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ISSUES:
RULINGS / HOLDINGS:
RATIONALE:
Recovery of tax/debit from taxpayer account made by mistake - obligation to refund/reverse wrongly recovered tax to the account from which it was debited - payment of interest on erroneous recovery as provided under the statute - requirement of deposit of at least 10% of the tax determined as precondition for filing an appeal - without expressing opinion on merits pending exercise of statutory appellate remedies; demand subject to final outcome
Recovery of tax/debit from taxpayer account made by mistake - obligation to refund/reverse wrongly recovered tax to the account from which it was debited - payment of interest on erroneous recovery as provided under the statute - Erroneous recovery/debit made by the Assistant Commissioner must be rectified by refunding/reversing the amount to the account from which it was recovered and interest paid as permissible under the statute. - HELD THAT: - The Assistant Commissioner has endorsed that the recovery in reference was made by mistake and the certificate on record admits inadvertent debit of amounts. Where a public officer admits an erroneous debit/recovery, the proper course is rectification by refund/reversal to the account from which the amount was taken. The Court directed respondent No.1 to take necessary action to rectify the mistake and refund/reverse the amount so recovered by mistake to the account wherefrom it was recovered, along with interest as provided or permissible under the statute, specifying a timeline for compliance. [Paras 4, 5]
Respondent No.1 directed to refund/reverse the erroneously recovered amount to the original account with statutory interest on or before 26.07.2025.
Requirement of deposit of at least 10% of the tax determined as precondition for filing an appeal - without expressing opinion on merits pending exercise of statutory appellate remedies; demand subject to final outcome - The Court refrained from expressing any opinion on the merits of the demand; any appeal or statutory remedy filed by the petitioners will determine the final fate of the demand, and in absence of such remedy the Assistant Commissioner remains entitled to recover the amount as permissible under law. - HELD THAT: - The petitioners' grievance included inability to file an appeal because the departmental portal required deposit of at least 10% of the tax determined and the recovered amount was being treated as an admitted deposit. The Court, however, limited its decision to ordering rectification of the admitted erroneous recovery and expressly did not decide on the merits of the demand made by the Assistant Commissioner. The Court recorded that if petitioners avail statutory remedies the demand shall be subject to the final outcome of such proceedings; absent such remedies, statutory recovery rights remain available to the Assistant Commissioner. [Paras 6]
No opinion on merits; demand remains subject to appellate remedies and, in their absence, recoverable as permissible under law.
Final Conclusion: Petitions disposed of as the admitted erroneous recovery has been ordered to be rectified by refund/reversal to the original account with interest; the Court did not adjudicate the merits of the underlying demand, which remains subject to any statutory appeals or remedies.
ISSUES:
RULINGS / HOLDINGS:
RATIONALE:
Violation of principles of natural justice - non-service of notices - ex-parte assessment order and subsequent demand raised in Form DRC 07 dated 28.08.2024, passed without granting any opportunity of hearing as contemplated u/s 75(4) of the BGST Act, 2017 - HELD THAT:- This Court finds that so far as mode of service of notice is concerned, there is no denial of the fact that notice and order were uploaded under the heading ‘Additional Notices and Orders’. On perusal of the counter affidavit, it appears that so far as the uploading of summary of assessment orders in the form of DRC 07 is concerned and the notices pertaining to return module comprising GST DRC 01B and GST DRC-01C are concerned, those are required to be uploaded under the heading ‘Notices and Orders’.
Section 75(4) of the CGST/BGST Act clearly provides that an opportunity of hearing shall be granted where a request is received in writing from the person chargeable with tax or penalty or where any adverse decision is contemplated against such persons. It is crystal clear from sub-Section (4) of Section 75 that after receipt of the show cause from the Assessee, stage of hearing shall come only after the authority contemplates passing of any adverse decision against such person - Admittedly, in the present case, when Annexure ‘P/3’ was issued no date for personal hearing was fixed and according to this Court, that was not occasion to fix the date of personal hearing because the authorities were still looking for response only. Thus, Annexure ‘P/3’ cannot be construed as an opportunity of personal hearing.
No personal hearing has been given to the petitioner as required by the Statute - the impugned orders set aside on account of non-observance of statutory procedures - the impugned order is set aside - application allowed.
