantiated allegations. The distinction between the limited scope of the section 263 order and the broader reassessment notice was material, and the ITAT's failure to entertain the revenue's appeal on this ground was justified.

Issue (c): Reliance on Supreme Court precedent regarding reassessment initiation

The revenue challenged the ITAT's reliance on a Supreme Court decision that dealt with the initiation of reassessment proceedings under section 147 pending proceedings under section 154, arguing that it was inapplicable to the facts of the present case.

The Court noted that the ITAT's reliance on the precedent was in the context of procedural propriety and the requirement of valid reasons for reopening assessments. The Supreme Court's principle that reasons for formation of belief must have a rational nexus with the alleged escapement of income was relevant and applicable.

The Court found no misapplication of the precedent by the ITAT. The principle that reopening must be based on relevant and material information directly linked to the belief of escapement was foundational and was rightly invoked by the Tribunal to assess the validity of the reopening.

3. Significant Holdings:

The Court upheld the ITAT's decision allowing the assessee's appeal and dismissing the revenue's appeal. The crucial legal reasoning includes the following verbatim excerpt from the Court's judgment:

"The reasons for the formation of the belief must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income-tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts."

The Court confirmed the core principle that reopening of assessments under section 147 must be supported by specific, relevant, and material information forming a rational nexus with the belief of escapement of income.

The Court also established that multiple rounds of proceedings on the same issue must be based on fresh and cogent reasons; otherwise, the revisional powers under section 263 cannot be exercised repeatedly without justification.

On the facts, the Court concluded that the assessing officer failed to provide specific reasons or documentary evidence to justify reopening on the alleged accommodation entry. The assessee's production of detailed documents, bank statements, and statements under section 131 was accepted as demonstrating the genuineness of the transactions.

Accordingly, the Court found no substantial question of law arose and dismissed the appeal, thereby affirming the ITAT's order.

The core legal questions considered by the Court include:

• Whether the issuance of a draft assessment order under Section 144C(1) of the Income Tax Act, 1961 is a mandatory requirement or merely a procedural formality.
• Whether failure to issue the draft assessment order deprives the assessee of a substantive right to raise objections before the Dispute Resolution Panel (DRP).
• Whether non-compliance with the provisions of Section 144C(1) constitutes a jurisdictional error or a curable procedural irregularity.
• The correctness of remitting the matter back to the Assessing Officer to treat the assessment order as a draft assessment order and allow the assessee to raise objections.
• The validity of the learned Single Judge's order setting aside the impugned order but remitting the matter to the Assessing Officer.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Mandatory Nature of Draft Assessment Order under Section 144C(1)

Relevant Legal Framework and Precedents: Section 144C(1) of the Income Tax Act mandates issuance of a draft assessment order to the assessee, providing an opportunity to raise objections before the DRP. The Bombay High Court in Shell India Market Pvt. Ltd. and SHL (India) Pvt. Ltd. cases held that this requirement is mandatory and confers a substantive right on the assessee.

Court's Interpretation and Reasoning: The Court reaffirmed the principle that the issuance of the draft assessment order is not a mere procedural formality but a mandatory condition precedent. The failure to issue it results in denial of a valuable substantive right to the assessee to object to prejudicial variations.

Key Evidence and Findings: The appellant was an eligible assessee under the Act, and no challenge was made to this finding. The impugned order did not comply with Section 144C(1), as no draft assessment order was issued.

Application of Law to Facts: Given the non-issuance of the draft assessment order, the appellant was deprived of the opportunity to raise objections before the DRP, thereby violating the mandatory statutory procedure.

Treatment of Competing Arguments: The revenue's contention that the Single Judge erred in holding the appellant as an eligible assessee was rejected, as it was not challenged. The Court did not accept the view that the failure was a mere procedural lapse.

Conclusions: The Court held that the issuance of the draft assessment order under Section 144C(1) is mandatory and non-compliance results in jurisdictional error.

Issue 2: Jurisdictional Error vs. Procedural Irregularity

Relevant Legal Framework and Precedents: The Bombay High Court's precedent established that failure to comply with Section 144C(1) is a jurisdictional error, not a curable procedural irregularity.

Court's Interpretation and Reasoning: The Court agreed with the precedent that non-issuance of the draft assessment order is an incurable irregularity and a jurisdictional defect, thus invalidating the assessment order passed without following the mandatory procedure.

Key Evidence and Findings: The impugned assessment order was passed without issuing the draft order, violating the statutory mandate.

Application of Law to Facts: Since the procedure was not followed, the assessment order lacked jurisdiction and was liable to be quashed.

Treatment of Competing Arguments: The Single Judge's view that the irregularity was due to a change in law and hence the assessments could not abate was rejected by the Court.

Conclusions: The Court concluded that the irregularity was jurisdictional and not curable by remand or treating the order as a draft.

Issue 3: Validity of Remitting the Matter to the Assessing Officer

Relevant Legal Framework and Precedents: The statutory scheme under Section 144C(1) requires the draft assessment order to be issued before finalizing the assessment. Remanding after an invalid assessment order to treat it as draft is inconsistent with the mandatory nature of the procedure.

Court's Interpretation and Reasoning: The Court did not agree with the Single Judge's order remitting the matter to the Assessing Officer to treat the assessment order as a draft. Such a direction would circumvent the mandatory requirement and the jurisdictional error.

Key Evidence and Findings: The impugned order was remitted to provide the appellant an opportunity to raise objections, but the Court found this remedy impermissible.

Application of Law to Facts: The Court held that the correct course was to quash and set aside the impugned order outright, without remand.

Treatment of Competing Arguments: The appellant argued that the Single Judge erred in giving the revenue a "second inning." The Court agreed and set aside the remand direction.

Conclusions: The Court quashed the impugned order to the extent it remanded the matter, holding that no further proceedings should be allowed without compliance with Section 144C(1).

3. SIGNIFICANT HOLDINGS

The Court articulated the following crucial legal principles and determinations:

"The requirement under Section 144C(1) of the Act, to first pass the draft assessment order and to provide a copy thereof to the assessee is a mandatory requirement that gave substantive right to the assessee to object to any variation, that is prejudicial to the assessee. Depriving assessee of this valuable right to raise objection before DRP would be denial of substantive right to the assessee."

"Failure to follow the procedure under Section 144C(1) of the Act would be a jurisdictional error and not merely procedural error or a mere irregularity and it is an incurable irregularity."

The Court's final determinations on the issues were:

• The issuance of the draft assessment order under Section 144C(1) is mandatory and non-compliance results in jurisdictional error.
• Non-issuance deprives the assessee of a substantive right to raise objections before the DRP.
• The impugned assessment order passed without issuance of the draft order is invalid and liable to be quashed and set aside.
• The remedy of remitting the matter to the Assessing Officer to treat the order as draft is impermissible and was set aside.
• The appeal was disposed of by quashing the impugned order, with no order as to costs.

(a) Whether the Assessing Officer (AO) was required to issue a draft assessment order under Section 144C(1) of the Act before passing the final assessment order dated 01.11.2018, which was pursuant to the remand by the ITAT.

(b) Whether the failure to issue such a draft assessment order renders the final assessment order invalid or without jurisdiction.

(c) The scope and effect of the ITAT remand on the procedural requirements under Section 144C of the Act, specifically whether the remand dispenses with the necessity of issuing a draft assessment order.

(d) The rights of the assessee to have their objections heard by the Dispute Resolution Panel (DRP) when variations prejudicial to their interest are proposed, especially after remand proceedings.

Issue-wise Detailed Analysis

1. Requirement of Issuing Draft Assessment Order under Section 144C(1) after ITAT Remand

The legal framework mandates that when the AO proposes any variation prejudicial to the assessee's interest, a draft assessment order must be forwarded to the assessee under Section 144C(1) of the Income Tax Act. This procedure allows the assessee to file objections before the DRP and AO, thereby ensuring adherence to principles of natural justice.

The Court examined the remand order by the ITAT, which directed the AO/TPO to reconsider the transfer pricing adjustments afresh, including the application of the appropriate method for determining the Arm's Length Price and to examine whether the associated enterprises derived any benefit or markup. The ITAT also expressly granted liberty to the assessee to raise any other grounds in support of their claim, effectively requiring a de novo consideration of the issues.

The Court reasoned that since the ITAT remand required fresh consideration of the issues, the earlier draft assessment order ceased to exist. Therefore, any fresh variation prejudicial to the assessee's interest must be preceded by issuance of a draft assessment order under Section 144C(1). The Court held that the procedural requirement to issue a draft order is mandatory and cannot be bypassed merely because the proceedings are pursuant to a remand.

Reliance was placed on precedents including the Bombay High Court's decision in a similar transfer pricing context, where failure to issue a draft assessment order post-remand was held to render the final assessment order invalid. The Court cited the judgment which stated:

"...the failure to pass a draft assessment order under Section 144C(1) of the Act would result in rendering the final assessment as one without jurisdiction."

Additionally, the Court referred to the Delhi High Court's ruling in JCB India Ltd., which held that the requirement to issue a draft assessment order applies equally after remand by the ITAT, and that the AO cannot straightway pass a final order without following this mandatory procedure.

2. Validity of the Final Assessment Order Passed Without Draft Assessment Order

The Court analyzed the submissions by the Revenue that the failure to issue a draft assessment order was not fatal and that the assessee had alternative remedies by way of appeal. The Court rejected this contention, emphasizing that the failure to issue a draft order is not a mere procedural irregularity but an incurable illegality that vitiates the entire assessment order.

The Court further clarified that Section 292B of the Act, which protects certain proceedings from being invalidated due to procedural errors, does not apply where there is a lack of jurisdiction or a fundamental breach of statutory procedure such as failure to issue a draft assessment order.

In support, the Court referred to authoritative decisions which held that passing an assessment order without issuing a draft order under Section 144C(1) is illegal and without jurisdiction, thereby mandating quashing of such orders.

3. Effect of ITAT Remand on the Procedure under Section 144C

The Court considered the Revenue's argument that since the ITAT did not set aside the entire assessment but only remanded a specific issue, the AO was not required to issue a fresh draft assessment order under Section 144C. The Court rejected this view, emphasizing the unambiguous language of Section 144C(1) which mandates issuance of the draft order after receipt of the TPO's report, regardless of whether the proceedings are initial or pursuant to remand.

The Court observed that the ITAT's remand called for a fresh examination of the transfer pricing adjustment and expressly allowed the assessee to raise all grounds afresh, which effectively nullified the earlier draft assessment order. Consequently, the AO was bound to comply with the statutory procedure afresh, including issuance of a draft assessment order and opportunity to the assessee to file objections before the DRP.

4. Assessee's Right to be Heard and Principles of Natural Justice

The Court underscored that the procedure under Section 144C is designed to safeguard the assessee's right to be heard and to ensure fair adjudication. The draft assessment order serves as a crucial step enabling the assessee to respond to proposed variations and seek redressal through the DRP mechanism.

The Court held that non-compliance with this procedure effectively deprives the assessee of this right, thereby violating principles of natural justice and rendering the assessment order liable to be quashed.

Conclusions

The Court concluded that the AO's failure to issue a draft assessment order under Section 144C(1) before passing the final assessment order dated 01.11.2018, which was pursuant to the ITAT remand, was a fundamental procedural lapse. Such failure rendered the assessment order invalid and without jurisdiction.

The Court allowed the writ appeal, quashed the impugned order dismissing the writ petition, and consequently set aside the assessment order dated 01.11.2018.

Significant Holdings

The Court's crucial legal reasoning includes the following verbatim excerpts:

"...the remand by ITAT to AO/TPO to consider the issues afresh, would not dispense with the mandatory procedure under Section 144C of the Act, since the variation on the reconsideration by AO is prejudicial to the interest of the assessee. Therefore, the statement of counsel for Revenue that draft assessment order need not be passed cannot be countenanced."

"...the failure to pass a draft assessment order under Section 144C(1) of the Act would result in rendering the final assessment as one without jurisdiction."

"Careful perusal of the above provision, as rightly pointed out by the Petitioner, the draft order is mandatory under Section 144C of the Income Tax Act. An Assessing Officer, at the first instance, forward a draft proposed order of assessment, enabling the assessee to accept the variations to the Assessing Officer or file his objections, if any, with the Disputes Resolution Panel and the Assessing Officer. Thus, the procedure of passing of draft assessment order provides a right to an assessee to file his objections before the Disputes Resolution Panel and the Assessing Officer for vindicating his grievances and redress the same."

The core principles established are:

• The procedure under Section 144C(1) is mandatory and must be scrupulously followed whenever the AO proposes a variation prejudicial to the assessee's interest, including after remand by the ITAT.
• Failure to issue a draft assessment order before finalizing the assessment order is not a mere irregularity but an incurable illegality, rendering the assessment order without jurisdiction.
• The ITAT remand for fresh consideration nullifies the earlier draft assessment order and requires fresh compliance with Section 144C procedures.
• The assessee's right to be heard through the DRP mechanism is a fundamental aspect of the assessment process under transfer pricing provisions.

Accordingly, the final determination was that the assessment order dated 01.11.2018 was quashed for non-compliance with the mandatory procedure under Section 144C(1) of the Income Tax Act.

Issues: Whether the reassessment notice issued under Section 148 of the Income-tax Act, 1961, pursuant to the notice issued under TOLA, was barred by limitation and liable to be quashed.

Analysis: The notice issued under TOLA on 30.06.2021 was governed by the time framework explained in the binding decision on reassessment notices issued under the old regime and their treatment as deemed notices under the new regime. After the assessee was given the statutory opportunity to respond, the Revenue was required to complete the remaining steps and issue the notice under Section 148 within the surviving limitation period. On the facts, the impugned notice under Section 148 was issued on 27.07.2022, beyond the permissible time available after excluding the relevant period and allowing the response window. Such a notice was therefore without jurisdiction and invalid.

Conclusion: The reassessment notice was time-barred and unsustainable; it was rightly quashed, in favour of the assessee.

1. Whether the respondent-Department was empowered to adjust the entire refund determined for the assessment year (AY) 2024-25 against the tax demand raised for AY 2016-17, especially when appeals and a rectification petition challenging the demand were pending.

2. Whether the petitioner, having discharged 20% of the disputed tax demand as directed by the first respondent, is entitled to a stay of recovery proceedings pending disposal of the appeals filed before the Commissioner of Income Tax (Appeals) [CIT (A)].

3. Whether the first respondent is obligated to dispose of the Rectification Petition filed by the petitioner seeking set off of unabsorbed depreciation in a time-bound manner.

4. The legality and fairness of the respondent-Department's rejection of the petitioner's refund application for AY 2024-25 and the consequent adjustment of the refund against the disputed demand for AY 2016-17.

Issue-wise Detailed Analysis:

1. Adjustment of Refund for AY 2024-25 Against Demand for AY 2016-17

Relevant Legal Framework and Precedents: The Income Tax Act, 1961, governs the assessment, refund, and recovery processes. Section 220(2) deals with interest on delayed payments, while Section 263 empowers the Principal Commissioner of Income Tax to revise orders. The principles governing stay of recovery and refund adjustments are well settled in tax jurisprudence, emphasizing that recovery should not be initiated during pendency of valid appeals and stay orders.

Court's Interpretation and Reasoning: The Court observed that the petitioner had filed appeals challenging the orders dated 26.03.2022 and 23.09.2022, which raised a tax demand for AY 2016-17. Additionally, the petitioner had filed a Rectification Petition seeking set off of unabsorbed depreciation, which if allowed, would eliminate the demand altogether. Despite these pending proceedings, the respondent-Department adjusted the entire refund for AY 2024-25 amounting to Rs. 3,74,70,364/- against the disputed demand for AY 2016-17 without disposing of the refund application or considering the stay application.

Key Evidence and Findings: The petitioner had complied with the condition of depositing 20% of the disputed demand as a precondition for stay, including partial discharge by way of adjustment of refunds for AYs 2021-22 to 2023-24. The respondent-Department's rejection of the refund application and unilateral adjustment of the AY 2024-25 refund was found to be arbitrary and prejudicial to the petitioner's rights.

Application of Law to Facts: The Court held that the adjustment of the refund during pendency of appeals and rectification petition, especially when the petitioner had complied with the stay condition, was impermissible. The adjustment violated the principle that recovery should be deferred pending adjudication of appeals and rectification petitions.

Treatment of Competing Arguments: The respondent-Department contended that the refund application was rejected and that the amount adjusted was in accordance with the demand raised. However, the Court found that no proper disposal of the refund application or stay petition had been made, and the adjustment was premature and unjustified.

Conclusion: The respondent-Department was not empowered to adjust the entire AY 2024-25 refund against the AY 2016-17 demand pending disposal of appeals and rectification petition.

2. Entitlement to Stay of Recovery Proceedings Upon Discharge of 20% Tax Demand

Relevant Legal Framework and Precedents: Under the Income Tax Act, recovery proceedings can be stayed if the assessee deposits a specified percentage (commonly 20%) of the disputed tax demand. This is a procedural safeguard to balance revenue interests and protect taxpayers from undue hardship.

Court's Interpretation and Reasoning: The petitioner had deposited Rs. 20,00,000/- and adjusted further sums via refunds for AYs 2021-22 to 2023-24, cumulatively exceeding 20% of the disputed demand of Rs. 3,11,99,550/-. The Court noted that the first respondent had directed such deposit as a condition for granting stay, which the petitioner complied with.

Key Evidence and Findings: The petitioner's letter dated 14.03.2024 informed the first respondent of the discharge of over 20% of the demand. Despite this, the first respondent did not grant stay and proceeded with recovery actions, including adjustment of refunds.