ISSUES:
RULINGS / HOLDINGS:
RATIONALE:
Levy of interest and penalty - entire tax liability has been discharged through electronic credit ledger prior to issuance of any intimation or show-cause notice by the competent authority - wilful mis-statement or suppression of facts or not - HELD THAT:- It is apparent that the petitioner inadvertently did not offset the tax liability from the credit balance in the electronic ledger. It is not even the case of the respondent that there was no credit balance in the electronic credit ledger and the petitioner did not pay the outstanding tax liability. The only fault on the part of the petitioner was that the petitioner did not offset the tax liability from credit balance in the electronic ledger. Be that as it may, it is apparent from the facts of the case emerging from the record that there is no wilful mis-statement or suppression on the part of the petitioner to attract the provisions of Sec. 74 of the GST Act.
It is deemed fit to pass an order under Sec. 75(2) of the GST Act by directing the respondent-Assessing Officer to pass a fresh de novo order under provision of section 73 of the Act instead of invoking the provision of Sec. 74(1) of the GST Act. The respondent – Assessing Officer shall pass such order after providing an opportunity of hearing to the petitioner within a period of three months from the date of receipt of copy of this order - petition disposed off.
1. ISSUES PRESENTED and CONSIDERED
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Irregular Availment of ITC Against Motor Vehicle Related Invoices (Section 17(5) CGST Act, 2017)
- Relevant Legal Framework and Precedents: Section 17(5) of the CGST Act restricts ITC on motor vehicles used for personal purposes or other specified uses. The law prohibits credit on such inputs unless used for specified purposes.
- Court's Interpretation and Reasoning: The Court noted that the petitioner challenged the irregular availment of ITC on these invoices. The proper officer found absence of supporting documents to justify the credit claimed.
- Key Evidence and Findings: The petitioner failed to produce adequate documentary proof to substantiate the eligibility of ITC on motor vehicle-related invoices.
- Application of Law to Facts: Without supporting evidence, the availment of ITC in violation of Section 17(5) cannot be allowed.
- Treatment of Competing Arguments: The petitioner's contention of entitlement was rejected due to lack of documentation.
- Conclusion: The Court upheld the disallowance of ITC on motor vehicle-related invoices for non-compliance with Section 17(5).
Issue 2: Irregular Availment of Ineligible Credit (Sections 16(1) & 16(2) CGST Act, 2017)
- Relevant Legal Framework and Precedents: Section 16(1) permits ITC subject to conditions; Section 16(2) disallows credit if payment to supplier is not made within 180 days.
- Court's Interpretation and Reasoning: The Court examined whether ITC was irregularly claimed due to non-payment within 180 days to sundry creditors. The petitioner claimed payments were made timely except for one creditor.
- Key Evidence and Findings: The petitioner submitted a chart and explanations but failed to produce bank statements or payment vouchers to substantiate timely payment.
- Application of Law to Facts: The absence of documentary proof led the proper officer to disallow ITC under Section 16(2).
- Treatment of Competing Arguments: The petitioner argued that the respondents should have called for bank statements during audit; the Court held that the onus remained on the petitioner to produce evidence.
- Conclusion: The Court found no irregularity in disallowing ITC due to failure to prove payment within 180 days.
Issue 3: Excess Availment of ITC in GSTR-3B Compared to GSTR-2A (Section 20 IGST Act, 2017)
- Relevant Legal Framework and Precedents: Section 20 of the IGST Act mandates reconciliation between ITC claimed in GSTR-3B and details in GSTR-2A.
- Court's Interpretation and Reasoning: The petitioner contended lack of control over GSTR-2A and claimed credit only for purchases relevant to it. The proper officer found discrepancies and absence of supporting documents.
- Key Evidence and Findings: No sufficient evidence was produced to justify excess ITC claimed over GSTR-2A data.
- Application of Law to Facts: Disallowance of excess ITC was justified due to non-compliance with reconciliation requirements.
- Treatment of Competing Arguments: The petitioner's challenge was treated as an error within jurisdiction, not a jurisdictional error.
- Conclusion: The Court upheld the proper officer's findings on excess ITC availment.
Issue 4: Non-Payment of Tax to Sundry Creditors Within 180 Days (Second Proviso to Section 16(2) CGST Act, 2017)
- Relevant Legal Framework and Precedents: Section 16(2) disallows ITC if payment to supplier is not made within 180 days from invoice date.
- Court's Interpretation and Reasoning: The petitioner's balance sheet showed outstanding amounts under sundry creditors. The petitioner argued that mere reflection in accounts does not prove non-payment beyond 180 days.
- Key Evidence and Findings: The petitioner failed to provide bank statements or payment vouchers to demonstrate payment within 180 days, except for one creditor.
- Application of Law to Facts: The proper officer concluded that ITC must be disallowed where payment was not proved to be timely.
- Treatment of Competing Arguments: The petitioner's argument that respondents should have independently verified payment records was rejected; the onus to produce evidence lies with the petitioner.