Application of Law to Facts: The Court held that since the petitioner complied with the condition precedent for stay, the petitioner was legally entitled to the stay of recovery proceedings. The continuation of recovery despite compliance was arbitrary and contrary to settled principles.

Treatment of Competing Arguments: The respondents argued that the 20% amount was higher than what petitioner claimed, but did not dispute the fact of compliance. The Court found the petitioner's compliance sufficient for stay.

Conclusion: The petitioner was entitled to stay of recovery proceedings pending disposal of appeals, having discharged more than 20% of the disputed demand.

3. Disposal of Rectification Petition Seeking Set Off of Unabsorbed Depreciation

Relevant Legal Framework and Precedents: Rectification petitions under the Income Tax Act allow correction of mistakes apparent from the record, including failure to grant set off of unabsorbed depreciation. Timely disposal of such petitions is essential to avoid undue prejudice.

Court's Interpretation and Reasoning: The petitioner filed a Rectification Petition dated 20.06.2024 seeking set off of unabsorbed depreciation of Rs. 3,44,30,837/-, which would nullify the tax demand. The first respondent had not disposed of this petition despite its pendency being communicated.

Key Evidence and Findings: The petitioner's repeated requests and pending status of the petition were noted. The Court emphasized the need for time-bound disposal to prevent irreparable hardship.

Application of Law to Facts: The Court directed the first respondent to dispose of the Rectification Petition within four weeks, underscoring the petitioner's right to have the matter adjudicated expeditiously.

Treatment of Competing Arguments: The respondents assured disposal on merits but had not fixed any timeline. The Court found this inadequate and imposed a time limit.

Conclusion: The first respondent was directed to dispose of the Rectification Petition in a time-bound manner.

4. Rejection of Refund Application for AY 2024-25 and Its Impact on Business Operations

Relevant Legal Framework and Precedents: Refund claims arise when excess tax is paid or when adjustments reduce tax liability. The Income Tax Act mandates timely disposal of refund claims and prohibits arbitrary withholding of refunds, especially when it causes hardship.

Court's Interpretation and Reasoning: The petitioner's refund application for AY 2024-25 was rejected without proper disposal of the representation seeking relief. The refund amount was adjusted against the disputed demand for AY 2016-17, causing financial strain on the petitioner's business.

Key Evidence and Findings: The petitioner demonstrated that withholding the refund of Rs. 3.74 crores adversely affected its ability to pay employee salaries and continue operations, potentially causing irreparable harm.

Application of Law to Facts: The Court found the respondent-Department's conduct arbitrary and unfair. It ordered the refund of Rs. 3 crores along with interest within four weeks to alleviate hardship.

Treatment of Competing Arguments: The respondent-Department promised to consider the refund application but had not done so timely. The Court held that such delay and adjustment without due process was unjustified.

Conclusion: The respondent-Department was directed to refund Rs. 3 crores with interest promptly to prevent irreparable hardship to the petitioner.

Significant Holdings:

"When the petitioner has already discharged 20% of the tax demand, the petitioner is entitled for stay and if stay is in force, no recovery can be initiated against the petitioner in respect of demand for the assessment year 2016-17."

"This Court finds clear arbitrariness on the part of the respondents in initiating recovery proceedings and recovering the demand by not considering the application for stay filed by the petitioner, despite compliance of the direction issued by the first respondent in depositing 20% of the tax demand for grant of stay."

"It is not fair on the part of the respondent-Department in retaining a sum of Rs. 3,74,70,364/- and since substantial sum of amount is retained by the respondent-Department, the petitioner is finding difficult to run their business... unless and until refund for the AY 2024-25 is granted, the petitioner will not be in a position to disburse the salary to the employees."

Core principles established include the entitlement of a taxpayer to stay of recovery upon compliance with deposit conditions, the requirement for timely disposal of rectification petitions, and the prohibition of arbitrary adjustment of refunds against disputed demands pending adjudication.

Final determinations on each issue are:

• The respondent-Department was not authorized to adjust the entire refund for AY 2024-25 against the disputed demand for AY 2016-17 pending appeals and rectification petition.
• The petitioner, having discharged more than 20% of the disputed demand, is entitled to stay of recovery proceedings.
• The first respondent must dispose of the Rectification Petition within four weeks.
• The respondent-Department must refund Rs. 3 crores with interest within four weeks to prevent irreparable hardship to the petitioner.
• Recovery proceedings under the disputed orders are to be deferred pending disposal of the appeals before the CIT (A).

Specifically, the issues considered include:

• Whether the impugned notice dated 31.03.2021, which was physically issued after 31.03.2021, can be considered validly issued within time under the new regime applicable from 01.04.2021.
• Whether the procedural requirements under Section 148A(b) and Section 148A(d) of the Act, as clarified by the Hon'ble Apex Court in the cases of Union of India v. Ashish Agarwal and Union of India v. Rajeev Bansal, were complied with by the Assessing Officer in issuing the notice and passing the assessment order.
• Whether the failure to follow the directions of the Hon'ble Apex Court regarding issuance of show cause notices and providing relevant information to the assessee renders the impugned notice and consequent assessment order time-barred and invalid.
• The applicability of the legal fiction created by the Hon'ble Apex Court under Article 142 of the Constitution of India, which deemed certain notices issued between 01.04.2021 and 30.06.2021 as stayed until relevant information was supplied to the assessee.
• The effect of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 ("TOLA") on the limitation period and procedural requirements for reassessment notices issued during the COVID-19 pandemic period.

These issues are interlinked and collectively determine the validity of the reassessment proceedings initiated against the petitioner.

Issue-wise Detailed Analysis:

Issue 1: Validity and Timeliness of the Notice Dated 31.03.2021

Legal Framework and Precedents: The reassessment proceedings under Section 148 of the Income Tax Act require that the notice be issued within the prescribed time limits under Section 149. The TOLA amended certain time limits in view of the COVID-19 pandemic, extending deadlines to 30.06.2021. The Hon'ble Apex Court in Ashish Agarwal and Rajeev Bansal clarified that notices deemed to be issued between 01.04.2021 and 30.06.2021 were effectively stayed until relevant information was supplied to the assessee. The Court emphasized the necessity of complying with the new procedural requirements under Section 148A(b) and Section 148A(d) of the Act.

Court's Interpretation and Reasoning: The Court found undisputed facts that the impugned notice dated 31.03.2021 was not actually issued on that date but was physically dispatched on 04.04.2021 and received on 06.04.2021. The notice was also uploaded on the e-filing portal only on 03.04.2021. Therefore, the notice could not be considered as issued on 31.03.2021 for the purposes of limitation. Since the notice was issued after 01.04.2021, the new regime under TOLA and the directions of the Hon'ble Apex Court apply.

Application of Law to Facts: The Court applied the principle that the issuance date of a notice is the actual date on which it is communicated to the assessee, either physically or electronically, not merely the date printed on the notice. Since the notice was issued after 31.03.2021, the new procedural safeguards and timelines apply.

Conclusions: The notice dated 31.03.2021, being issued after 01.04.2021, must comply with the new regime and cannot be treated as validly issued within time merely by bearing the earlier date.

Issue 2: Compliance with Section 148A(b) and Section 148A(d) and Directions in Ashish Agarwal and Rajeev Bansal

Legal Framework and Precedents: The Hon'ble Apex Court in Ashish Agarwal (444 ITR 1) mandated that before issuing a reassessment notice under Section 148, the Assessing Officer must issue a show cause notice under Section 148A(b) along with all relevant information and material relied upon. Only after the assessee's reply and consideration thereof, can the order under Section 148A(d) be passed. Rajeev Bansal extended and explained these directions, emphasizing the legal fiction that deemed notices issued between 01.04.2021 and 30.06.2021 were stayed until relevant information was supplied, and that the limitation period was accordingly extended.

Court's Interpretation and Reasoning: The Court noted that the respondent Assessing Officer failed to issue any notice under Section 148A(b) within 30 days from the date of the Ashish Agarwal judgment (04.05.2022), nor supplied the relevant information and material to the petitioner. The Assessing Officer also passed the assessment order dated 30.03.2022 without following the mandated procedure. The Court held that such failure renders the impugned notice and assessment order invalid and time-barred.

Key Evidence and Findings: The petitioner's submissions and the respondent's affidavit revealed that the procedural requirements under Section 148A were not complied with. The Assessing Officer did not provide the reasons for reopening with annexures initially and only supplied them after the writ petition was filed. The assessment order was passed despite an interim stay granted by the Court.

Treatment of Competing Arguments: The respondent conceded non-compliance with the directions of the Hon'ble Apex Court but argued that the notice was uploaded on the e-filing portal and sent by speed post. However, the Court emphasized that mere dispatch or upload without compliance with Section 148A is insufficient.

Conclusions: Non-compliance with Section 148A(b) and Section 148A(d) and the Apex Court directions invalidates the notice and assessment order.

Issue 3: Effect of Legal Fiction and Time-Barred Nature of the Notice

Legal Framework and Precedents: The Hon'ble Apex Court created a legal fiction deeming notices issued between 01.04.2021 and 30.06.2021 as stayed until supply of relevant information and allowed two weeks for response. The limitation period for issuance of reassessment notices runs only after these conditions are fulfilled. Notices issued beyond the surviving time limit post these exclusions are time-barred.

Court's Interpretation and Reasoning: Applying this principle, the Court found that since the respondent did not issue the show cause notice under Section 148A(b) and did not supply relevant information within the stipulated time, the limitation period never commenced running. Therefore, the impugned notice issued after 31.03.2021 is time-barred.

Application of Law to Facts: The petitioner's notice was effectively issued after 31.03.2021 but without compliance with the new regime and without supply of relevant information, thus the limitation period for issuance of the reassessment notice did not start. The assessment order passed thereafter is invalid.

Conclusions: The impugned notice and assessment order are time-barred and liable to be quashed.

Issue 4: Applicability of TOLA and Extension of Time Limits

Legal Framework and Precedents: TOLA extended various time limits for completion of proceedings falling between 20.03.2020 and 31.03.2021 due to the COVID-19 pandemic. The Apex Court clarified that TOLA overrides Section 149 of the Income Tax Act only to the extent of relaxing time limits for issuance of reassessment notices.

Court's Interpretation and Reasoning: The Court found that TOLA's extended time limits apply to the present case as the relevant period falls within its ambit. The Assessing Officer was required to comply with these extended timelines and procedural safeguards, which was not done.

Conclusions: The impugned notice, issued beyond the extended period and without compliance with TOLA and Apex Court directions, is invalid.

Significant Holdings:

"The notice dated 31.03.2021 was not issued on the same date, but the notice was issued to the petitioner by speed post on 04.04.2021. The notice was uploaded on the e-filing portal on 03.04.2021. Therefore, admittedly the notice cannot be said to have been issued on 31.03.2021."

"The assessing officers were required to issue the reassessment notice under Section 148 of the new regime within the time limit surviving under the Income Tax Act read with TOLA. All notices issued beyond the surviving period are time barred and liable to be set aside."

"The respondent authorities have not followed the directions issued in the aforesaid two decisions and as such the impugned notice has to be treated as time barred notice."

"A notice issued without complying with the preconditions is invalid as it affects the jurisdiction of the assessing officer."

"The directions in Ashish Agarwal (supra) will extend to all the ninety thousand reassessment notices issued under the old regime during the period 1 April 2021 and 30 June 2021."

"The time during which the show cause notices were deemed to be stayed is from the date of issuance of the deemed notice between 1 April 2021 and 30 June 2021 till the supply of relevant information and material by the assessing officers to the assesses in terms of the directions issued by this Court in Ashish Agarwal (supra), and the period of two weeks allowed to the assesses to respond to the show cause notices."

Ultimately, the Court quashed and set aside the impugned notice dated 31.03.2021 and the assessment order dated 30.03.2022, holding that the reassessment proceedings were initiated without jurisdiction and were time-barred due to non-compliance with the procedural safeguards mandated by the amended provisions of the Income Tax Act and the directions of the Hon'ble Apex Court.

- Whether the impugned order dated 17.03.2025 passed under Section 250 of the Income Tax Act, 1961, and the assessment order dated 13.02.2024 can be quashed on grounds of violation of principles of natural justice due to improper communication of notices and hearing opportunitiesRs.

- Whether the failure of the Income Tax Department to update and communicate notices to the petitioner's correct and updated email address, despite the petitioner having furnished the correct email in Form No.35, vitiates the assessment and appellate proceedingsRs.

- Whether the petitioner was denied a reasonable opportunity of hearing and thus prejudiced in the assessment and appeal processRs.

- Whether the appeal filed by the petitioner deserves reconsideration by the appellate authority after rectifying procedural defectsRs.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Violation of principles of natural justice due to improper communication of notices and hearing opportunities

The relevant legal framework includes the principles of natural justice, which mandate that no person shall be condemned unheard and that adequate notice and opportunity to be heard must be provided before adverse orders are passed. Under the Income Tax Act, 1961, notice requirements and communication are crucial procedural safeguards to ensure fairness in assessment and appellate proceedings.

The Court observed that the petitioner's original email address was registered with the department via his former Auditor. However, the petitioner replaced his Auditor and furnished a new email address ("[email protected]") in Form No.35 filed on 29.03.2024 during the appeal process. Despite this, the department continued to send notices and communications to the earlier email address, which resulted in the petitioner remaining unaware of the proceedings and unable to respond or participate effectively.

The Court emphasized that once the petitioner updated his email address and the department was made aware of this change, it was incumbent upon the department to send notices to the updated email address to provide a fair opportunity of hearing. The failure to do so constituted a breach of the principles of natural justice.

Respondents argued that the notices were sent as per the initial records and that it was the petitioner's responsibility to update the department promptly. However, the Court found this argument insufficient to justify the procedural lapse, especially since the petitioner had taken steps to update the email and had specifically provided the correct email in the appeal form.

Consequently, the Court held that the impugned orders passed without proper communication and hearing are vitiated and cannot be sustained.

Issue 2: Effect of failure to update and communicate to the correct email address on the validity of assessment and appellate proceedings

The Income Tax Act mandates that assessments and appeals must be conducted in accordance with prescribed procedures, including proper service of notices. The Court noted that the petitioner's case was selected for scrutiny under CASS (Computer Assisted Scrutiny Selection), and notices were issued electronically to the earlier Auditor's email address.

Due to the department's failure to update the petitioner's email address despite clear communication in Form No.35, the petitioner was denied knowledge of the notices and opportunity to submit information or objections. The assessment order under Sections 143(3) and 144(B) was passed ex-parte, disallowing claims solely on the ground of non-furnishing of details, which arose from the petitioner's unawareness of the proceedings.

The Court found that this procedural irregularity caused prejudice to the petitioner's rights and rendered the assessment and appellate orders unsustainable.

Issue 3: Denial of reasonable opportunity of hearing and prejudice to petitioner

The Court underscored that the petitioner became aware of the assessment proceedings only through a telephonic conversation with the department much later. The failure to send hearing notices to the correct email address meant that the petitioner was deprived of the opportunity to contest the assessment or present his case effectively.

The Court held that such denial of a reasonable opportunity of hearing is a fundamental violation of natural justice and warrants quashing of the impugned orders.

Issue 4: Necessity of reconsideration of appeal after rectification of procedural defects

Given the procedural lapses and violation of natural justice, the Court directed that the appellate authority must reconsider the appeal afresh in accordance with law. The appellate authority was also directed to rectify the email address for communication as furnished by the petitioner and provide a reasonable opportunity of fair hearing before passing any further orders.

This direction ensures that the petitioner's appeal is adjudicated on merits without procedural handicaps.

3. SIGNIFICANT HOLDINGS

- "Once the email address is changed and it is within the knowledge of the department, the department ought to have issued notice or communication to the petitioner to the present email address to facilitate him to contest the case and provide fair opportunity of hearing and decide the matter in accordance with law."

- The impugned order passed without proper notice and opportunity of hearing is "in clear violation and breach of the Act and the procedure laid down, which has caused prejudice to the rights of the petitioner."

- The Court quashed the impugned order dated 17.03.2025 passed under Section 250 of the Income Tax Act, 1961, and directed the appellate authority to reconsider the appeal afresh after rectifying the communication address.

- The core principle established is that procedural fairness and adherence to principles of natural justice are mandatory in income tax proceedings, and failure to update communication details resulting in denial of hearing vitiates the proceedings.

- The Court's final determination was to allow the petition, quash the impugned order, and mandate fresh consideration of the appeal with proper notice and opportunity of hearing.

The core legal questions considered by the Court are:

• Whether the assessment framed under Section 143(3) of the Income Tax Act, 1961 is liable to be quashed on the ground that the mandatory notice under Section 143(2) was not served upon the assessee within the prescribed time limit of twelve months from the end of the month in which the return was furnished;
• Whether the question regarding the validity and timing of the notice under Section 143(2) can be raised at the appellate stage, despite not having been raised before the Assessing Officer, Commissioner of Income Tax (Appeals), or the Income Tax Appellate Tribunal;
• Whether the absence of relevant assessment records with the department affects the determination of the timing and service of the notice under Section 143(2) and the consequent validity of the assessment proceedings.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of assessment framed under Section 143(3) in absence of timely notice under Section 143(2)

Relevant legal framework and precedents: Section 143(2) of the Income Tax Act, 1961 mandates that a notice for scrutiny assessment must be served within twelve months from the end of the month in which the return is furnished. The proviso to Section 143(2) explicitly prohibits issuance of notice beyond this period. The Supreme Court's ruling in Assistant Commissioner of Income Tax Vs. Hotel Blue Moon (2010) 321 ITR 362 (SC) holds that failure to issue notice within the prescribed period renders the assessment proceedings void and unsustainable.