- Conclusion: The Court upheld disallowance of ITC where payment within 180 days was not substantiated.
Issue 5: Failure of Proper Officer to Consider Documentary Evidence Submitted by Petitioner
- Relevant Legal Framework and Precedents: Principles of natural justice require consideration of all relevant material and evidence submitted by parties.
- Court's Interpretation and Reasoning: The Court noted that the proper officer took note of the petitioner's submissions but found them insufficient due to lack of bank statements.
- Key Evidence and Findings: Petitioner's submissions were considered but not accepted due to absence of conclusive proof.
- Application of Law to Facts: The Court held that absence of critical evidence justified the proper officer's conclusion.
- Treatment of Competing Arguments: The petitioner's claim of procedural irregularity was rejected as no denial of opportunity or failure to consider evidence was found.
- Conclusion: No procedural irregularity or violation of natural justice was established.
Issue 6: Maintainability of Writ Petition Under Article 226 Despite Availability of Alternative Remedy
- Relevant Legal Framework and Precedents: Generally, writ petitions under Article 226 are not maintainable where alternative statutory remedies exist, except in cases of jurisdictional errors or violation of natural justice.
- Court's Interpretation and Reasoning: The Court found that the petitioner's challenge related to an error within jurisdiction, not a jurisdictional error.
- Key Evidence and Findings: The Court distinguished the present facts from precedent where jurisdictional facts were wrongly decided.
- Application of Law to Facts: The Court held that the writ petition was maintainable only to the extent of jurisdictional or procedural irregularities, which were not established here.
- Treatment of Competing Arguments: The petitioner's reliance on precedent involving jurisdictional errors was found inapplicable.
- Conclusion: The writ petition was maintainable but limited in scope; the Court declined to interfere with merits.
Issue 7: Lawfulness and Regularity of Proper Officer's Jurisdiction and Procedure Under Section 74 CGST Act, 2017
- Relevant Legal Framework and Precedents: Section 74 empowers proper officers to initiate proceedings for tax evasion based on audit observations.
- Court's Interpretation and Reasoning: The Court found no irregularity or illegality in initiation or conduct of proceedings by the proper officer.
- Key Evidence and Findings: The audit observations formed the basis of proceedings; the petitioner was given opportunity to respond.
- Application of Law to Facts: The procedure followed complied with statutory requirements.
- Treatment of Competing Arguments: The petitioner's contention of procedural irregularity was rejected.
- Conclusion: The proper officer's jurisdiction and procedure were lawful and regular.
Irregular availment of ITC - invoices related to purchase/repair and maintenance of motor vehicles in violation of Section 17(5) of CGST Act, 2017 - violation of Section 16(1) & 16(2) of CGST Act, 2017 - Excess availment of ITC in GSTR-3B in comparison to GSTR-2A violating the provisions of Section 20 of the IGST Act, 2017 - non-payment of value of supply along with tax to the Sundry Creditors within a period of 180 days violating the provision of Section 16(2) of the CGST Act, 2017 - HELD THAT:- The petitioner is primarily aggrieved with the failure on the part of the respondents including the proper officer to consider the claim made by the petitioner that all payments to the sundry creditors were made within the statutory period of 180 days which entitles the petitioner to avail input tax credit. In this context as noted, it is found that upon the audit observation being published in the form ADT-2 dated 13/16th February, 2024, the petitioner had duly filed a response and subsequently after issuance of show cause notice had disclosed a chart so as to contend that except for one particular creditor, in respect of all other creditors payments had been made within the period of 180 days.
The proper officer has concluded that the petitioner has failed to substantiate the factum of payment to sundry creditors within the statutory period of 180 days for the petitioner to avail the input tax credit, by disclosure of bank statements - Admittedly, there is nothing on record even today at this stage to substantiate the fact that the payments made by the petitioner to the sundry creditors were, in fact, made within 180 days from the date of the invoices.
In the instant case, the exercise of jurisdiction by the authority is not in question. Admittedly, according to the petitioner the order has been partly complied with. What the petitioner seeks to challenge is an error committed by the proper officer while considering the materials on record - the judgment relied in the case of Raza Textiles Ltd [1972 (9) TMI 15 - SUPREME COURT] does assist the petitioner.
Petition disposed off.
Issues: Whether the petitioner should be permitted to file a reply to the show cause notice, whether access to the GST portal should be restored for that purpose, and whether the authority should take a prompt decision on the notice so that the GST registration is not kept suspended indefinitely.