Court's interpretation and reasoning: The Court examined the timeline: the return was filed on 21.10.1997, hence the last permissible date for notice under Section 143(2) was 31.10.1998. The department conceded that relevant records were not traceable, but the assessment order dated 27.08.1999 indicated notices under Section 143(1) and 143(2) were issued only after 31.10.1998. The Commissioner's order confirmed that the questionnaire was issued on 09.04.1999 and served on 22.04.1999, well beyond the statutory period.

Key evidence and findings: The assessment order and appellate order records were relied upon to establish the date of issuance and service of the notice under Section 143(2). The absence of departmental records was supplemented by admissions in the affidavit and the language of the assessment order itself.

Application of law to facts: Given the statutory limitation and the admitted delay in issuance of the notice, the Court found the assessment proceedings to be invalid. The Court emphasized that the statutory time-limit is mandatory and not directory, and failure to comply vitiates the entire assessment.

Treatment of competing arguments: The department argued that the question of timing was not raised earlier and that the assessment and appellate orders were correct. The Court rejected this, holding that the issue goes to the root of jurisdiction and can be raised at any stage. The department's inability to produce records did not absolve it from compliance with the statutory mandate.

Conclusion: The assessment framed under Section 143(3) was quashed for failure to serve the mandatory notice under Section 143(2) within the prescribed time limit.

Issue 2: Permissibility of raising the question of notice validity at appellate stage

Relevant legal framework and precedents: Section 260-A(4) of the Income Tax Act empowers the High Court to frame substantial questions of law even if not specifically framed at the time of admission of the appeal. The Supreme Court in Commissioner of Income Tax Vs. Mastek Limited (2013) 358 ITR 252 (SC) clarified that the Court can frame questions of law at the hearing stage if the appeal involves such questions.

Court's interpretation and reasoning: The Court noted that the question regarding the validity of the notice under Section 143(2) was not raised before the lower authorities but was raised before this Court as an additional substantial question of law. The Court held that this question is fundamental and goes to the root of the matter, hence it is permissible to raise it at this stage.

Key evidence and findings: The Court relied on the procedural history and the absence of framing of substantial questions of law at admission, and the settled legal position permitting framing of such questions at hearing.

Application of law to facts: The Court applied the principle that jurisdictional and fundamental questions can be raised at any stage, especially when they affect the validity of the proceedings.

Treatment of competing arguments: The department's objection to the late raising of this question was rejected as lacking merit.

Conclusion: The question regarding the validity and timing of the notice under Section 143(2) was rightly entertained by the Court at the appellate stage.

Issue 3: Effect of absence of relevant assessment records on determination of notice service and assessment validity

Relevant legal framework and precedents: The Supreme Court in CIT Vs. Durga Parsad More (82 ITR 540) held that in absence of direct records, the Court may consider surrounding and peripheral circumstances to ascertain facts.

Court's interpretation and reasoning: The Court considered the affidavit filed by the department admitting non-availability of records and accepted that the surrounding circumstances, including the assessment order and appellate order, could be examined to determine the timing of notice service.

Key evidence and findings: The assessment and appellate orders themselves mentioned dates and events indicating late issuance of notice.

Application of law to facts: The Court applied the principle that absence of records does not prevent judicial scrutiny and that other documentary evidence can be used to determine compliance with statutory requirements.

Treatment of competing arguments: The department's inability to produce records was not accepted as a defense to the statutory non-compliance.

Conclusion: The Court relied on the available records and peripheral circumstances to conclude that the notice under Section 143(2) was issued beyond the statutory period, rendering the assessment invalid.

3. SIGNIFICANT HOLDINGS

The Court held:

"It is a matter of record and admitted that return was filed by appellant on 21.10.1997. Therefore, the last date before notice under Section 143(2) of the IT Act could be issued was 31.10.1998."

"Concededly, relevant record is not available with the department. Assessment order dated 27.08.1999 has been perused. It is specifically stated therein that; 'Assessee filed return of income on 21.10.1997 declaring income of Rs. 3,02,500/ -. Case of the assessee firm was selected under random scrutiny. Detailed questionnaire along with notices under Section 143(1) & 143(2) were issued.'"

"It is apparent that notice under Section 143(2) of IT Act was not issued/served before the stipulated date. Apart from the specific mandate in the Act itself, this issue stands authoritatively decided by Hon'ble the Supreme Court in Assistant Commissioner of Income Tax and another Vs. Hotel Blue Moon."

"Argument raised by learned counsel for the respondent that question of law as raised should not be permitted, at this stage, is devoid of merit, hence rejected."

"Keeping in view the facts and circumstances as above, said question of law as detailed in para-4 of this order is answered in favour of the assessee and against the department."

The Court established the core principle that the statutory time-limit for issuance of notice under Section 143(2) is mandatory and non-compliance renders the assessment proceedings void. It affirmed the power of the High Court to frame substantial questions of law at the hearing stage, especially when such questions affect jurisdiction. The Court also held that absence of departmental records does not preclude judicial inquiry into compliance with statutory mandates, and peripheral evidence can be relied upon.

Consequently, the impugned order of the Income Tax Appellate Tribunal was set aside, and the assessment order and appellate order were quashed, allowing the appeal.

1. Whether the Principal Commissioner of Income Tax (PCIT) was justified in invoking revisionary jurisdiction under section 263 of the Income Tax Act, 1961, on the ground that the assessment order passed by the Assessing Officer (AO) was erroneous and prejudicial to the interests of the Revenue.

2. Whether the PCIT erred in setting aside the assessment order to conduct fresh inquiry on an issue not covered by the show cause notice under section 263.

3. Whether the issue raised by the PCIT was properly the subject matter of revision under section 263 or should have been dealt with under rectification proceedings under section 154 of the Act.

4. Whether the AO had applied his mind and conducted a detailed inquiry before allowing the set-off of unabsorbed depreciation losses, and whether the assessment order was a result of conscious examination or a mechanical allowance.

5. Whether the PCIT's assumption of jurisdiction was based on a correct factual premise, particularly regarding the quantum of depreciation loss allowed as set-off by the AO.

6. Whether the PCIT established the mandatory condition of prejudice to the interests of Revenue necessary to invoke section 263.

Issue-wise Detailed Analysis

1. Validity of invoking revisionary jurisdiction under section 263

The legal framework requires that for the PCIT to invoke revisionary jurisdiction under section 263, the assessment order must be both erroneous and prejudicial to the interests of the Revenue. This principle is well established by Supreme Court precedents, including CIT v. Max India Ltd. and Malabar Industrial Co. Ltd.

The PCIT's order was based on the premise that the AO had mechanically allowed set-off of Rs. 48.03 crore of brought forward unabsorbed depreciation losses, which included disallowed depreciation on goodwill from earlier years (A.Y. 2016-17 and 2017-18), resulting in an excess set-off of Rs. 31.80 crore and consequent under-assessment of income.

However, the Court's examination of the assessment order revealed that the AO had disallowed depreciation on goodwill amounting to Rs. 14.87 crore and allowed set-off of only Rs. 16.38 crore of unabsorbed depreciation losses pertaining solely to A.Y. 2018-19. The computation of income under normal provisions explicitly reflected this figure.

The assessee had also submitted detailed replies during the assessment proceedings and in response to the PCIT's show cause notice, clarifying the correct quantum of set-off allowed and denying any carry forward of depreciation losses from the disallowed years.

Therefore, the Court found that the foundational assumption of the PCIT-that the AO allowed the full claimed amount of Rs. 48.03 crore-was factually incorrect.

Applying the law to these facts, the Court held that the assessment order was not erroneous as the AO had applied his mind, conducted detailed inquiries, and disallowed depreciation on goodwill while allowing only the eligible set-off. Hence, the mandatory condition of error was not satisfied.

2. Prejudice to the interests of Revenue

The PCIT's allegation of prejudice was solely based on the presumption of excess set-off of depreciation losses. Since the factual basis for this presumption was disproved by the assessment record, the Court held that the question of prejudice does not arise.

The Court emphasized that mere clerical inconsistencies or computational variances in the Income Tax Return (ITR) schedules cannot justify invoking the drastic powers under section 263.

3. Treatment of the issue under section 154 versus section 263

Before the PCIT issued the revisionary order under section 263, the AO had already initiated rectification proceedings under section 154 on the same issue of alleged excess set-off of depreciation losses. The AO's section 154 notice computed the excess allowance and the resultant tax impact, and the assessee had objected to the proposed rectification on the ground that the issue was debatable and pending before the Tribunal.

The Court noted that the AO's initiation of rectification proceedings demonstrated that the AO had applied his mind to the issue and recognized it as a matter of record-based computation rather than an error warranting revision under section 263.

It is settled law that section 263 cannot be invoked to substitute the opinion of the PCIT for that of the AO where two views are possible, especially when rectification under section 154 is available and pending.

Therefore, the Court held that the PCIT's exercise of revisionary jurisdiction was impermissible in the presence of ongoing rectification proceedings and amounted to substitution of opinion.

4. Adequacy of AO's inquiry and application of mind

The AO had issued multiple notices under sections 143(2) and 142(1) and received detailed written submissions from the assessee explaining the depreciation claims, set-off of brought forward losses, and deductions under section 80IBA.

The assessment order recorded the disallowance of depreciation on goodwill and the allowance of set-off of unabsorbed depreciation losses strictly limited to the eligible amount from A.Y. 2018-19.

The Court found that the AO had conducted a conscious and detailed examination of all material facts and submissions, negating the PCIT's allegation of mechanical allowance or non-application of mind.

5. Treatment of competing arguments

The PCIT relied primarily on the figures disclosed in the ITR and Schedule UD without cross-verifying the actual computations in the assessment order. The Court found this reliance misplaced, as the assessment order's computation is the authoritative record reflecting the AO's considered view.

The assessee's argument that the PCIT's assumption was based on an incorrect factual premise was accepted by the Court.

The Departmental Representative conceded that no final rectification order under section 154 had been passed as of the hearing date, further weakening the PCIT's position.

6. Conclusions on the core issues

The Court concluded that:

• The AO's assessment order was neither erroneous nor prejudicial to the interests of Revenue.
• The PCIT's assumption of jurisdiction under section 263 was based on a flawed factual premise and was legally impermissible.
• The AO had applied his mind and conducted detailed inquiries before allowing the set-off of unabsorbed depreciation losses.
• The issue was already the subject matter of rectification proceedings under section 154, which should be independently adjudicated.
• The revisionary order under section 263 was unsustainable and liable to be quashed.

Significant Holdings

"An assessment order cannot be termed 'erroneous' merely because the Principal Commissioner of Income Tax forms a different opinion based on a reading of the return of income or its schedules."

"Two conditions must co-exist for invoking jurisdiction under section 263: (i) the assessment order must be erroneous, and (ii) such error must be prejudicial to the interest of Revenue."

"The initiation of section 154 proceedings by the Assessing Officer is itself a recognition of the fact that the issue is a matter of record-based computation and was consciously considered in the assessment."

"Revisionary powers under section 263 cannot be exercised to substitute the opinion of the PCIT for that of the AO where two views are possible."

"Mere clerical reflection of incorrect carry-forward in the Income Tax Return does not lead to an automatic presumption of allowance, particularly when the AO has consciously acted upon verified figures."

"The absence of either error or prejudice renders the assumption of jurisdiction under section 263 invalid."

The final determination was that the revisionary order passed under section 263 was quashed, and the assessment order was upheld as valid. However, this did not affect the independent adjudication of the rectification proceedings under section 154, which remained to be decided on their own merits.

The core legal questions considered by the Appellate Tribunal were:

• Whether the penalty under Section 271(1)(c) of the Income Tax Act was rightly imposed on the assessee for allegedly furnishing inaccurate particulars of income in relation to the deduction claimed for interest payments in the assessment year 2012-13.
• Whether the claim of deduction of interest amounting to Rs. 1,11,96,029/- relating to assessment year 2007-08, which was disallowed in that year but subsequently allowed by the Tribunal and rectification order, could be considered as furnishing inaccurate particulars of income in the assessment year 2012-13 when claimed as deduction.
• The validity of the Assessing Officer's disallowance of the interest deduction and the consequent initiation of penalty proceedings under Section 271(1)(c).
• The correctness of the CIT(A)'s dismissal of the assessee's appeal against the penalty order.

Issue-wise Detailed Analysis

Issue 1: Legitimacy of penalty under Section 271(1)(c) for furnishing inaccurate particulars of income in AY 2012-13

Relevant Legal Framework and Precedents: Section 271(1)(c) empowers the Assessing Officer to levy penalty where a person is found to have concealed income or furnished inaccurate particulars of income. The provision requires a willful act of misreporting or concealment. The legal principle is that bona fide claims or bona fide errors do not attract penalty.

Court's Interpretation and Reasoning: The Tribunal noted that the interest amount of Rs. 1,11,96,029/- disallowed in AY 2007-08 was subsequently allowed by the Tribunal's order dated 10-07-2015 and the rectification order under Section 154 dated 10-02-2016. The assessee had withdrawn the appeal for AY 2012-13 before the CIT(A) since relief was obtained in the earlier years. The Tribunal emphasized that at the time of filing the return for AY 2012-13, the disallowance for interest in AY 2007-08 was still in place and the assessee had claimed the deduction under a bona fide belief treating the unpaid interest as income due to one-time settlement in AY 2012-13.

Key Evidence and Findings: The assessee had credited income of Rs. 6,70,05,849/- relating to interest waived under one-time settlement in AY 2012-13. The interest disallowed earlier was claimed as deduction in AY 2012-13 on the basis of this settlement. The Tribunal found that the claim was made in good faith and was not an attempt to conceal or furnish inaccurate particulars.

Application of Law to Facts: Since the disallowance in AY 2007-08 was not yet reversed at the time of filing AY 2012-13 return, the claim of deduction in AY 2012-13 could not be treated as inaccurate or concealment. The one-time settlement and subsequent relief granted by the Tribunal and Revenue justified the assessee's position. Therefore, invocation of penalty under Section 271(1)(c) was not warranted.

Treatment of Competing Arguments: The Revenue argued that the interest difference was not paid and hence penalty was justified. The Tribunal rejected this, holding that the assessee's treatment was bonafide and supported by the subsequent relief granted. The Tribunal found the Revenue's reliance on penalty order and CIT(A) order unconvincing in light of the facts.

Conclusions: The penalty under Section 271(1)(c) was not justified as the assessee did not furnish inaccurate particulars or conceal income in AY 2012-13.

Issue 2: Validity of disallowance of interest deduction and subsequent withdrawal of appeal before CIT(A)

Relevant Legal Framework and Precedents: The disallowance under Section 43B relates to interest payments not actually paid during the year. The legal principle is that deduction under Section 43B is allowed only when payment is made.

Court's Interpretation and Reasoning: The Tribunal noted that the Assessing Officer initially disallowed the interest claimed for AY 2007-08 and 2009-10. However, the Tribunal's order and rectification under Section 154 allowed the interest deduction. The assessee withdrew the appeal for AY 2012-13 before CIT(A) since relief was obtained through these orders.

Key Evidence and Findings: The rectification order dated 10-02-2016 allowed the interest deduction previously disallowed. The withdrawal of appeal before CIT(A) indicated acceptance of relief granted. The one-time settlement in AY 2012-13 was a new event justifying the accounting treatment adopted.

Application of Law to Facts: The withdrawal of appeal and rectification order effectively settled the issue of interest deduction. The disallowance in AY 2012-13 was thus not sustainable.

Treatment of Competing Arguments: The Revenue's insistence on penalty was based on the premise that interest was not paid. The Tribunal held that the one-time settlement and subsequent relief undermined this argument.

Conclusions: The disallowance of interest deduction for AY 2012-13 was not justified and the appeal withdrawal was appropriate in view of relief obtained.

Significant Holdings

The Tribunal held that:

"The treatment given in the profit and loss account for the present assessment year i.e. 2012-13 which was filed along with the returns filed on 11-09-2012 by the assessee cannot be treated as furnishing inaccurate particulars of income or concealment of income as at that point of time, the assessee was not allowed deduction of the interest of Rs. 1,11,96,029/- in respect of assessment year 2007-08."

"Since the assessee has entered into one time settlement in the assessment year 2012-13, and had credited income of Rs. 6,70,05,849/- being interest not paid as one time settlement, in the Profit and Loss Account. Therefore, the assessee had claimed deduction for interest of Rs. 1,11,96,029/- disallowed u/s. 43B in assessment year 2007-08, in the current year, under bonafide belief, on treating the unpaid interest as income."

"In view of these facts, the Assessing Officer was not correct in imposing penalty u/s. 271(1)(c) of the Act, in respect of this claim. Thus, invocation of Section 271(1)(c) is not justified and hence the appeal of the assessee is allowed."

The core principle established is that bona fide claims based on the circumstances prevailing at the time of filing return, especially where subsequent relief is granted, cannot be treated as furnishing inaccurate particulars or concealment attracting penalty under Section 271(1)(c). The Tribunal emphasized the importance of considering the factual matrix and subsequent developments before imposing penalty.

Final determinations:

• The penalty imposed under Section 271(1)(c) for AY 2012-13 was quashed.
• The claim of deduction of interest relating to AY 2007-08 in AY 2012-13 was held to be bonafide and not inaccurate.
• The withdrawal of appeal before CIT(A) was justified and the disallowance of interest was not sustainable.

(i) Whether the AO erred in allowing foreign tax credit (FTC) under section 90 read with Article 24 of the India-Philippines Double Taxation Avoidance Agreement (DTAA) without proper verification of the foreign income and tax paid by the assessee's branch in the Philippines;

(ii) Whether the AO erred in allowing deduction under section 80G for donations which formed part of the Corporate Social Responsibility (CSR) expenditure, given that CSR expenses are disallowed under section 37(1) of the Act;

(iii) Whether the PCIT validly invoked the revisionary jurisdiction under section 263 on the basis that the assessment order was passed without proper enquiry or verification, thereby attracting Explanation 2 to section 263(1).