Analysis: The petition arose from repeated suspension notices concerning the petitioner's GST registration. The Court noted that violations were alleged by the department, but considered it appropriate to afford the petitioner an opportunity to respond to the impugned show cause notice. The Court also directed restoration of portal access and required that a personal hearing be fixed after the reply is filed, with the decision on the notice to be taken within a specified time.
Outcome: The petition was disposed of with directions permitting filing of reply, restoration of portal access, grant of personal hearing, and expeditious decision on the impugned show cause notice.
Issuance of third SCN - cancellation of GST registration of petitioner - opportunity of hearing to be provided - principles of natural justice - HELD THAT:- Considering the fact that this is the third Show Cause Notice issued to the Petitioner and that there are certain violations which are alleged by the GST Department, this Court is of the opinion that the Petitioner ought to be given an opportunity to file a reply and, thereafter, the Respondent ought to take a quick decision on the impugned SCN proceeding itself so that the GST registration of the Petitioner is not indefinitely suspended.
Accordingly, let the Petitioner file the reply within two weeks through the GST portal.
Petition disposed off.
1. ISSUES:
1.1 Whether the impugned order passed under Section 129(3) of the GST Act, demanding tax and penalty for transportation of goods without a complete e-way bill, violates the principles of natural justice by not granting an opportunity of hearing.
1.2 Whether Section 129 of the GST Act mandates automatic levy of tax and 100% penalty upon breach of Rule 138 of the GST Rules without discretion to reduce or waive penalty.
1.3 Whether the absence of Part B of the e-way bill due to technical glitches can justify exemption from penalty under Section 129 of the GST Act.
1.4 Whether the appellate authority erred in confirming the penalty order without considering the petitioner's submissions and relevant judicial precedents.
1.5 Whether the impugned order is sustainable despite the petitioner having deposited the demanded tax and penalty and goods being released.
2. RULINGS / HOLDINGS:
2.1 The impugned order under Section 129(3) of the GST Act is quashed and set aside solely on the ground of "flagrant breach of principles of natural justice" as no opportunity of hearing was granted before passing the order on the same day of interception.
2.2 Section 129(1) of the GST Act mandates levy of tax and penalty where goods are transported without a valid e-way bill as prescribed under Rule 138, and the authorities have no discretion to reduce or waive the penalty once breach is established.
2.3 Technical glitches causing non-generation of Part B of the e-way bill do not exempt the transporter or consignor from liability under Section 129 of the GST Act, as the e-way bill is a mandatory document for lawful movement of goods.
2.4 The appellate authority erred in failing to consider the petitioner's submissions regarding absence of mala fide intent and technical glitches, as well as relevant judicial precedents, before confirming the penalty order.
2.5 The petitioner's deposit of tax and penalty and subsequent release of goods does not preclude challenge to the order under Article 227 of the Constitution, particularly when the order suffers from procedural infirmity.
3. RATIONALE:
3.1 The Court applied the legal framework under Section 129 of the Central and State GST Acts and Rule 138 of the GST Rules, which regulate detention, release, and penalty for transportation of goods without valid e-way bills.
3.2 The Court emphasized the mandatory nature of the e-way bill under Rule 138 and the statutory requirement under Section 129(1) for levy of penalty upon breach, leaving no discretion to authorities to mitigate penalty.
3.3 The Court recognized the principle of natural justice as a fundamental procedural safeguard requiring opportunity of hearing before passing adverse orders, which was violated by issuing the penalty order on the same day as the show-cause notice.
3.4 The Court noted that while remanding the matter for reconsideration was an option, the appellate authority had already confirmed the order without addressing natural justice concerns, justifying quashing the penalty order outright.
3.5 The Court left open all other substantive contentions on merits for consideration in appropriate proceedings, focusing solely on procedural fairness in this judgment.
Levy of tax and penalty u/s 129(3) of GST Act - failure to generate Part B of the e-way bill - intent to evade tax present or not - opportunity of hearing not provided - violation of principles of natural justice - HELD THAT:- Having considered the facts of the case, it is not in dispute that the respondent authorities have passed the impugned order under Sec. 129(3) of the GST Act in flagrant breach of the principles of natural justice - It is pertinent to note that interception of the goods in question happened on 04.10.2018 which has resulted into passing of the impugned order on the same day i.e. 04.10.2018. The impugned order of levy of tax and penalty under Sec. 129(3) was passed on 04.10.2018.
The provision of Section 129 clearly provides the time limit of seven days for passing the order of levy of penalty and interest. However, the respondent authorities appears to have taken a very harsh view of not granting any further time to the petitioner, by calling upon the petitioner to give reply to the show-cause notice in Form GST MOV-07 on the same day i.e. 04.10.2018 and by recording that the petitioner failed to raise any objections, has passed the impugned order of levy of tax and penalty.
Therefore, without going into the merits as to whether such order is justified or not, the impugned order is quashed and set aside only on the ground that such order is not sustainable in the eyes of law due to flagrant breach of principles of natural justice - it is deemed appropriate that the matter could have been remanded to the respondent authorities for reconsidering for giving an opportunity of hearing to the petitioner.
Petition allowed by way of remand.
ISSUES:
RULINGS / HOLDINGS:
RATIONALE:
Dismissal of appeal without consideration of Foreign Trade Policy, Export Promotion Capital Goods (EPCG), Scheme and the statutory provisions contained in Section 54(1) of the Central/Bihar Goods and Services Tax Act, 2017 - rejection of refund only on the ground of the submission not being in accordance with the SCN without passing a speaking order contrary to the policy of the Government of India to promote export and also the statutory provisions contained in the Act - violation of principles of natural justice.
HELD THAT:- Admittedly, in the present case, adjudicating authority order dated 27.07.2023 is bereft of consideration of the petitioner’s reply dated 28.06.2023. Rightly or wrongly petitioner has quoted certain circulars, the same have not been analyzed to the extent whether those circulars and material information is applicable to the petitioner’s case or not. In other words, reasons should have been assigned by the adjudicating authority to the extent that those circulars are not applicable to the case or not? In the absence, of these material information adjudicating authority order is liable to be set aside. No doubt, the appellate authority has considered petitioner’s appeal and made certain observation in favour of petitioner. Be that as it may, the petitioner is helpless in not submitting effective Appeal. In other words, there is a violation of the principles of natural justice. Quasi judicial authorities are bound to pass reasoned and speaking order, for the reason that such of those orders are amenable to judicial review.
Taking note of these facts and circumstances the petitioner has made out a case so as to interfere with the order of the adjudicating authority dated 27.07.2023 and appellate authority order dated 21.05.2024, and they are set aside. Matter is remanded to the adjudicating authority to decide the matter afresh strictly after taking due note of each of the contention and supporting documents in the reply - petition allowed by way of remand.
ISSUES:
RULINGS / HOLDINGS:
RATIONALE:
Assessment order passed u/s 147 and Section 144 r.w.s. 144B by the National Faceless Assessment Unit - contravention of Section 48 ibid., as same income could not be made to suffer taxation again for the Assessment year 2019-20 basing on information available in Form 26AS in the web-portal of the Income Tax Department - availability of alternative remedy for invocation of power of judicial review - assessee non producing evidence before the Assessing Officer
HELD THAT:- Petitioner appears to have been prevented from appearing before the Assessing Officer to substantiate his claim and to demonstrate before the Assessing Authority that the very transaction in question raised for adjudication in the Assessment Year 2018-19, the liability of which has already been discharged in the subsequent Assessment Year 2019-20.
This Court in order to appreciate the factum of claim for capital gains alleged to have been escaped assessment has the occasion to peruse Judgment rendered of Nitin Nema [2023 (8) TMI 1027 - MADHYA PRADESH HIGH COURT] and Sanath Kumar Murali, [2025 (3) TMI 833 - KARNATAKA HIGH COURT] wherein the modality for evaluation of tax liability with respect to capital gains have been discussed.
This Court is of the view that the petitioner-assessee is entitled for a chance to submit documents available with him for appraisal of the Income Tax Officer for proper adjudication of liability, if any, during the period in question as the assessee has been consistently pleading that he has discharged liability in the succeeding assessment year.
This Court finds sufficient force in the argument advanced by the learned counsel for the petitioner and to justify his claim the petitioner is to produce the documents before the AO, which are subject to scrutiny by such competent Authority. After due appreciation of evidence for the purpose of consideration of transaction being taxed already for the said purpose, it is deemed mete and proper to relegate the petitioner to avail the opportunity to present evidence and refer aforesaid judgments for perusal of assessing authority.
Though this Court is conscious about existence of alternative remedy to assail the assessment order before the appellate authority vested to appreciate the evidence, as the appeal is coterminous with the assessment proceeding, having regard to the material on record and taking note of undisputed factual position as emanated from the submissions advanced by the counsel for both the parties, finding that there is violation of basic tenets of natural justice, this Court entertains this writ petition as availability of alternative remedy is not an absolute bar for invocation of power of judicial review.
As the documents enclosed to the writ petition ex facie demonstrates that the tax liability has been discharged in the Assessment Year 2019-20 but not in the Assessment Year 2018-19, there is every likelihood of tax being assessed twice on the same transaction, in order to avoid piquant situation faced by the assessee, this Court is inclined to exercise its discretion by invoking powers under Article 226 of the Constitution of India.