Regarding the foreign tax credit claim, the relevant legal framework includes section 90 of the Income-tax Act, which provides relief in cases of double taxation under treaties, and Article 24 of the India-Philippines DTAA, which governs the allowance of credit for taxes paid in the source country. The AO had examined the assessee's submissions, which included detailed reconciliation statements comparing the income declared in the Philippine tax return and the income offered to tax in India after adjustments for Indian tax principles. The assessee's branch in the Philippines was registered under the Philippine Economic Zone Authority (PEZA) and enjoyed tax concessions. The AO accepted the foreign income offered to tax in India at Rs. 31.88 crore, after allowing adjustments for non-allowable expenses under Indian law, and granted FTC of Rs. 8.02 crore accordingly, based on Form 67 filed and supporting documents.

The PCIT challenged this, contending that the AO failed to verify whether the gross income of Rs. 46.54 crore (as per Philippine return) was fully offered to tax in India and whether the foreign taxes were actually paid. The PCIT held that the entire gross income should have been taxed in India and the FTC claim was therefore erroneous and prejudicial.

The Tribunal, however, noted that the AO had conducted detailed scrutiny, including examination of reconciliation charts, tax returns, and statutory forms, and had accepted the net income computed in accordance with Indian tax principles. The Tribunal found that the PCIT's attempt to distinguish the prior Coordinate Bench decision for A.Y. 2018-19, which upheld a similar FTC claim, lacked a demonstrable basis. The PCIT did not show any material difference in facts or law for the year under consideration. The Tribunal emphasized that income cannot be taxed on a gross basis and that the AO's acceptance of net income after adjustments was consistent with the law. The Tribunal held that the AO had applied his discretion after due inquiry and the PCIT's allegations of non-verification were unsubstantiated.

On the issue of deduction under section 80G for donations forming part of CSR expenditure, the legal framework includes section 37(1), which disallows CSR expenditure as business expenditure, and section 80G, which provides deduction for donations made to specified institutions. The Finance Act, 2014, introduced Explanation 2 to section 37(1) to clarify that CSR expenses are not allowable as business expenditure. The PCIT held that since CSR expenses are not allowable under section 37(1), the corresponding deduction under section 80G should also be denied.

The Tribunal rejected this interpretation, noting that the statutory bar on CSR expenses under section 37(1) applies only to business expenditure and does not automatically preclude deductions under section 80G, which has its own independent criteria. The assessee had disallowed the CSR expenditure in income computation but claimed deduction under section 80G only for donations made to eligible institutions supported by receipts and satisfying statutory conditions. The AO had verified these claims and allowed the deduction. The Tribunal referred to judicial precedents affirming that donations qualifying under section 80G cannot be denied deduction merely because they also constitute CSR expenditure. The PCIT's revisionary interference on this ground was held to be legally unsustainable.

Regarding the invocation of section 263 itself, the Tribunal underscored the twin conditions for exercise of revisionary power: the assessment order must be both erroneous in law or fact and prejudicial to the interest of the Revenue. Both conditions are cumulative. A mere difference of opinion or disagreement with the AO's conclusion does not justify revision unless there is demonstrable error or failure in inquiry causing tangible prejudice. The Tribunal found that the AO had conducted proper inquiry, examined detailed submissions, and applied mind before passing the assessment order. There was no evidence of non-application of mind, non-verification, or misdirection in law. The PCIT's reliance on Explanation 2 to section 263(1) was misplaced as the AO's order was not passed without proper enquiry or verification.

The Tribunal concluded that the assessment order was neither erroneous nor prejudicial to the Revenue. The revisionary order setting aside the assessment was therefore quashed, and the appeal was allowed.

Significant holdings include the following verbatim reasoning:

"The statutory power of revision under section 263 can be exercised by the PCIT only where the assessment order satisfies the twin conditions of being both erroneous in law or in fact, and prejudicial to the interest of the Revenue. These two limbs are cumulative and not alternative. A mere disagreement with the conclusion drawn by the Assessing Officer, in the absence of any demonstrable error or lack of inquiry, cannot render the order erroneous in law."

"Where the Assessing Officer has applied his discretion and reached a plausible conclusion based on the material on record, the revisionary authority cannot invoke section 263 merely because it holds a different opinion or would have come to a different conclusion."

"The restriction under section 37(1) introduced by the Finance Act, 2014, is specific to business expenditure, and does not apply to voluntary donations made to eligible institutions under section 80G."

"Income cannot be taxed on gross basis, and only net income computed under Indian law can be brought to tax in India."

In sum, the Tribunal established the principle that revision under section 263 requires clear demonstration of error and prejudice, not mere difference of opinion; that foreign tax credit claims must be evaluated on net income after Indian tax adjustments; and that CSR expenditure disallowance under section 37(1) does not preclude deduction under section 80G for eligible donations. The final determination was in favour of the assessee, quashing the revisionary order and upholding the original assessment order.

The Court considered two core legal questions arising from orders passed by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT):

(i) Whether the Tribunal erred by failing to appreciate that the Commissioner (Appeals) had already allowed the refund claim with interest under Section 27A of the Customs Act, 1962, limiting the Tribunal's role to deciding interest from 02.08.1999 onwards.

(ii) Whether the Customs Department acted without jurisdiction by denying the Export Promotion Capital Goods (EPCG) benefit under Notification No.28/97-Cus dated 01.04.1997, and consequently, whether the appellant was entitled to compensatory interest from the date of duty payment, referencing the Supreme Court decision in Sandvik Asia Ltd. v. Commissioner of Income Tax.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Tribunal's appreciation of refund and interest under Section 27A of the Customs Act

The appellant had received a refund of duty paid under protest along with interest under Section 27A, which mandates interest on delayed refunds beyond 90 days from the refund application date. The appellant sought additional interest from the date of duty payment as compensation for the prolonged delay.

The Court noted that the Tribunal had not addressed the claim for compensatory interest separately, having already granted statutory interest under Section 27A. The Court observed that the statutory scheme only provides for interest on delayed refunds and does not envisage interest on interest or additional compensation beyond the statutory interest.

Given the long delay from 1999 to 2025, the Court declined to remit the matter back to the Tribunal and proceeded to decide the issue on merits. It held that the appellant had received the statutory interest due and was not entitled to further interest under the statute itself.

Issue (ii): Jurisdiction and entitlement to EPCG benefit and compensatory interest

Legal framework and precedents: The EPCG scheme under Notification No.28/97-Cus permits concessional import duty rates on capital goods imported for export promotion. The definition of "capital goods" includes plant, machinery, equipment, and accessories required for rendering services, including hotel and tourism industries, as clarified in the Explanation and Annexure to the Notifications.

The Customs Department denied the benefit on the ground that the imported goods (lighting and light fittings) did not constitute capital goods. The appellant had a valid EPCG license issued by the Directorate General of Foreign Trade (DGFT) classifying the goods as capital goods, which was not withdrawn or revoked.

The Court referred to Circular No.62/2002 issued by the Central Board of Excise & Customs (CBEC), which directed Customs authorities to align with the DGFT and DG (Tourism) in extending EPCG benefits to service providers such as hotels, including consumer items like lighting equipment.

Judicial precedents relied upon include the Supreme Court judgment in Titan Medical Systems Pvt. Ltd. v. Collector of Customs, which held that Customs authorities cannot take a stand contrary to the licensing authority unless the license is revoked for misrepresentation. The Court also relied on the CESTAT and Supreme Court decisions in Appu Hotels Ltd. confirming that lighting equipment imported by hotels qualifies as capital goods under EPCG Notifications.

Court's interpretation and reasoning: The Court held that the Customs Department acted without jurisdiction in denying the EPCG benefit, as the licensing authority's classification was binding and supported by the 2002 CBEC Circular. The Department's contrary stand was inconsistent with the Circular and judicial precedents.

The Court emphasized that the long-drawn litigation spanning over two decades was misconceived and unnecessary, given the clear legal position and binding Circular. The appellant was entitled to the concessional duty rate from the beginning.

Claim for compensatory interest: Although statutory interest under Section 27A was granted, the appellant sought compensatory interest for the prolonged and unjustified denial of benefits. The Court examined the Supreme Court decisions in Sandvik Asia Ltd. and Gujarat Fluoro Chemicals, which clarified that interest on interest is not permissible under the statute, but compensation may be awarded in cases of unconscionable delay or unreasonable conduct by the revenue.

The Court found that the Department's conduct in denying the benefit despite the license and Circular amounted to unreasonable delay and unjustified litigation. Therefore, the appellant was entitled to compensation as a matter of equity.

Treatment of competing arguments: The Revenue argued that the statute does not allow interest on interest and that statutory interest had been granted. The Court accepted this but distinguished the present case on grounds of equity and fairness due to the Department's persistent denial of the benefit and the binding nature of the license and Circular.

Conclusions: The Court answered the second substantial question of law in favour of the appellant, holding that the Customs Department acted without jurisdiction and that the appellant was entitled to compensation for the prolonged denial of EPCG benefits.

3. SIGNIFICANT HOLDINGS

"The denial of concessional rate of Duty by the Department is misconceived and contrary to both the Circular as well as the judgements."

"It is not open to the Customs Department to dispute classification of the goods imported and the view taken by the Department is diametrically opposed to the licence and the 2002 Circular."

"The long drawn litigation from 1999 till now, 2025, was misconceived and needless and the Appellant is entitled to compensation for having been put through it all."

"The statute cannot be pressed into service to grant interest on interest if there are no enabling provisions. However, as a measure of equity, the assessee should be properly and adequately compensated if the demand raised is seen to be unconscionable or there is an unreasonable delay in the grant of refunds."

Core principles established include:

• The binding effect of licensing authority's classification of goods under EPCG scheme on Customs authorities, barring revocation or cancellation of the license.
• The mandatory alignment of Customs Department with DGFT and DG (Tourism) as per CBEC Circular to avoid conflicting stands.
• The limitation of statutory interest under Section 27A to interest on delayed refunds and exclusion of interest on interest unless explicitly provided.
• The entitlement to equitable compensation in cases of unreasonable delay or unconscionable conduct by revenue despite absence of statutory provisions for interest on interest.

Final determinations:

• The first substantial question regarding interest under Section 27A was rendered infructuous and not pursued further.
• The second substantial question was answered in favour of the appellant, holding that the Customs Department acted without jurisdiction in denying EPCG benefits and that the appellant was entitled to compensation for the delay and litigation endured.
• The Civil Miscellaneous Appeals were allowed with directions for consequence to be given within eight weeks.

1. Whether the country of origin of the imported dry dates is Pakistan or UAE for customs duty purposes.

2. Whether the Certificate of Origin issued by the Ajman Chamber of Commerce, UAE, is genuine and can be relied upon.

3. Whether the imported goods were liable for confiscation under Section 111(m) of the Customs Act, 1962 for mis-declaration of country of origin and violation of FSSAI (Packing and Labelling) Regulations, 2011.

4. Whether penalties imposed under Sections 112(a), 112(b), 114AA, and 125 of the Customs Act, 1962 on various importers and related persons are justified.

5. The evidentiary value of expert opinion based on physical examination of goods and uncorroborated statements recorded under Section 108 of the Customs Act.

6. The procedural propriety and jurisdictional aspects regarding verification of COO and imposition of penalties.

Issue-wise Detailed Analysis

1. Determination of Country of Origin and Validity of Certificate of Origin

The legal framework includes the Customs Act, 1962, particularly provisions relating to assessment and confiscation, and the Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020. The enhanced customs duty of 200% on goods originating from Pakistan was imposed vide Notification No. 05/2019-Cus dated 16.02.2019, following a terrorist attack in Pulwama.

The revenue alleged that dry dates imported under Bill of Entry No. 5025038 dated 23.09.2019 were of Pakistan origin but were mis-declared as originating from UAE to evade higher duty. The importer relied on a COO issued by the Ajman Chamber of Commerce, UAE, which was bar-coded and purportedly competent. The revenue, however, rejected the COO without verifying its authenticity with the issuing authority in UAE, relying instead on an expert opinion from M/s Atul Rajasthan Date Palms Limited (ARDPL) based on physical examination, statements under Section 108, and other documents like export declarations obtained from shipping lines.

The Court noted that the COO issued by a designated authority of a foreign government is a documentary evidence that cannot be discarded without verification. Rule 6 of the Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020 mandates verification requests to the issuing authority in case of doubt. No such verification was made by the customs authorities in this case. The Court referred to precedents that emphasize the necessity of verification before rejecting COO and the inadmissibility of relying on assumptions or unverified expert opinions.

The expert opinion from ARDPL was found unreliable as it was based solely on visual inspection without scientific or chemical analysis, and the institution was not accredited for such testing. The Court further observed that determining country of origin is complex and cannot be conclusively decided by physical appearance alone.

The export declaration relied upon by the revenue was an unsigned photocopy with discrepancies and was not procured from the customs authority of Dubai, thus lacking evidentiary value. The term 'FZ Transit Out' in the export declaration was misinterpreted by the revenue; it applies to all goods exported from Dubai Free Zones, regardless of origin.

Statements recorded under Section 108 were largely hearsay and uncorroborated, and some were retracted under claims of coercion. The Court held that retracted statements or uncorroborated hearsay cannot be the sole basis for proving an offence.

Consequently, the Court held that the goods were of UAE origin as per the COO and other authentic documents, and the allegation of mis-declaration was based on assumption and presumption without tangible evidence.

2. Confiscation of Goods and Compliance with FSSAI Regulations

The revenue also alleged non-compliance with Food Safety and Standards (Packing and Labelling) Regulations, 2011, as the slips containing mandatory particulars were stapled and could be easily separated from packaging, violating labeling requirements.

The Court examined the role of FSSAI under the FSSAI (Import) Regulations, 2017, which empower authorized FSSAI officers to inspect and certify compliance. The consignment was inspected by FSSAI, samples drawn, and a No Objection Certificate (NOC) was issued certifying compliance. Customs examining officers did not raise any discrepancy during physical examination.

Therefore, the Court found the allegation of non-compliance baseless and the confiscation order on this ground invalid.

3. Penalties under the Customs Act

Penalties were imposed under Sections 112(a), 112(b), 114AA, and 125 of the Customs Act, 1962 on various importers and related persons for mis-declaration, use of false documents, and violation of customs laws.

The Court analyzed the distinction between Section 112(a) and 112(b). Section 112(a) imposes penalty on any person who commits an act rendering goods liable for confiscation and is a strict liability provision not requiring mens rea. Section 112(b) requires knowledge or reason to believe the goods are liable for confiscation and thus requires mens rea.

Section 114AA penalizes knowingly or intentionally making, signing, or using false or incorrect material, with penalty up to five times the value of goods.

The Court found that penalties under Section 114AA were imposed without establishing fraud or manipulation of COO by proper enquiries with the issuing authorities as mandated by Rule 6 of the Customs Rules. The absence of such verification and reliance on uncorroborated evidence rendered the penalties unsustainable.

Regarding employees such as import managers and marketing managers who filed bills of entry based on documents provided by others, the Court noted precedents holding that personal penalties on employees acting under directions without knowledge of wrongdoing are generally not sustainable. Token penalties under Section 112(a) may be imposed, but penalties under Section 114AA require proof of intentional wrongdoing, which was absent.

Statements of persons like Shri Anil Agarwal were retracted and alleged to have been made under duress, further weakening the case for penalties.

The Court also observed that even if the COO were found to be manipulated, the offence would lie in the country of issuance (UAE), and Indian authorities would have no jurisdiction over such acts by foreign persons.

4. Evidentiary Standards and Procedural Aspects

The Court emphasized the importance of proper evidentiary standards, particularly regarding expert opinions and statements under Section 108. It held that expert opinions without scientific basis or accreditation, and uncorroborated or retracted statements, cannot form the basis for adverse findings.

The Court also highlighted the procedural requirement of verifying COO authenticity with the issuing foreign authority before rejecting it and imposing penalties or confiscation.

5. Application of Law to Facts and Treatment of Competing Arguments

The appellants argued that the COO was issued by a competent authority in UAE, was bar-coded, and its authenticity was never questioned by the revenue through verification. They challenged the expert opinion and the reliance on export declarations and statements as baseless.

The revenue contended that the goods were of Pakistan origin, mis-declared as UAE origin to evade higher duty, supported by expert opinion and statements.

The Court found the appellants' arguments persuasive, noting the absence of any verification of COO authenticity, the unreliability of the expert opinion, and the lack of credible evidence to prove mis-declaration. The revenue's reliance on internal shipping documents and hearsay statements was rejected.

Conclusions

The Court concluded that:

- The goods in question were of UAE origin as per valid COO and supporting documents.

- The confiscation of goods under Section 111(m) for mis-declaration of country of origin was not sustainable.

- The allegation of violation of FSSAI (Packing and Labelling) Regulations, 2011 was baseless as the consignment was certified compliant by FSSAI.

- Penalties imposed under Sections 112(a), 112(b), and 114AA of the Customs Act, 1962 on the appellants were not justified due to lack of evidence of fraud, manipulation, or mens rea.

- The expert opinion and statements relied upon by the revenue lacked evidentiary value.

- No verification request was made to the UAE authorities to authenticate the COO, contrary to procedural requirements.

- The appeals were allowed, setting aside confiscation and penalties imposed on the appellants.

Significant Holdings

"The Certificate of Origin issued by the designated authority of the exporting country is documentary evidence which cannot be discarded without verification. Rule 6 of the Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020 mandates such verification. No such verification was made in this case, rendering the rejection of the COO unsustainable."

"Expert opinion based solely on visual inspection without scientific or chemical analysis and without accreditation has no evidentiary value for determination of country of origin."

"Statements recorded under Section 108 of the Customs Act, 1962, if uncorroborated, hearsay, or retracted, cannot be relied upon to establish an offence or impose penalties."

"Penalty under Section 114AA of the Customs Act can only be imposed when it is proved that a person knowingly or intentionally used false or incorrect material. Mere suspicion or assumption is insufficient."

"Confiscation and penalty cannot be imposed on an importer who files bill of entry based on documents supplied by the overseas supplier without evidence of involvement in mis-declaration."

"Non-compliance with FSSAI (Packing and Labelling) Regulations, 2011 must be established by the authorized FSSAI officer. Certification of compliance by FSSAI negates allegations of non-compliance."

"The burden lies on the revenue to verify the authenticity of COO and produce tangible evidence before rejecting it and imposing penalties."

(i) Whether the appellant is entitled to the benefit of Section 14 of the Limitation Act, 1963, which allows exclusion of time spent prosecuting a proceeding in a court or authority lacking jurisdiction, for the purpose of limitation in filing an appeal against the Bill of Entry (BOE) assessmentRs.

(ii) Whether the refund claim filed by the appellant for excess Anti-Dumping Duty (ADD) and differential Integrated Goods and Services Tax (IGST) paid, without first obtaining reassessment of the self-assessed BOE, was rightly rejected by the authoritiesRs.

Issue-wise Detailed Analysis

Issue (i): Entitlement to Benefit under Section 14 of the Limitation Act

The appellant imported aluminum foil and self-assessed the customs duty including ADD, which was later found to be exempt under Notification No. 51/2021-Cus (ADD). The appellant filed an application for reassessment of the BOE and a refund claim for excess duty paid. The original adjudicating authority rejected the reassessment application on the ground that it lacked jurisdiction and directed the matter to the appraiser. The refund claim was also rejected. The appellant contended that the time spent pursuing the reassessment application before the original authority should be excluded under Section 14 of the Limitation Act when computing limitation for filing the appeal.

Section 14 of the Limitation Act provides for exclusion of time during which a litigant has been prosecuting another proceeding in good faith before a court or authority lacking jurisdiction, provided the proceeding relates to the same matter in issue. The Court examined whether the original adjudicating authority's rejection of the reassessment application for want of jurisdiction amounted to prosecution before a forum unable to entertain the matter, thus entitling the appellant to exclusion of that period.

The Court noted that the reassessment of BOE under the Customs Act, 1962, is permissible only before clearance of goods for home consumption and that once the goods are cleared, reassessment is not maintainable before the assessing officer. Instead, an appeal under Section 128 of the Customs Act is the proper remedy. The original adjudicating authority improperly forwarded the reassessment application to the appraiser instead of deciding on it, effectively denying jurisdiction. This procedural irregularity caused delay.

Given these facts, the Court held that the appellant had prosecuted the reassessment application in good faith before an authority lacking jurisdiction. Therefore, the time spent from filing the reassessment application until receipt of the Order-in-Original rejecting it must be excluded in computing limitation for filing the appeal. The Commissioner (Appeals) had erred in not applying Section 14 of the Limitation Act to exclude this period. Consequently, the appellant was entitled to the benefit of Section 14, and the appeal was held to be within limitation.

Issue (ii): Validity of Rejection of Refund Claim for Excess Duty Paid

The appellant's refund claim for the excess ADD and differential IGST paid was rejected by the authorities relying on two Supreme Court decisions: Priya Blue Industries Ltd. and ITC Ltd. In Priya Blue, it was held that a refund claim is not an appeal and that the officer considering a refund claim cannot review an assessment order. In ITC Ltd., the Court held that refund of duty paid pursuant to self-assessment could not be granted unless the assessment order was first challenged in appeal and modified.

The Court carefully examined these precedents in light of the facts. It noted that the appellant had simultaneously filed an application for reassessment of the BOE along with the refund claim, thereby complying with the procedural requirement of challenging the assessment before seeking refund. The original adjudicating authority's rejection of the reassessment application on procedural grounds, without proper exercise of jurisdiction, was a procedural lapse.

Drawing support from the Supreme Court's recent decision in Ramnath Exports (P) Ltd. v. Vinita Mehta, the Court emphasized that procedural defects should not defeat substantive rights, especially where the defect is curable and the substantive right is clear. The appellant had paid excess duty due to a clerical error and the exemption notification clearly applied to the imported goods. Retention of the excess duty by the department violated Article 265 of the Constitution of India, which prohibits taxation without legislative authority.

The Court distinguished the ITC Ltd. and Priya Blue decisions on the ground that in the present case, the appellant had taken the necessary step of filing for reassessment, which was improperly rejected. The excess payment was apparent from the BOE itself, and the appellant had not passed on the burden of excess duty to any other party, fulfilling the principle against unjust enrichment.

Therefore, the Court held that the refund claim was wrongly rejected on procedural grounds and that the appellant was entitled to refund of the excess ADD and differential IGST paid. The reliance on the earlier Supreme Court decisions was misplaced in this context.

Significant Holdings

"The time taken for getting the order with respect to request for reassessment of BOE is held to be the cause of the like nature of jurisdiction issue."

"I hold that the benefit under Section 14 of Limitation Act be awarded to the applicant/appellant."

"It is the settled law that substantial benefit shall not be denied based on procedural lapses."

"The procedural defect may fall within the purview of irregularity and capable of being cured, but it should not be allowed to defeat the substantive right accrued to the litigant without affording reasonable opportunity."

"The excess payment is rather apparent from BOE itself. The amount in question should not have been retained by the department was therefore refundable."

"The decision in ITC Ltd. as well as in Priya Blue are distinguishable. These decisions have wrongly been relied upon for rejecting the impugned refund claim."

The Court's final determinations are:

(i) The appellant is entitled to the benefit of Section 14 of the Limitation Act, and the time spent prosecuting the reassessment application before an authority lacking jurisdiction must be excluded in computing limitation for filing the appeal.

(ii) The refund claim for excess ADD and differential IGST was wrongly rejected on procedural grounds. The appellant had complied with the requirement of filing for reassessment simultaneously, and the excess payment was apparent and unjustly retained by the department. The appellant is entitled to refund.

(iii) The impugned orders rejecting the reassessment application and refund claim are set aside, and the appeal is allowed accordingly.

1. Whether the impugned goods, being 352 rolls of coated textile fabric of alleged Taiwan/China origin, are liable to confiscation under Section 111(d) read with Section 11 of the Customs Act and Section 3(3) of the Foreign Trade (Development and Regulation) Act, 1992.

2. Whether the valuation of the seized goods at Rs. 18.73 Lakhs by relying on contemporaneous Bills of Entry data under the Customs Valuation Rules, 2007 (CVR, 2007) is legally sustainable.

3. Whether the show-cause notice issued to the appellant was valid and issued in accordance with principles of natural justice and not arbitrary or prejudiced.

4. Whether the appellant was given adequate opportunity to defend itself, including to contest the valuation and origin of goods.

5. Whether the goods are smuggled goods warranting confiscation and imposition of penalty under the Customs Act.

6. Whether the burden of proof lies on the Revenue to establish smuggling and whether the Revenue discharged this burden.

7. Whether the goods being non-notified under Section 123 of the Customs Act affects the presumption and liability for confiscation.

8. Whether penalty and redemption fine imposed on the appellant are justified in the facts and circumstances of the case.

Issue-wise Detailed Analysis:

Issue 1 & 5 & 6 & 7: Liability for confiscation and burden of proof on smuggling

The relevant legal framework includes Section 111(d) of the Customs Act which deals with confiscation of goods liable under certain conditions, Section 11 of the Customs Act regarding seizure, and Section 3(3) of the Foreign Trade (Development and Regulation) Act, 1992. Section 123 of the Customs Act provides for notified goods for presumption of smuggling.

The Court noted that the seized goods were found in the appellant's warehouse and were neither notified goods under Section 123 nor seized at a port, airport, or international border. The Tribunal emphasized that in such circumstances, the burden lies on the Revenue to prove that the goods are smuggled. The Revenue failed to discharge this burden as no conclusive evidence was produced to establish smuggling beyond a reasonable doubt.

The Court found that the Revenue's failure to prove smuggling rendered the confiscation proceedings unsustainable. The Tribunal relied on the principle that confiscation is a drastic measure and must be backed by clear evidence. Since the goods were not notified and the seizure location was not a point of import, the presumption of smuggling did not arise. Consequently, the confiscation and penalty imposed were not justified.

Issue 2: Valuation of goods based on contemporaneous imports

The valuation was done by the Revenue by referring to 43 Bills of Entry cleared at various ports during June to August 2021, selecting those with Unit Quantity Code (UQC) as KGS to match the net weight of the seized goods. The lowest assessable value from these was Rs. 18.73 Lakhs.

The appellant challenged this valuation on the ground that the goods were stock lots with assorted colors and sizes, making direct comparison with contemporaneous imports inappropriate. The appellant relied on precedents that held when goods differ in quality, quantity, and period of importation, contemporaneous imports cannot be used for valuation comparison. The Court referred to decisions which held that without similarity in quality and quantity, such comparisons lack factual and legal sanctity.

The Tribunal observed that the Revenue itself admitted difficulty in ascertaining the UQC in terms of square meters (SQM) due to the assorted nature of the goods, corroborating the appellant's contention that the goods were stock lots. Further, no representative samples were drawn to ascertain origin or quality. The Revenue's reliance on DOV data without proper matching of quality and quantity was found to be flawed.

Issue 3 & 4: Validity of show-cause notice and opportunity to the appellant

The appellant contended that the show-cause notice dated 29.11.2021 was issued arbitrarily and without factual basis, citing a Supreme Court judgment emphasizing the need for reasoned and non-prejudiced notices. The appellant also argued that the notice did not disclose the import documents corresponding to the Bill of Entry used for valuation, depriving the appellant of a fair opportunity to contest the valuation.

The Tribunal agreed that the show-cause notice lacked necessary particulars and failed to provide the appellant with an adequate opportunity to defend itself on key issues such as valuation and origin. The absence of detailed import documents and reliance on incomplete data undermined the procedural fairness of the adjudication.

Issue 8: Imposition of penalty and redemption fine

The penalty and redemption fine were imposed based on the confiscation and valuation of the goods. Since the Tribunal set aside the confiscation on grounds of failure of proof of smuggling and flawed valuation, the penalty and redemption fine were also held to be unsustainable. The Court held that penalty cannot be imposed when confiscation is not justified.

Competing Arguments and Their Treatment

The appellant's arguments focused on procedural irregularities, lack of evidence for smuggling, improper valuation, and denial of natural justice. The Revenue relied on the impugned order and valuation based on contemporaneous imports under CVR, 2007.

The Tribunal carefully analyzed the evidence and submissions, finding merit in the appellant's contentions regarding burden of proof, valuation methodology, and procedural fairness. The Revenue's arguments were found insufficient to uphold confiscation and penalty.

Conclusions

The Tribunal concluded that the confiscation proceedings were not sustainable due to failure of the Revenue to prove smuggling, flawed valuation based on non-comparable contemporaneous imports, and procedural lapses in issuing the show-cause notice. Consequently, the penalty and redemption fine imposed were also set aside.

Significant Holdings

The Tribunal held: "It is a fact on record that the goods were seized in the go-down of the appellant wherein 352 Rolls of coated Textile Fabric (assorted colour and size) of Taiwan/China Origin, were found. Admittedly, the goods in question are neither notified goods under Section 123 of the Act nor seizure on the Port/Airport or International Border. In that circumstances, the burden lies on the Revenue that the goods in question are smuggled one, which the Revenue has failed to do so."

Further, "In that circumstances, no proceeding is sustainable against the appellant. Accordingly, no redemption fine and penalty can be imposed on the appellant."

The core principles established include:

• The burden of proof to establish smuggling lies on the Revenue when goods are not notified under Section 123 and seized away from ports or borders.
• Valuation based on contemporaneous imports must consider similarity in quality, quantity, and period of importation; otherwise, it lacks legal sanctity.
• Show-cause notices must disclose material particulars and provide a fair opportunity to the affected party to defend.
• Confiscation and penalty are not sustainable without proper proof and adherence to procedural fairness.

The final determination was to set aside the impugned order of confiscation, penalty, and redemption fine, and allow the appeal with consequential relief.

The core legal questions considered by the Court in this matter include:

• Whether the applicant accused is entitled to bail under Section 480 of the BNSS, 2023, in the context of allegations of evasion of basic customs duty exceeding Rs. 42 crores.
• The nature and seriousness of the offence under Section 135 of the Customs Act, 1962, involving alleged manipulation of invoices and undervaluation of imported goods.
• The impact of granting bail on the ongoing investigation by the Directorate of Revenue Intelligence (DRI), including the risk of tampering with evidence or influencing witnesses.
• The sufficiency of the investigation conducted so far, including seizure of goods, documents, and electronic records, and the necessity of custodial detention of the accused during the investigation.
• The appropriateness of imposing conditions on bail to safeguard the investigation and ensure the accused's presence during trial and investigation.

Issue-Wise Detailed Analysis

1. Entitlement to Bail under Section 480 of BNSS, 2023 in a Serious Economic Offence

The legal framework governing bail applications in this case is Section 480 of BNSS, 2023, which provides the procedural basis for bail in economic offences. The offence under Section 135 of the Customs Act, 1962, relates to evasion of customs duty, a non-bailable offence but triable by the Sessions Court. The Court acknowledged the gravity of the allegations: evasion of basic customs duty amounting to over Rs. 42 crores through undervaluation of 3630 metric tonnes of inshell walnuts imported via the accused's firms.

The Court recognized the serious economic implications of the offence and the prima facie evidence suggesting manipulation of invoices. However, it also noted that the accused had been in judicial custody since 19.06.2025, and the DRI had conducted extensive interrogation during this period. The Court balanced the seriousness of the offence against the accused's right to liberty, noting the absence of criminal antecedents and the fact that the offence did not attract the death penalty or life imprisonment.

Precedents governing bail in economic offences emphasize that bail is not to be denied merely because the offence is serious, especially when the investigation has progressed and custodial interrogation is complete. The Court applied this principle, concluding that continued detention was not necessary at this stage.

2. Impact of Bail on Ongoing Investigation and Risk of Tampering or Flight

The DRI opposed bail on grounds that the accused's release could hamper the investigation, especially since other importers allegedly using the same modus operandi were still at large. The concern was that bail might enable tampering with evidence or influencing witnesses, thereby obstructing justice.

The Court considered these arguments carefully. It noted that the DRI had seized substantial evidence, including 7475 kgs of goods from the accused's stock and all relevant documents and electronic records. The Court reasoned that the physical presence of the accused was not indispensable for further investigation, particularly since the accused's bank accounts were provisionally attached, limiting his capacity to interfere with financial trails.

To mitigate risks, the Court imposed stringent bail conditions, including prohibition on tampering with evidence or influencing witnesses, mandatory cooperation with investigation, surrender of passport for six months, and restrictions on foreign travel. The accused was also required to furnish residential and contact details and those of relatives to ensure availability for investigation and trial. These conditions reflect the Court's approach of balancing liberty with safeguarding the investigation.

3. Nature of Evidence and Stage of Investigation

The Court observed that the dispute primarily concerned the valuation of imported goods, a complex and time-consuming process requiring detailed examination. The DRI had seized the goods and documents, and the investigation was ongoing but sufficiently advanced to conclude that custodial interrogation had been completed.

The Court recognized that the valuation issue would take time to resolve and that the accused's presence in custody was not essential for overseas inquiries or stakeholder interrogations. This reasoning aligns with principles that bail should not be denied indefinitely when the accused's continued detention does not materially advance the investigation.

4. Treatment of Competing Arguments

The Court carefully weighed the prosecution's concerns about the seriousness of the offence and potential interference with investigation against the accused's right to bail and the progress of the investigation. It acknowledged the economic impact of the offence but found that the accused had cooperated and that sufficient safeguards could be imposed to prevent tampering or flight.

The Court rejected the contention that bail would necessarily hamper the investigation, emphasizing that the accused's bank accounts were attached and that the accused's physical presence was not indispensable. It also noted the absence of prior criminal record, which mitigated flight risk.

Significant Holdings

The Court held that:

"Considering the stage of investigation, I think no purpose would be served by keeping the applicant/accused behind bar till submission of charge-sheet/complaint."

"So far as apprehension regarding tampering the evidence or fleeing from justice is concerned stringent conditions can be imposed against the accused."

These statements encapsulate the core principle that bail should not be denied merely because the offence is serious or the investigation ongoing, provided that appropriate conditions can safeguard the investigation and ensure the accused's presence.

The Court's final determination was to allow bail subject to conditions including:

• Execution of a personal bond of Rs. 2,00,000 with sureties or cash bail in lieu for two months.
• Prohibition on influencing witnesses or tampering with evidence.
• Mandatory cooperation with investigation and attendance when summoned.
• Surrender of passport for six months and court permission for any foreign travel.
• Submission of residential and contact details and those of nearest relatives, with obligation to inform of any changes.

This order reflects a balanced approach safeguarding both the interests of justice and the rights of the accused.

Issues: (i) Whether a legally enforceable financial debt was due and payable by the corporate debtor on the date of filing of the Section 7 application in view of the one-time settlement with the guarantors; (ii) Whether the Section 7 application was filed within limitation; (iii) Whether the Adjudicating Authority rightly exercised its discretion under Section 7(5)(a) of the Insolvency and Bankruptcy Code, 2016 in admitting the application.