Having thus entertained the writ petition, it is to impress upon that proper and sufficient opportunity being not afforded to the petitioner and/or his representative, the impugned Order dated 21.03.2023, is liable to be set aside and this Court does so. Hence, the matter is remitted to the assessing officer for passing fresh orders and the petitioner in order to avail opportunity of production of documents and have his say is directed to appear before the authority concerned within two weeks.
ISSUES:
RULINGS / HOLDINGS:
RATIONALE:
Reopening of assessment - reasons to believe - investment in purchase of a property but not disclosed in the return of income - HELD THAT:- AO formed reason to believe that investment for purchase of property was not offered to tax and therefore, there was an escapement of income being suppression of investment made by the petitioner.
As per the say of the petitioner, there was a sale of the petitioner and income of sale was already part of the total income offered to tax by the petitioner for the year under consideration. Thus it is apparent that the respondent AO has assumed jurisdiction on incorrect facts which is not tenable in the eye of law for issuance of the impugned notice for reopening. Assessee appeal allowed.
Issues: Whether the Tribunal was justified in estimating on-money at 10% of the total booking receipts, including the Sarjan project receipts, on the basis of the director's statement recorded during search and the cash found.
Analysis: The assessee's directors had admitted during search that on-money was being charged on residential and commercial projects, and the statement was supported by the cash found at the premises. The assessment was a regular assessment under section 143(3) of the Income-tax Act, 1961, and not a block assessment under Chapter XIV-B, so the authorities were entitled to make an estimation on the basis of the material available. The Tribunal found the CIT(A)'s exclusion of the Sarjan project unsustainable and held that the assessee had not produced contrary evidence to displace the admission or the estimation.
Conclusion: The Tribunal's estimate of on-money at 10% on the total receipts was upheld and the issue was decided against the assessee.
Ratio Decidendi: Where an assessee's voluntary admission of on-money is corroborated by search material, the revenue authorities may estimate undisclosed receipts on the basis of such admission and supporting circumstances in a regular assessment.
Estimating receipts 'on money' at the rate of 10% on the total booking receipts - unaccounted cash found during the search u/s 132(1) - HELD THAT:- Tribunal has merely made an estimate of the on-money received by the appellant-assessee as per the statement given by the Director voluntarily during the search which was corroborated by the actual availability of cash found during the search itself.
The impugned order of the Tribunal is also passed on the basis of the findings of the CIT (Appeals) where the CIT (Appeals) has sustained the addition in part which has been increased by the Tribunal and therefore, the Tribunal had only passed the impugned order on the quantum of the on-money and for that purpose, we are of the opinion that no question of law would arise as there is a concurrent finding with regard to the issue of receipt of on-money by the assessee-appellant and only the Tribunal has changed the quantum of such addition sustained by the CIT (Appeals) by applying 10% on the total receipt of all the projects including the flats involved in the project ‘Sarjan’.
Tribunal has enhanced the quantum of ‘on-money’ receipt on the ground that assessee was accepting ‘on-money’ as admitted by the Director which is a finding of fact arrived at by all the authorities. Decided in favour of revenue.
ISSUES:
RULINGS / HOLDINGS:
RATIONALE:
Condonation of delay in filing revised return of income whereby petitioner had raised a claim on refund - positive adjustment was proposed under section 36(1)(va) in respect of employees' contribution to the PF/ the ESI to the extent, the same has not been credited to the employees' account on or before the prescribed due date - petitioner submitted that the petitioner was compelled to file revised return so as to correct the data mentioned in the Form 3CD, more particularly, in column 20b wherein, details of contribution received from employees for provident fund and due date for payment were wrongly mentioned by stating the incorrect year
HELD THAT:- It appears that the petitioner was not responsible for mentioning the incorrect dates in the Form 3CD as the same was issued by the Chartered Accountant of the petitioner wherein, the mistakes were committed in mentioning the due dates for payment of provident fund in Column 20(b) in Form 3CD.
It is a known fact that the due date of payment of the provident fund is always the 15 day of the Month and when the audit report is for Financial Year 2017-18, then the year would be 2017 only, but inadvertently, the Chartered Accountant has shown the year as 2016 which is a mistake committed, moreover, in the second revised return also, instead of year 2017, year 2107 was stated by mistake and therefore, the petitioner was required to file third revised audit report in Form 3CD along with the revised returns.