Issue (i): Whether a legally enforceable financial debt was due and payable by the corporate debtor on the date of filing of the Section 7 application in view of the one-time settlement with the guarantors.

Analysis: The financial creditor had advanced credit facilities to the corporate debtor, and the accounts were classified as non-performing assets. The one-time settlement was entered into with the guarantors, not with the corporate debtor, and the settlement documents preserved the creditor's right to recover the balance from the borrower. The agreement between the corporate debtor and the guarantors was an inter se arrangement and did not bind the financial creditor. The record also showed continuing recovery action against the corporate debtor and later settlement proposals by it, which negatived the plea of full discharge.

Conclusion: A legally enforceable financial debt remained due and payable by the corporate debtor. The issue is answered against the appellant.

Issue (ii): Whether the Section 7 application was filed within limitation.

Analysis: The date of default was taken as the date on which the accounts were classified as non-performing assets. The application was filed within three years from that date. In addition, the corporate debtor's audited balance sheet contained an acknowledgment of liability, attracting Section 18 of the Limitation Act, 1963 and extending limitation.

Conclusion: The application was filed within limitation. The issue is answered against the appellant.

Issue (iii): Whether the Adjudicating Authority rightly exercised its discretion under Section 7(5)(a) of the Insolvency and Bankruptcy Code, 2016 in admitting the application.

Analysis: The discretionary power under Section 7(5)(a) is not unfettered. The facts relied upon to invoke a narrower approach under Vidarbha did not establish any comparable legal impediment, regulatory bar, or overriding circumstance. Mere assertion of ongoing contracts was insufficient, and the materials on record supported admission once debt and default were established.

Conclusion: The Adjudicating Authority correctly admitted the application. The issue is answered against the appellant.

Final Conclusion: The finding of debt and default was upheld, the insolvency application was held to be within time, and the admission of the corporate insolvency resolution process was sustained.

Ratio Decidendi: Settlement with guarantors does not extinguish the principal borrower's liability unless the creditor expressly waives its rights against the borrower, and an acknowledged subsisting liability within the limitation period justifies admission of a Section 7 application once default is established.

The Appellate Tribunal considered the following core legal questions:

i) Whether FIRs registered before 01.07.2005, the date of enforcement of the Prevention of Money Laundering Act, 2002 (PMLA), can be considered for calculating the quantum of proceeds of crime under the PMLARs.

ii) Whether properties owned by appellants, who are not named as accused in any FIR or charge-sheet under Section 173 Cr.P.C., can be attached under the PMLARs.

iii) Whether the attached properties were legitimately acquired by the appellants from lawful sources and not from proceeds of crimeRs.

iv) Whether the police have the authority to take physical possession of vehicles attached by the Enforcement Directorate (ED) under the PMLARs.

v) Whether the possession of attached properties was taken in violation of Rule 4(1) of The Prevention of Money Laundering (Taking Possession of Attached or Frozen Properties Confirmed by The Adjudicating Authority) Rules, 2013Rs.

vi) Whether freezing of bank accounts can continue beyond 30 days without an application under Section 17(4) of the PMLARs.

vii) Whether freezing of accounts can be effected only under Section 17(1A) of the PMLA and not under Section 5(1)Rs.

viii) Whether there was any violation of Rules 8 and 9 of The Prevention of Money Laundering (Forms, Search and Seizure or Freezing and the Manner of forwarding the Reasons and Material to the Adjudicating Authority, Impounding and Custody of Records and the Period of Retention) Rules, 2005Rs.

ix) Whether an order confirming attachment under Section 8(3) of the PMLA can be passed without a prior order under Section 8(2)Rs.

2. ISSUE-WISE DETAILED ANALYSIS

Issue i: Consideration of FIRs registered before 01.07.2005 for calculating proceeds of crime

The appellants contended that since five out of six FIRs identified by the ED pertained to offences committed before the PMLA came into force on 01.07.2005, the provisions of the PMLA should not apply to them. They argued that offences committed prior to the Act's enforcement cannot be the basis for attachment under PMLA.

The Tribunal referred to authoritative precedents, including Dyani Antony Paul v. Union of India and Vem Krishna Keerthan v. Directorate of Enforcement, which clarified that the offence of money laundering is a continuing offence and is independent of the date of commission of the predicate scheduled offence. The relevant date for determining money laundering is when the proceeds of crime are projected as untainted property or are dealt with in a manner connected to proceeds of crime.

The Tribunal also relied on the Supreme Court judgment in Vijay Madanlal Chaudhary v. Union of India, which stated that the offence under Section 3 of PMLA concerns the process or activity connected with proceeds of crime, irrespective of when the predicate offence was committed. The offence of money laundering can be committed even after the scheduled offence if the accused continues to possess or deal with proceeds of crime.

Applying this legal framework, the Tribunal held that the date of commission of the scheduled offences is not determinative; rather, the relevant date is when the accused indulges in activities connected with the proceeds of crime. Therefore, FIRs registered before 01.07.2005 can be considered for calculating proceeds of crime if the money laundering activities occurred after the Act's enforcement.

This issue was decided against the appellants and in favor of the respondent ED.

Issue ii: Attachment of properties of persons not named as accused in FIR or charge-sheet

The appellants argued that since they were neither named as accused in any FIR nor in charge-sheets, their properties should not be attached under the PMLA.

The Tribunal referred to the Supreme Court's ruling in Vijay Madanlal Chaudhary, which clarified that Section 5(1) of the PMLA is not limited to accused persons named in predicate offences. The section applies to any person involved in any process or activity connected with proceeds of crime, regardless of whether they are named in the FIR or charge-sheet.

The Court emphasized the broad objective of the PMLA to attach and confiscate proceeds of crime, irrespective of the person holding the property. Hence, properties held by persons not named as accused can be attached if they are involved with proceeds of crime.

The Tribunal accordingly rejected the appellants' contention and upheld the attachment.

Issue iii: Whether attached properties were acquired from legitimate sources

The appellants claimed that the attached properties were purchased from legitimate sources such as agricultural income, transport business earnings, and loans from banks and friends. They contended that no incriminating evidence was produced against them.

The Tribunal noted the absence of any documentary evidence such as income tax returns, bank statements, or loan documents to substantiate the appellants' claim of legitimate acquisition. In the absence of such proof, the Tribunal was not inclined to accept the appellants' contentions.

The Court observed that the appellants remain free to lead their defence during the criminal trials but that the material on record justified the attachment.

This issue was decided against the appellants and in favor of the ED.

Issues iv and v: Authority of police to take physical possession and compliance with Rule 4(1) of 2013 Rules

The appellants contended that the police had no authority to take physical possession of the vehicles attached by the ED and that such possession was taken in violation of Rule 4(1) of The Prevention of Money Laundering (Taking Possession of Attached or Frozen Properties Confirmed by The Adjudicating Authority) Rules, 2013, which mandates that the authorized officer shall take physical possession and deposit the property in a warehouse or storage place.

The Tribunal examined Rule 4(1) and found no explicit prohibition against the ED directing local police to take physical possession of movable attached property. The appellants failed to demonstrate how the Rule was violated.

The Tribunal concluded that the police taking possession at the ED's instance was lawful and did not contravene the Rules.

These issues were decided against the appellants and in favor of the ED.

Issues vi and vii: Continuation of freezing of accounts beyond 30 days and applicable provisions for freezing

The appellants argued that freezing of accounts could only be done under Section 17(1A) of the PMLA and not under Section 5(1), and that freezing could not continue beyond 30 days without an application under Section 17(4).

The Tribunal analyzed Section 17(4), which requires that an application for retention or continuation of freezing be filed within 30 days. However, the Tribunal noted that Sections 20 and 21 of the PMLA permit retention of seized or frozen property and records for up to 180 days if the authorized officer has reason to believe such retention is necessary for adjudication.

Therefore, filing an application under Section 17(4) is not the sole method to retain frozen property; the ED can retain property under Sections 20 and 21 for adjudication purposes.

In the present case, the ED passed the Provisional Attachment Order (PAO) and filed the Original Complaint for confirmation within the prescribed period, complying with the procedural requirements.

Accordingly, the Tribunal held that the freezing and retention of accounts and properties were lawful and in conformity with the PMLA.

These issues were decided against the appellants and in favor of the ED.

Issue viii: Alleged violation of Rules 8 and 9 of the 2005 Rules

The appellants alleged violations of Rules 8 and 9 of The Prevention of Money Laundering (Forms, Search and Seizure or Freezing and the Manner of forwarding the Reasons and Material to the Adjudicating Authority, Impounding and Custody of Records and the Period of Retention) Rules, 2005.

The Tribunal observed that the appellants failed to specify how these Rules were violated. In the absence of any contrary proof, the Court invoked the presumption under Section 114(e) of the Indian Evidence Act, 1872, that official acts have been regularly performed.

The Tribunal thus rejected the contention of violation of these Rules.

This issue was decided against the appellants and in favor of the ED.

Issue ix: Whether confirmation order under Section 8(3) can be passed without an order under Section 8(2)

The appellants contended that the Adjudicating Authority erred in confirming the PAO under Section 8(3) without passing an order under Section 8(2).

The Tribunal examined Section 8(2), which requires the Adjudicating Authority to consider replies, hear parties, and record a finding whether any of the properties are involved in money laundering. The proviso mandates giving an opportunity to persons claiming the property.

The Tribunal found that the ED had complied with the procedural requirements by issuing the PAO on reasonable belief, filing the Original Complaint, and recording statements of the appellants under Section 50 of the PMLA. The proviso to Section 8(2) was duly complied with.

Therefore, the confirmation order under Section 8(3) was validly passed following the procedure under Section 8(2).

This issue was decided against the appellants and in favor of the ED.

3. SIGNIFICANT HOLDINGS

The Tribunal established several core principles and made key determinations as follows:

"The relevant date to find out the offence of money laundering is when the proceeds is projected to be untainted property. The offence of money laundering is a continuous offence. The date of commission of the scheduled offence may not be relevant to prosecute a person for the offence of money laundering at a later point of time."

"The sweep of Section 5(1) is not limited to the Accused named in the criminal activity relating to a scheduled offence. It would apply to any person (not necessarily being Accused in the scheduled offence), if he is involved in any process or activity connected with the proceeds of crime."

"In absence of any documentary evidence tendered by the appellant to prove legitimate acquisition, the claim that properties were purchased from legal sources cannot be accepted."

"Rule 4(1) of the 2013 Rules does not prohibit the ED from directing local police to take physical possession of attached movable property."

"Sections 20 and 21 of the PMLA allow retention of seized or frozen properties for up to 180 days for adjudication purposes, and filing an application under Section 17(4) is not the only course for continuation of freezing."

"In absence of any proof to the contrary, official acts including compliance with Rules 8 and 9 of the 2005 Rules are presumed to be regularly performed."

"The Adjudicating Authority's confirmation order under Section 8(3) is valid where procedural requirements under Section 8(2) have been complied with, including opportunity to the person claiming the property."

Based on these principles, the Tribunal dismissed the appeals, affirming the attachment and confirming the orders of the Adjudicating Authority. The appellants were granted liberty to apply for release of vehicles subject to deposit of fixed deposit receipts equivalent to their insured values or for the ED to notify financiers for auction and deposit of excess amounts, safeguarding financiers' interests.

1. Whether there exists an underlying predicate offence under the Prevention of Money Laundering Act, 2002 ("PMLA") to justify attachment of properties under Section 5(1) of the Act.

2. Whether the Respondent Directorate of Enforcement ("ED") has discharged its burden to establish a money trail linking the appellants to proceeds of crime.

3. Whether the properties attached were acquired out of clean, untainted money or proceeds of crime.

4. Whether the statutory requirements under PMLA, including communication of reasons to believe, were complied with before passing the provisional attachment orders.

5. Whether the properties attached have a direct, proximate, and intricate link to the commission of scheduled offences as required under Sections 2(1)(u) and 2(1)(v) of the PMLA.

6. Whether the application for substitution of attached property is maintainable under the relevant Rules framed under the PMLA.

Issue 1: Existence of Underlying Predicate Offence

The relevant legal framework is Section 5(1) of the PMLA, which allows attachment of property involved in money laundering linked to scheduled offences. The scheduled offences here include offences under Sections 409, 420, 468, 471, 477A, and 120-B of the Indian Penal Code ("IPC"). The FIR and charge sheets filed by the Economic Offences Wing ("EOW") against the principal accused, including M/s BFOPL and its directors, form the predicate offence for the PMLA proceedings.

The Court referred to the Supreme Court's judgment in Vijay Madanlal Choudhary, which clarified that Section 5(1) of PMLA is not limited to accused named in the scheduled offence but extends to any person involved in activities connected with proceeds of crime. The objective is to attach and confiscate proceeds of crime regardless of whose name they are held in.

The Court found that the predicate offences were clearly established by the FIR and charge sheets, and the appellants were linked to the proceeds of crime generated by the principal accused. Thus, the contention that no predicate offence exists was rejected.

Issue 2: Burden to Establish Money Trail

The appellants argued that the Respondent failed to establish a money trail linking the attached properties to proceeds of crime. The Court examined the investigation records, including statements, bank ledgers, and international cooperation documents.

Key evidence included:

• Summons to the Managing Director of the builder company and ledger showing payments for the property without creditors mentioned.
• Bank records revealing a payment of Rs. 89,00,000/- from M/s Harin Ventures Limited, Dubai, for the property purchase.
• Documents proving Sai Chandrasekhar's association with M/s Harin Ventures Ltd., despite his denial.
• Funds transferred from the main accused Virkaran Awasty to M/s Harin Ventures Ltd. accounts in Dubai, which were then routed to Sai Chandrasekhar's personal accounts and further to the builder.

The Court observed inconsistencies and false statements by the appellants regarding sources of funds, including a fabricated claim of loan from a relative that was disproved by bank records indicating layering of funds.

Applying the law to these facts, the Court held that the Respondent had successfully demonstrated a credible and direct link between the proceeds of crime and the attached properties, thereby discharging the burden of establishing the money trail.

Issue 3: Acquisition of Property from Clean Money

The appellants claimed the properties were acquired from legitimate sources, including commissions from trading, salary from employment, and housing loans. However, the Court found these claims contradicted by the evidence of fund transfers from the accused's accounts to the Dubai company and then to the appellants.

The Court noted that the appellants' explanations were false and deliberately misleading, reinforcing the conclusion that the properties were acquired from proceeds of crime.

Issue 4: Compliance with Statutory Requirements and Communication of Reasons

The appellants contended that the "reasons to believe" recorded by the ED were not communicated to them, citing a judgment of the Delhi High Court. The Court observed that the Supreme Court had stayed the operation of that judgment and that the Madras High Court had held that Section 5 of the PMLA does not mandate communication of reasons before provisional attachment.

The Court distinguished between the requirements under Section 5(1) and Section 8(1) of the PMLA, noting that the Adjudicating Authority need not record reasons at the stage of confirmation of attachment. The provisional attachment order itself serves as a show cause notice. Hence, the statutory requirements were held to be complied with.

Issue 5: Link Between Property and Scheduled Offence

The appellants argued that the property must have a direct, proximate, and intricate link to the scheduled offence to be attachable. The Court analyzed Sections 2(1)(u) and 2(1)(v) of the PMLA and relied on the Supreme Court's ruling in Vijay Madanlal Choudhary, which interpreted "proceeds of crime" broadly to include the value of such property, not only the property directly obtained from the offence.

The Court cited the Delhi High Court's detailed judgment explaining three categories of attachable property:

• Tainted property directly derived from crime.
• Value of such property.
• Equivalent value property held abroad or in India when tainted property is untraceable.

The Court emphasized the legislative intent to enable attachment of property to prevent dissipation during investigation and trial, even if the property is not directly the tainted asset but of equivalent value.

Applying these principles, the Court found that the attached properties had a sufficient causal link to the scheduled offences through the money trail and were rightly attached as proceeds of crime.

Issue 6: Application for Substitution of Attached Property

The appellants sought substitution of the attached immovable property with other property or security. The Court referred to Rule 4 of the Prevention of Money Laundering (Attachment and Adjudication) Rules, 2013, which governs the manner of taking possession of attached property.

The Court noted that Rule 4 allows substitution only in limited cases such as movable property liable to speedy decay or conveyances, where fixed deposit receipts may be accepted as security. However, bullion, jewellery, or immovable property are required to be physically attached or kept in custody without provision for substitution.

The Court relied on a recent ruling of the Appellate Tribunal holding that substitution of attached property is not permissible except as per the specific provisions of the Rules, which do not cover immovable property.

Accordingly, the application for substitution was dismissed.

Additional Findings and Observations

The Court noted that a prosecution complaint under Sections 44 and 45 of the PMLA had been filed against the accused Sai Chandrasekhar, and cognizance had been taken by the Special Court. The attached properties had become case property, and their confiscation would be decided by the trial court.

The Court underscored that attachment is a balancing measure to protect the interests of the parties and to prevent dissipation of proceeds of crime pending trial. Given the ongoing criminal proceedings, the balance favored continued attachment.

Significant Holdings:

"The sweep of Section 5(1) of PMLA, 2002 is not limited to the accused named in the scheduled offence. It would apply to any person (not necessarily being accused in the scheduled offence), if he is involved in any process or activity connected with the proceeds of crime."

"The objective of enacting the PMLA was the attachment and confiscation of proceeds of crime which is the quintessence, so as to combat the evil of money-laundering, by reaching the proceeds of crime in whosoever's name they are kept or by whosoever they are held."

"The definition of 'proceeds of crime' is wide enough to not only refer to the property derived or obtained as a result of criminal activity relating to a scheduled offence, but also of the value of any such property."

"The legislature has made provision for 'provisional attachment' bearing in mind the possibility of circumstances of urgency that might necessitate such power to be resorted to... The authority for 'provisional' attachment of suspect assets is to ensure that the same remain within the reach of the law."

"Rule 4 of the Rules of 2013 allows substitution of attached property only in limited cases such as movable property liable to speedy decay or conveyances. It does not permit substitution of immovable property or bullion."

"Attachment of property is a balancing arrangement to secure the interests of the person, as also ensure that the proceeds of crime remain available to be dealt with in the manner provided by the Act."

Final determinations include dismissal of all appeals challenging the attachment orders, rejection of the contention that no predicate offence existed, affirmation that the Respondent established the money trail linking the appellants to proceeds of crime, holding that statutory requirements were met, and denial of the application for substitution of attached property.

1. Whether the appellant was liable to pay service tax on the works contract services provided to various entities under the category of "Tour Operator Service, Travel agent for booking of passage, accommodation etc.", or whether exemptions applied under the relevant notifications and rules.

2. Whether the appellant correctly discharged service tax liability on services provided to Maharishi Ved Vigyan Vishwa Peetham, Hindustan Construction Company Ltd., Aditya Birla Nuvo Ltd., Azim Premji Educational Trust, and other entities.

3. The applicability and interpretation of exemption notifications, particularly Notification No. 25/2012-ST dated 20.06.2012 and the Service Tax (Determination of Value) Rules, 2006, especially Rule 2A(i) and 2A(ii).

4. Whether the Commissioner (Appeals) had jurisdiction to remand the matter for de novo adjudication.

5. The validity of demand for service tax, interest, and penalties under Sections 73, 77, and 78 of the Finance Act, 1994, including the invocation of extended period of limitation due to alleged willful suppression of facts.

6. Whether the appellant had maintained proper accounts and records as required under the Service Tax Rules.

Issue-wise Detailed Analysis

1. Liability to pay service tax on works contract services and applicability of exemptions

The appellant was engaged in providing taxable services categorized under "Tour Operator Service" but was found to have provided works contract services to several entities. The Department issued a Demand cum Show Cause Notice (SCN) proposing a demand of service tax amounting to Rs. 95,35,411/- plus applicable interest and penalties, based on a mismatch between Form 26AS and ST-3 returns.

The adjudicating authority recalculated the service tax liability and confirmed a demand of Rs. 95,262/- while dropping the balance demand. The Commissioner (Appeals) remanded the matter for de novo adjudication due to incomplete records, which was challenged in this appeal.

Relevant legal framework includes Notification No. 25/2012-ST dated 20.06.2012 (Mega Exemption Notification) and Service Tax (Determination of Value) Rules, 2006. The Court emphasized the need to correctly classify the services and apply exemptions where applicable.

The Court observed that the adjudicating authority's order was detailed, issue-wise, and well reasoned. It found that the appellant had provided works contract services, which were taxable unless exempted under the notification.

2. Service tax liability on services provided to Maharishi Ved Vigyan Vishwa Peetham

Under Serial No. 13(c) of Notification No. 25/2012-ST, services related to construction of a building owned by an entity registered under Section 12AA of the Income Tax Act and meant predominantly for religious use by the general public are exempt.

The appellant constructed a Meditation Hall and Yagyashala for Maharishi Ved Vigyan Vishwa Peetham, which was registered under Section 12AA. The adjudicating authority accepted the exemption based on the certificate and the nature of the building.

The Commissioner (Appeals) erred by doubting the certificate's existence and remanding the matter without independent examination. The Court held that the appellant had rightly claimed exemption and the Commissioner (Appeals) had wrongly accepted the Department's contention without independent findings.

3. Service tax liability on services provided to Hindustan Construction Company Ltd.

Serial No. 12(d) exempts services provided to government or local authority by way of construction of canal, dam, or irrigation works. Serial No. 29(h) exempts sub-contractors providing works contract services to another contractor whose services are exempt.

The appellant acted as a sub-contractor to Hindustan Construction Company Ltd., the main contractor for a hydroelectric project dam, which was exempt under Serial No. 12(d). The appellant was thus entitled to exemption under Serial No. 29(h).

The Commissioner (Appeals) accepted the Department's objections regarding unsigned work orders and lack of RA bills without independent reasoning, which was found to be perverse. The Court referred to a precedent establishing that sub-contractors are exempt if the main contractor is exempt.

4. Service tax liability on services provided to Aditya Birla Nuvo Ltd. and Azim Premji Educational Trust

Rule 2A(i) of the Service Tax (Determination of Value) Rules, 2006, provides that the value of service portion in a works contract equals the gross amount charged less the value of property in goods transferred.

The appellant submitted purchase bills of materials consumed at the project sites for both entities. The adjudicating authority verified these invoices and determined the service portion by deducting the cost of materials from gross receipts.

The Court found that the goods were transferred as part of the works contract execution, thus the deduction was justified. The Commissioner (Appeals) erred in applying abatement under Rule 2A(ii) instead of deduction under Rule 2A(i) and misapplied the law.

5. Demand of service tax, interest, and penalties

The adjudicating authority held that the appellant had willfully suppressed facts by registering for "Tour Operator Services" but actually providing works contract services, availing abatement improperly, and not paying service tax timely.

Penalties under Sections 77 and 78 of the Finance Act, 1994, were imposed for non-maintenance of proper records and willful suppression with intent to evade tax. The Court upheld these penalties, finding that the appellant had not deposited all service tax collected and had suppressed material facts.

However, the Court rejected the extended demand of Rs. 95,35,411/- as unjustified but upheld the recalculated demand of Rs. 95,262/- with interest.

6. Jurisdiction of Commissioner (Appeals) to remand the matter

The Commissioner (Appeals) remanded the matter to the adjudicating authority for de novo adjudication, citing incomplete records.

The Court held that the Commissioner (Appeals) lacked jurisdiction to remand the matter after the amendment to Section 35A of the Central Excise Act. The power of remand had been taken away by Parliament, and the Commissioner (Appeals) should have decided the appeal on merits.

The Court set aside the remand order and restored the original adjudicating authority's order.

7. Maintenance of accounts and records

The adjudicating authority found that the appellant had not maintained proper accounts and failed to submit required documents, justifying penalties under Section 77(1)(b) and 77(1)(c).

The Court upheld these penalties as justified.

Significant Holdings

"The Original Adjudicating Authority has passed a detailed and well reasoned order and has dealt the disputes issue wise."

"The appellant has rightly discharged service tax liability on services provided to Maharishi Ved Vigyan Vishwa Peetham under Serial No. 13(c) of Notification No. 25/2012-ST dated 20.06.2012."

"As per para 29(h) of Notification no. 25/2012-ST dated 20.06.2012, sub-contractor services provided by party in this case, the benefit of exemption under para 12(d) of Notification no. 25/2012-ST dated 20.06.2012 has been extended to them."

"The benefit of Rule 2A(i) of Service Tax (Determination of Values) Rules, 2006 is applicable on the services provided to M/s Aditya Birla Nuvo Limited and M/s Azim Premji Educational Trust."

"The Commissioner (Appeals) did not have the power to remand and hence could not have remanded the matter to the Adjudicating Authority for de novo adjudication but should have decided the appeal on merits."

"Penalty under Section 78 made in SCN dt. 30.12.2020 is sustainable for willful suppression of facts with intent to evade payment of service tax."

"Imposition of penalty under Section 77(1)(b) & 77(1)(c) is justified for non-maintenance of proper accounts and records."

"The demand of Rs. 95,35,411/- under proviso to Section 73(1) of the Finance Act as demanded in the SCN dt. 30.12.2020 is not justified. However, the recalculated service tax amounting to Rs. 95,262/- after extending the due benefit available to the party as per the provisions of the Act should be demanded."

The Court allowed the appeal, set aside the remand order passed by the Commissioner (Appeals), and upheld the original adjudicating authority's order dated 08.04.2022.

The core legal questions considered by the Tribunal in this matter include:

(a) Whether the activities carried out by the appellant fall under the ambit of cargo handling service, work contract service, management, maintenance or repair services (MMR), or manpower recruitment and supply services, thereby attracting service tax under Section 66B of the Finance Act, 1994;

(b) Whether the show cause notice issued for the period July 2012 to September 2014 is sustainable, particularly given that an earlier notice covered the period up to December 2012;

(c) Whether the appellant's service tax liability has been correctly computed and demanded, especially in light of the appellant holding two service tax registration numbers and having discharged tax liability under one of them;

(d) Whether the department has erred in ignoring payments already made by the appellant towards service tax;

(e) Whether the classification of services and the applicable reverse charge mechanism ratios (50/50 for works contract service and 75/25 for MMR services) have been correctly applied by the adjudicating authority;

(f) Whether the original adjudicating authority properly considered the appellant's submissions and documentary evidence regarding registration numbers and tax payments.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Classification of Services Rendered and Applicability of Service Tax

Relevant legal framework and precedents: Section 66B of the Finance Act, 1994 imposes service tax on taxable services. Section 65B(44) defines management, maintenance or repair services (MMR). Notification No. 30/2012-ST specifies the reverse charge mechanism applicable to manpower recruitment and supply services. Precedents such as the decisions in Sahara India TV Network and K.K. Kedia have been cited regarding classification and tax liability.

Court's interpretation and reasoning: The Tribunal noted that the department alleged the appellant's activities to be taxable under various service categories: cargo handling service for unloading and shifting of coal and stones; management, maintenance or repair services for annual maintenance and routine/breakdown works; and manpower recruitment and supply services for manpower supply to certain entities.

The appellant denied classification of certain activities as MMR and contended that many activities fall under works contract service or manpower supply service, which attract service tax under reverse charge with specified ratios (50/50 for WCS and 75/25 for MMR). The Tribunal observed that the original adjudicating authority did not deal with these submissions.

Key evidence and findings: The appellant provided documentary evidence including work orders, bills, completion certificates, and VAT returns. They also highlighted that service tax liability was discharged under one registration number.

Application of law to facts: The Tribunal recognized that the nature of services rendered is crucial to determine the correct classification and hence the tax liability. It emphasized that the original authority failed to consider the appellant's defense and documentary evidence on this point.

Treatment of competing arguments: The department maintained the correctness of the classification and demand, while the appellant challenged it on grounds of misclassification and partial payment of tax. The Tribunal found merit in the appellant's submissions and noted the lack of adjudication on these points.

Conclusions: The issue of classification and applicability of service tax under the correct category and reverse charge mechanism requires fresh consideration.

Issue (b): Validity of Show Cause Notice for the Period July 2012 to September 2014

Relevant legal framework and precedents: Principles of natural justice and limitation in issuance of show cause notices apply. The Tribunal referred to the fact that an earlier notice covered the period up to December 2012.

Court's interpretation and reasoning: The appellant argued that the impugned show cause notice dated 10.03.2015 was not sustainable for the period July 2012 to December 2012 as that period was already covered by an earlier notice dated 19.12.2014. The Tribunal noted this contention but did not conclusively rule on it, instead opting to remand the matter for fresh adjudication.

Key evidence and findings: The appellant's submissions and the dates of the notices were considered.

Application of law to facts: The Tribunal implied that duplication of proceedings for the same period may be impermissible and required verification by the original authority.

Treatment of competing arguments: The department did not raise objection to remand, implicitly accepting the need for reconsideration.

Conclusions: The issue requires verification and fresh adjudication by the original authority.

Issue (c): Effect of Dual Service Tax Registrations and Payment of Service Tax

Relevant legal framework and precedents: Taxpayer identification and registration under service tax law require clarity. The Tribunal referred to the decision in Sahara India TV Network, which dealt with rectification of mistakes arising from multiple registrations for the same legal entity.

Court's interpretation and reasoning: The appellant demonstrated that two registration numbers were issued due to clerical error but pertained to the same assessee. The appellant had discharged service tax liability under one registration (AAEFS2040LST001) and filed nil returns under the other (AAEFS2040CST001). The demand was based on the nil return registration number, ignoring tax paid under the other number.

The Tribunal observed that the original adjudicating authority did not consider this defense or verify the correctness of the registrations and payments.

Key evidence and findings: Documentary proof of registrations, returns filed, and payments made were submitted by the appellant.

Application of law to facts: The Tribunal held that where the same legal entity is issued multiple registrations, the issue is one of rectification of clerical mistake and proper accounting of tax payments, not a substantive denial of liability.

Treatment of competing arguments: The department did not dispute the existence of two registrations or payment under one but maintained the demand. The Tribunal found the department's approach unjustified.

Conclusions: Verification of registration numbers and tax payments is essential before confirming demand.

Issue (d): Ignorance of Payments Made by the Appellant

Relevant legal framework and precedents: Principles of equity and prevention of unjust enrichment apply. The appellant cited precedents where revenue was not allowed to benefit from ignoring payments made.

Court's interpretation and reasoning: The Tribunal noted that the department and original adjudicating authority ignored the payment of Rs. 38,08,691/- by the appellant towards service tax, which should have been adjusted against the demand.

Key evidence and findings: Payment records and Form 26AS were relied upon by the appellant.

Application of law to facts: The Tribunal emphasized that failing to account for payments results in unjust enrichment of the revenue and is contrary to principles of natural justice.

Treatment of competing arguments: The department did not contest the payment but failed to consider it in the order.

Conclusions: The original authority must consider all payments made and adjust the demand accordingly.

Issue (e): Application of Reverse Charge Mechanism Ratios

Relevant legal framework and precedents: Notification No. 30/2012-ST prescribes reverse charge liability for manpower recruitment and supply services and works contract services with specified ratios.

Court's interpretation and reasoning: The appellant contended that the service tax liability should be apportioned as 50% by the service provider and 50% by the service receiver for works contract services, and 25% by the provider and 75% by the receiver for MMR services.

The Tribunal observed that the original adjudicating authority did not address these submissions.

Key evidence and findings: The appellant's submissions and relevant statutory notifications were presented.

Application of law to facts: Correct application of reverse charge mechanism is critical to determine the quantum and party liable to pay service tax.

Treatment of competing arguments: The department upheld the demand without considering the appellant's contention on reverse charge apportionment.

Conclusions: The issue requires fresh examination by the original authority.

Issue (f): Failure of Original Adjudicating Authority to Consider Appellant's Submissions

Relevant legal framework and precedents: Principles of natural justice require that all relevant submissions and evidence be considered before passing an order.

Court's interpretation and reasoning: The Tribunal found that the original adjudicating authority was silent on several key defenses and documentary evidence submitted by the appellant, including the issue of dual registrations, payment of service tax, classification of services, and reverse charge mechanism.

Key evidence and findings: The appellant's replies to the show cause notice, documentary evidence, and oral submissions during hearings.

Application of law to facts: Failure to consider these aspects vitiates the order and necessitates remand.

Treatment of competing arguments: The department did not oppose remand.

Conclusions: The matter is fit for remand to original adjudicating authority for fresh decision after considering all submissions.

3. SIGNIFICANT HOLDINGS

The Tribunal held that:

"The legal person under two tax registrations, if is the same person, issue is not so much of law but of rectification of mistake inadvertently committed and mistake committed in remittance of service tax under different codes. Such situation should have been sought out by the Original adjudicating authority."

The Tribunal established the core principle that where multiple service tax registrations are issued to the same assessee due to clerical error, the issue is one of rectification and proper accounting rather than denial of liability.

It was further held that the original adjudicating authority must:

• Decide the show cause notice afresh;
• Verify whether the two registrations pertain to the same assessee;
• Ascertain whether the service tax liability has been fully discharged under one registration;
• Determine the correct classification of services and the applicable reverse charge mechanism ratios;
• Afford the appellant adequate opportunity of representation.

The Tribunal allowed the appeals by remanding the matter with directions for fresh adjudication within three months.

The core legal questions considered by the Tribunal in this judgment are:

- Whether the demand of service tax on renting of immovable property used for running a hostel is sustainable under section 65(105)(zzzz) of the Finance Act, 1994.

- Whether the exclusion clause in the definition of taxable service under section 65(105)(zzzz) exempting renting of immovable property used as residential accommodation including hostels and hotels was properly considered in the earlier Final Order.

- Whether the Final Order dated 08.04.2024 requires rectification to correct the mistake apparent on record regarding the above exclusion.

2. ISSUE-WISE DETAILED ANALYSIS

Issue: Taxability of Renting of Immovable Property Used for Running a Hostel under Section 65(105)(zzzz) of the Finance Act, 1994

Relevant Legal Framework and Precedents:

Section 65(105)(zzzz) of the Finance Act, 1994 defines "taxable service" to include services provided by renting of immovable property or any other service in relation to such renting for use in the course of or for furtherance of business or commerce. The section includes detailed explanations that clarify the scope of "immovable property" and explicitly exclude certain categories from taxable services. Notably, Explanation 1(d) excludes buildings used solely for residential purposes and buildings used for accommodation including hotels, hostels, boarding houses, holiday accommodation, tents, and camping facilities from the definition of taxable service under this clause.

Court's Interpretation and Reasoning:

The Tribunal initially in the Final Order dated 08.04.2024 had upheld the demand of service tax on the appellant's property rented for running a hostel, reasoning that renting of the property for running a hostel constitutes a commercial activity and is therefore taxable under section 65(105)(zzzz). The Tribunal observed that the appellant had rented the property to run a hostel and not merely for residential stay, which was considered a commercial use.

However, upon review in the rectification application, the Tribunal acknowledged that the exclusion clause in Explanation 1(d) of section 65(105)(zzzz) specifically excludes renting of immovable property used for accommodation purposes such as hostels from taxable services. This exclusion was not considered in the earlier Final Order, which led to an apparent error requiring rectification.