PCIT while exercising the jurisdiction u/s 119(2)(b) ought to have considered such fact and ought to have condoned the delay in filing the return of income by the petitioner considering such fact but for the filing of revised return, the petitioner would not have been able to get the refund considering the due date of payment of the Provident Fund as per the provisions of Section 43B of the Act.
It is apparent that the respondent has not considered the facts of the case and only on the basis of the contents of the Circular No. 9/2015 has rejected the application to condone the delay filed by the petitioner.
We are of the opinion that the respondent ought to have condoned the delay in filing the revised return by the petitioner so as to enable the petitioner to claim the refund as per the return of income filed by the petitioner, failing which, the amount of Provident Fund deposited by the petitioner would be considered as time barred resulting into disallowance u/s 36(1)(v) of the Act.
The impugned order is therefore, quashed and set aside and the matter is remanded back to the respondent to pass a fresh de-novo order to condone the delay in filing the revised return within a period of twelve weeks.
ISSUES:
RULINGS / HOLDINGS:
RATIONALE:
Denial of benefit under the Direct Tax Vivad Se Vishwas Scheme, 2024 (DTVSV Scheme) - notice issued under section 148 - as submitted that the respondent-AO has passed the draft assessment order whereby, liability to pay tax was crystallized subject to the objections to be raised by the petitioner as provided u/s 144C
HELD THAT:- Section 144C(3)(b) provides that the Assessing Officer shall complete the assessment on the basis of the draft assessment order, if no objections are received within thirty days’ time period as specified in sub-section (2). Therefore, in the facts of the case, the assessed income determined in draft assessment order would become the final assessed income upon which, the petitioner would be liable to pay tax as there is no objection to be filed by the petitioner for filing benefit under the DTVSV Scheme,2024.
In the facts of the case, the petitioner would be eligible for DTVSV Scheme, 2024 as the draft assessment order under section 144C of the Act is already passed on 30.03.2022 when this Court granted interim relief.
Therefore, in the facts of the case, impugned order rejecting the declaration in Form No. 1 filed by the petitioner under DTVSV Scheme, 2024 is quashed and set aside and the respondent-Assessing Officer is directed to process the declaration in Form No. 1 made by the petitioner as per the DTVSV Scheme, 2024 as the petitioner would be eligible for the same.
ISSUES:
RULINGS / HOLDINGS:
RATIONALE:
Cash found during the survey operation as additional income - unexplained money u/sec.69A r.w.s.115BBE by treating the amount under the Head ‘Income from other sources” instead of ‘Business Income’ offered by the assessee.
HELD THAT:- Since the assessee has not received the notices issued by the CIT(A), the assessee could not file it’s reply along with relevant documentary evidences to substantiate it’s case.
Further, although, the learned CIT(A) claims that, several opportunities are provided to the assessee, but, there is no specific reference of any notice issued by the CIT(A) before disposing of the appeal filed by the assessee.
Therefore, from the above, it is undisputed clear that, the CIT(A) has not provided reasonable opportunity of hearing to the assessee to explain it’s case and disposed off the appeal in gross violation of principles of natural justice.
We set-aside the order of the CIT(A) and restore the issue back to the file of learned CIT(A) with a direction to re-consider the issue, after providing reasonable opportunity of hearing to the assessee to explain it’s case to meet the ends of justice. Appeal of the assessee is allowed for statistical purposes.
ISSUES:
RULINGS / HOLDINGS:
RATIONALE:
Computation of taxable income - rectification order passed u/s 154 - description “income as per section 143(1) of the Act” was rectified - HELD THAT:- As intimation order u/s 143(1) was rectified u/s 154 vide order dated 30.01.2024 according to which the total income of the assessee was reached to INR 53,16,66,580/- as against the income declared at INR 52,04,08,740/-. The said income is computed after rectification done on the request of the assessee. Therefore, while computing the final taxable income of the assessee, the AO is directed to replace this income as against the income of INR 58,29,98,519/- taken in the final assessment order. Accordingly, the captioned grounds of appeal are allowed.
Addition u/s 43B towards provision of leave encashment - HELD THAT:- From the perusal of the Tax Audit Report filed by the assessee and the rectification order u/s 154 available before us, it is seen that in the rectification order, a sum of INR 94,88,237/- is disallowed u/s 43B of the Act by the CPC however, as per Tax Audit Report, the assessee has paid a sum of INR 48,77,017/- on or before the due date of filing of return of income which has to be allowed u/s 43B of the Act. Accordingly, we direct the AO to verify these facts and allow the claim of the assessee in accordance with law.