Key Evidence and Findings:

The appellant's own admission that the property was rented to run a hostel was undisputed. The Revenue's representative conceded the existence of the exclusion clause for properties rented as hostels. The Tribunal examined the statutory language of section 65(105)(zzzz), including the detailed explanations, and found that the exclusion is explicit and unambiguous.

Application of Law to Facts:

Given that the rented property was used for running a hostel, which falls under the category of accommodation excluded from taxable services under Explanation 1(d), the demand for service tax on such renting was not sustainable. The Tribunal applied the statutory exclusion to set aside the demand of Rs. 8,33,522/- on this ground.

Treatment of Competing Arguments:

The earlier reasoning emphasized the commercial nature of running a hostel, suggesting it should be taxable. However, the Tribunal gave precedence to the specific statutory exclusion over the general commercial activity argument, holding that the legislative intent was to exempt such accommodation services from service tax under this clause.

Conclusions:

The Tribunal concluded that the demand of service tax on renting of immovable property for running a hostel was erroneously upheld and must be set aside in light of the exclusion clause in section 65(105)(zzzz).

Issue: Rectification of Mistake in the Final Order dated 08.04.2024

Relevant Legal Framework:

The rectification of orders by appellate authorities is permissible to correct mistakes apparent on the face of the record that affect the correctness of the order. This includes errors arising from oversight of relevant statutory provisions.

Court's Interpretation and Reasoning:

The Tribunal found that the failure to consider the exclusion clause in Explanation 1(d) of section 65(105)(zzzz) constituted a mistake apparent on record. The omission led to an incorrect confirmation of demand which was contrary to the statutory framework.

Key Evidence and Findings:

The statutory provision itself and the submissions of both parties confirmed the existence of the exclusion. The Tribunal relied on the statutory text rather than extraneous evidence.

Application of Law to Facts:

The Tribunal exercised its power to rectify the Final Order by substituting paragraph 10 with a corrected analysis reflecting the exclusion, and consequentially amended paragraph 14 to set aside the demand of Rs. 8,33,522/- along with interest and proportionate penalty.

Treatment of Competing Arguments:

The Revenue's acceptance of the exclusion clause facilitated the rectification. The Tribunal did not find any justification to maintain the demand in face of the clear statutory exclusion.

Conclusions:

The rectification application was allowed, and the Final Order was modified accordingly to correct the mistake.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"Renting of immovable property was chargeable to service tax under section 65 (105) (zzzz) of the Finance Act during the relevant period, except where such renting of property was for residential purposes. According to the appellant itself, it had rented its property to run a hostel and it had not rented it to somebody to stay. What is taxable under section 65 (105) (zzzz) of the Finance Act is a service rendered by any person by renting of immovable property or any other service in relation to such renting for use in the course of or for furtherance of business or commerce. However, renting of the property for running a hostel is specifically excluded from the definition of taxable service of renting of immovable property under section 65 (105) (zzzz) of the Finance Act. The demand of Rs. 8,33,522/-, therefore, needs to be set aside and we do so."

Core principles established include:

• The explicit exclusion in Explanation 1(d) to section 65(105)(zzzz) exempts renting of immovable property used for residential accommodation including hostels from service tax liability.
• The commercial nature of the activity (running a hostel) does not override the statutory exclusion for residential accommodation.
• Appellate authorities have the power to rectify mistakes apparent on record, including failure to consider relevant statutory exclusions, by modifying earlier orders accordingly.

Final determinations on each issue:

• The demand of service tax on renting of immovable property used for running a hostel under section 65(105)(zzzz) is not sustainable and is set aside.
• The Final Order dated 08.04.2024 is rectified to reflect the statutory exclusion and to set aside the related demand, interest, and proportionate penalty.

Issues: (i) Whether statements and documents collected by the income-tax authorities could be relied upon, without independent central excise investigation, to sustain a demand for duty on alleged clandestine manufacture and removal; (ii) whether the personal penalties imposed on the co-noticees could survive when the duty demand and main penalty were unsustainable and when the cited penalty provisions did not cover the alleged conduct.

Issue (i): Whether statements and documents collected by the income-tax authorities could be relied upon, without independent central excise investigation, to sustain a demand for duty on alleged clandestine manufacture and removal.

Analysis: Statements recorded under the Income-tax Act, 1961 were held to be usable only within proceedings under that Act, and there was nothing in the Central Excise Act, 1944 authorising their use as evidence to prove a central excise case. The statement recorded under section 14 of the Central Excise Act, 1944 was also not admissible because the procedure for admitting such statement as evidence under section 9D had not been followed. The documents and electronic material received from income-tax proceedings, without independent investigation by the Central Excise Department, were held to have no evidentiary value for proving clandestine manufacture, removal or sale. Since manufacture, the liable person, the duty measure and the rate must all be established, and the department had not done so, the demand could not stand.

Conclusion: The duty demand, interest and penalty on the main appellant were unsustainable and were set aside.

Issue (ii): Whether the personal penalties imposed on the co-noticees could survive when the duty demand and main penalty were unsustainable and when the cited penalty provisions did not cover the alleged conduct.

Analysis: The personal penalties were based on Rule 209A of the Central Excise Rules, 1944 and Rule 26 of the Central Excise Rules, 2001 and the Central Excise Rules, 2002. Those provisions apply to persons dealing with goods liable to confiscation, and Rule 26 of the Central Excise Rules, 2002 also concerns certain invoice-related misuse. In the case at hand, no goods had been confiscated or held liable to confiscation, and there was no allegation of invoices being issued without supply of goods for ineligible credit. The personal penalties were therefore consequentially unsustainable and, in any event, not supported by the cited rules.

Conclusion: The personal penalties on the co-noticees were unsustainable and were set aside.

Final Conclusion: The order of the adjudicating authority was set aside in full, and all connected appeals succeeded with consequential relief.

Ratio Decidendi: Material collected under the Income-tax Act, 1961 cannot, by itself and without independent central excise investigation and lawful admission of statements under section 9D, be used to prove clandestine manufacture and removal under the Central Excise Act, 1944; personal penalties under Rule 209A of the Central Excise Rules, 1944 and Rule 26 of the Central Excise Rules, 2001 and 2002 require conduct covered by those provisions, including goods liable to confiscation or the specific invoice-related mischief under the 2002 Rules.

Issues: (i) Whether CENVAT credit on duties paid on capital goods and inputs transferred to the Captive Power Plant unit within the factory premises, created separately in the books for compliance with section 80IA of the Income-tax Act, 1961, was liable to reversal as removal under rule 3(4)/rule 3(5) of the CENVAT Credit Rules; (ii) Whether CENVAT credit on duties paid on parts and components used by the contractor for installation and commissioning of the Captive Power Plant was admissible; (iii) Whether CENVAT credit on iron and steel items used as structural support for the chimney qualified as capital goods under rule 2(a)(A) of the CENVAT Credit Rules.

Issue (i): Whether CENVAT credit on duties paid on capital goods and inputs transferred to the Captive Power Plant unit within the factory premises, created separately in the books for compliance with section 80IA of the Income-tax Act, 1961, was liable to reversal as removal under rule 3(4)/rule 3(5) of the CENVAT Credit Rules.

Analysis: The Captive Power Plant was situated within the excise-registered factory premises and all inputs and capital goods were received, used, and consumed there. Separate books of account were maintained only for income-tax purposes under section 80IA of the Income-tax Act, 1961, and this notional segregation did not create a separate legal or excise entity. Since there was no actual or physical removal of goods outside the factory, the deeming fiction of removal under rule 3(4)/rule 3(5) was inapplicable.

Conclusion: The credit was not liable to reversal and the issue is decided in favour of the assessee.

Issue (ii): Whether CENVAT credit on duties paid on parts and components used by the contractor for installation and commissioning of the Captive Power Plant was admissible.

Analysis: The power plant was erected inside the factory for captive use in the manufacture of dutiable final products. The parts and components were received under duty-paid invoices in the factory premises and were used to create capital goods that formed part of the manufacturing apparatus. Ownership of the goods was not determinative of credit eligibility. The prior decisions relied upon had already settled that credit is available where the components are received in the factory and used for manufacture of the final product.

Conclusion: CENVAT credit on the components and parts of the Captive Power Plant was admissible and the issue is decided in favour of the assessee.

Issue (iii): Whether CENVAT credit on iron and steel items used as structural support for the chimney qualified as capital goods under rule 2(a)(A) of the CENVAT Credit Rules.

Analysis: The iron and steel items such as columns, platforms, frames, angles, and plates were used to fabricate the supporting structure essential for the chimney's installation and functioning. Such items were integral to the capital equipment and were used in relation to manufacture. They therefore fell within the eligible category for credit as components or accessories of capital goods.

Conclusion: The credit on the iron and steel items used for the chimney structure was admissible and the issue is decided in favour of the assessee.

Final Conclusion: The disallowance of CENVAT credit, along with the consequential interest and penalties, could not be sustained, and the appeals were allowed in full.

Ratio Decidendi: Where capital goods and inputs are received and used within the factory premises for an integrated captive power plant forming part of the manufacturing setup, separate accounting under income-tax law does not alter excise credit eligibility, and ownership or contractor involvement does not defeat credit if the statutory conditions for receipt and use are satisfied.

Issues: Whether the demand of excise duty, interest and penalty on molasses could be sustained under Rule 4(2) of the Central Excise Rules, 2002 without any assertion or proof that the molasses had been procured from khandsari sugar factories, and consequently whether the impugned order could be upheld.

Analysis: Rule 4(2) fastens liability on the procurer only where molasses are produced in a khandsari sugar factory. The show cause notice invoked that provision, but it did not even assert that the appellant had procured molasses from khandsari sugar factories, much less support that allegation with evidence. The adjudicating authority nevertheless confirmed the demand by placing the burden on the appellant to disprove the allegation. In a proceeding of this nature, the person asserting liability must prove the foundational facts on which the demand rests. The principles reflected in Sections 102 and 103 of the Indian Evidence Act, 1878 require the Revenue, and not the assessee, to establish the factual basis for invoking the rule. The absence of any allegation or proof on the essential jurisdictional fact meant that the demand could not survive.

Conclusion: The demand under Rule 4(2), along with the connected interest and penalty, was unsustainable and the assessee succeeded.

Final Conclusion: The impugned order was set aside and the appeal was allowed with consequential relief.

Ratio Decidendi: Where a fiscal demand depends on a special liability provision, the Revenue must plead and prove the foundational facts attracting that provision, and the assessee cannot be burdened to disprove an allegation that was never properly made or established.

Issues: Whether the Tribunal could dismiss a VAT second appeal for absence of counsel or for non-prosecution, or whether it was bound to decide the appeal on merits under Section 26(5)(a) of the Maharashtra Value Added Tax Act, 2002.

Analysis: The statutory scheme under Section 26(5)(a) empowered the appellate authority in an appeal against assessment to confirm, reduce, enhance or annul the assessment, and the Tribunal was required to act in accordance with that mandate. A rule of procedure could not override the substantive provision of the Act. In that view, dismissal of the appeal merely because the appellant's advocate or consultant was absent, or for non-prosecution, was impermissible. The appropriate course was to decide the second appeal on merits.

Conclusion: The dismissal and the refusal to restore the second appeal were unsustainable and were set aside; the appeal was directed to be heard and decided on merits.

Issues: Whether the equal time addition and consequential penalty made under the Tamil Nadu Value Added Tax Act, 2006 could be sustained in the absence of material establishing suppression or wilful nondisclosure by the dealer.

Analysis: The additions were founded on inspection findings and an inference of probable omission for earlier assessment years. The assessment order did not contain specific particulars such as the seller's name, bill number, date, value of goods, or transport details, and no material was furnished to show deliberate suppression of turnover for the years under assessment. The Court also noted that the assessee's statement was limited to non-maintenance of purchase and sales registers and did not amount to an admission of stock variation. In the absence of supporting material, the estimation of turnover on the basis of probable omission was held to be unsustainable. The reasoning was consistent with the principle that materials from another period cannot, without more, justify an addition for the relevant assessment year.

Conclusion: The equal time addition and penalty could not be sustained, and the assessee succeeded.

Ratio Decidendi: An equal time addition based on probable omission cannot be upheld unless the revenue establishes, with relevant material for the assessment year in question, suppression of turnover or wilful nondisclosure.

Issues: (i) Whether the revisional court could interfere with concurrent findings of conviction in the absence of perversity or jurisdictional error. (ii) Whether the complainant bank was entitled to prosecute the complaint on the basis of a cheque drawn on the loan account and whether a cheque filled by someone other than the drawer could still attract liability. (iii) Whether the accused rebutted the statutory presumptions under the Negotiable Instruments Act and whether the dishonour, notice, conviction, sentence and compensation required interference.

Issue (i): Whether the revisional court could interfere with concurrent findings of conviction in the absence of perversity or jurisdictional error.

Analysis: Revisional jurisdiction is narrow and is confined to correcting patent defects, illegality, jurisdictional errors, perversity, or gross miscarriage of justice. It is not an appellate reappreciation of evidence. Where the trial court and appellate court have recorded concurrent findings on evidence, interference is warranted only if those findings are shown to be perverse, wholly unreasonable, or based on no material.

Conclusion: Interference in revision was not warranted on the scope of revisional review.

Issue (ii): Whether the complainant bank was entitled to prosecute the complaint on the basis of a cheque drawn on the loan account and whether a cheque filled by someone other than the drawer could still attract liability.

Analysis: A cheque drawn on the loan account maintained with the bank was treated as a cheque in relation to the debt owed to the bank, and the bank was held to be the holder in due course entitled to maintain the complaint. The fact that the cheque particulars were filled by a person other than the drawer did not invalidate the cheque when the drawer had signed and issued it. Even a signed blank cheque, if voluntarily handed over in a financial transaction, can attract the statutory presumptions once the execution is admitted or established.

Conclusion: The complaint was maintainable and the cheque remained legally effective notwithstanding who filled the particulars.

Issue (iii): Whether the accused rebutted the statutory presumptions under the Negotiable Instruments Act and whether the dishonour, notice, conviction, sentence and compensation required interference.

Analysis: Once issuance and signature of the cheque were established, presumptions under Sections 118(a) and 139 arose in favour of the complainant. The accused did not lead evidence sufficient to rebut the presumptions on a preponderance of probabilities. The defence based on vehicle seizure, CGTMSE coverage, and alleged blank security cheque was rejected. Dishonour for insufficient funds was proved by the bank memo, notice was deemed served, and non-payment followed. The sentence of imprisonment till the rising of the Court was not interfered with, and the compensation order was maintained despite the observation that it was on the lower side. Default imprisonment for non-payment of compensation was also upheld as permissible.

Conclusion: The conviction under Section 138 was sustained and no interference was made with the modified sentence or compensation.

Final Conclusion: The revision failed in its entirety, and the concurrent findings of guilt and the consequential reliefs granted by the appellate court were left undisturbed.

Ratio Decidendi: In proceedings under Section 138 of the Negotiable Instruments Act, admission or proof of the drawer's signature and issuance of the cheque triggers a rebuttable presumption of legally enforceable debt, which can be displaced only by a probable defence established on the evidence; revisional interference with concurrent convictions is justified only on perversity or jurisdictional error.

Issues: (i) whether successive presentation of a cheque and issuance of notice after an earlier dishonour are permissible under the Negotiable Instruments Act; (ii) whether the statutory presumptions under Section 118(a) and Section 139 stood rebutted by the defence that the cheque was a security cheque and the amount was filled by the complainant; and (iii) whether the sentence of imprisonment, compensation and default sentence called for interference in revision.

Issue (i): whether successive presentation of a cheque and issuance of notice after an earlier dishonour are permissible under the Negotiable Instruments Act

Analysis: The legal position is that the Act does not bar repeated presentation of the cheque or successive notices. A prosecution based on a later dishonour remains maintainable so long as the requirements of Section 138 are satisfied. Dishonour on the ground of stop-payment also attracts the penal provision, and the drawer cannot avoid liability merely because an earlier presentation had been followed by notice.

Conclusion: The successive presentation and the later notice were valid, and the complaint was not barred on that ground.

Issue (ii): whether the statutory presumptions under Section 118(a) and Section 139 stood rebutted by the defence that the cheque was a security cheque and the amount was filled by the complainant

Analysis: Once issuance and signature on the cheque are admitted, a presumption arises that the cheque was issued for discharge of a legally enforceable debt or liability. The burden shifts to the accused to rebut that presumption by a probable defence. Mere denial, a statement under Section 313 of the Code of Criminal Procedure, 1973, or the plea that the cheque was given as security is not enough without evidence. Filling in particulars by someone other than the drawer does not invalidate the cheque, and even a security cheque may attract Section 138 when liability exists on the date of presentation.

Conclusion: The presumptions were not rebutted, and the conviction under Section 138 was sustained.

Issue (iii): whether the sentence of imprisonment, compensation and default sentence called for interference in revision

Analysis: Revisional jurisdiction is narrow and does not permit reappreciation of evidence in the absence of perversity or jurisdictional error. The sentence of six months' simple imprisonment was treated as not excessive in view of the object of the provision. Compensation under Section 357(3) of the Code of Criminal Procedure, 1973, is compensatory as well as restitutive, and a default sentence is legally permissible to secure compliance.

Conclusion: No interference was warranted with the sentence, compensation or default sentence.

Final Conclusion: The conviction and sentence were upheld in revision, and the petitioner obtained no relief.

Ratio Decidendi: In prosecutions under Section 138 of the Negotiable Instruments Act, 1881, admitted issuance and signature on the cheque trigger a rebuttable presumption of legally enforceable liability, successive presentation and notice are permissible, and the accused must rebut the presumption by evidence on a preponderance of probabilities; revisional interference is limited to patent illegality, perversity, or jurisdictional error.