Issues: (i) Whether the disallowance of Rs. 25.93 crores towards fair value adjustment relating to interest on pension bonds under IND AS-109 was sustainable merely because of incorrect reporting in the return form. (ii) Whether the disallowance of Rs. 21,92,43,000/- towards contribution to pension and gratuity trust under section 43B was sustainable despite the assessee's claim of actual payment before the due date.
Issue (i): Whether the disallowance of Rs. 25.93 crores towards fair value adjustment relating to interest on pension bonds under IND AS-109 was sustainable merely because of incorrect reporting in the return form.
Analysis: The amount was claimed as a book adjustment under IND AS-109 and was stated to be a notional reversal made to align the liability with fair value. The disallowance was made only on the basis of its incorrect placement in the return form under the column relating to section 43B. The facts, however, were found to be contradictory and not fully clear as to whether the amount represented a notional entry or an actual interest payment on bonds.
Conclusion: The disallowance could not be sustained on the basis of the return form alone, and the matter was remanded to the Assessing Officer for verification and fresh decision in accordance with law.
Issue (ii): Whether the disallowance of Rs. 21,92,43,000/- towards contribution to pension and gratuity trust under section 43B was sustainable despite the assessee's claim of actual payment before the due date.
Analysis: The assessee produced bank evidence showing payment on 03.04.2021 and the corresponding audit disclosure. The adjustment under section 143(1) was found to have been made by treating the amount as unpaid, without proper verification of the documentary material and the payment date vis-a -vis the statutory due date under section 139(1).
Conclusion: The disallowance required verification of the payment evidence and was therefore set aside and remanded to the Assessing Officer for reconsideration.
Final Conclusion: The additions sustained by the first appellate authority were set aside on both issues, and the controversy was restored to the Assessing Officer for factual verification and fresh adjudication.
Ratio Decidendi: An adjustment under section 143(1) cannot be sustained merely on the basis of incorrect reporting in the return form where the underlying claim requires factual verification, and a disallowance under section 43B must be tested against actual payment evidence and statutory due date compliance.
Deductibility of notional IND AS-109 fair value adjustment in computation of business income - allowability of employer contributions to pension and gratuity where payment is made on or before the due date under section 43B - remand for verification of facts and documentary evidence
Deductibility of notional IND AS-109 fair value adjustment in computation of business income - incorrect reporting in ITR-6 and effect on assessment - Claim for deduction of Rs. 25.93 crores being reversal of IND AS-109 fair value adjustment and its treatment in income computation - HELD THAT: - The assessee explained that the amount arose from amortisation and bookkeeping adjustments mandated by IND AS-109 to bring bonds to amortised cost, resulting in a notional credit to Profit & Loss which the assessee excluded from taxable business income. However, the amount was inadvertently reported in a column of ITR-6 applicable to amounts disallowed under section 43B, and there is internal inconsistency in the assessee's pleadings as to whether the entry represents notional adjustment or interest payment actually paid. The Tribunal found that the Assessing Officer-CPC erred in disallowing the claim solely on the basis of incorrect reporting in the ITR without examining supporting evidence. Given the contradiction in the assessee's position and that relevant facts and documents were not considered by the processing officer, the Tribunal set aside the appellate order and restored the matter to the Jurisdictional Assessing Officer for verification of the assessee's averments and evidence and for decision in accordance with law. [Paras 9]
Matter remitted to the Jurisdictional Assessing Officer for verification of the IND AS-109 notional adjustment claim and decision in accordance with law.
Allowability of employer contributions to pension and gratuity where payment is made on or before the due date under section 43B - treatment of amounts reported in Form 3CD and bank evidence - Disallowance of Rs. 21,92,43,000 as contribution to pension and gratuity trust on the ground of non-payment by due date - HELD THAT: - The Assessing Officer-CPC disallowed the amount on the basis of the ITR and Form 3CD. The assessee produced bank statements and the auditor's Form 3CD clause 26B(a) showing payment by RTGS on 03.04.2021, which, if accepted, establishes payment on or before the due date for furnishing the return and so would satisfy the condition for allowability under the relevant provision. The Tribunal observed that the processing officer had combined amounts and failed to appreciate the payment evidence. In view of the material filed before the Tribunal and the lack of consideration of that evidence by the lower authorities, the Tribunal set aside the CIT(A)'s order and restored the issue to the Assessing Officer to verify the evidences (including bank statements and any other documents) and decide the claim in accordance with law. [Paras 14]
Issue remitted to the Assessing Officer to verify payment evidence and decide the allowability of the contribution in accordance with law.
Final Conclusion: The Tribunal set aside the CIT(A)'s orders on both disputed adjustments; both issues are remitted to the Jurisdictional Assessing Officer for verification of the assessee's evidence and fresh decision in accordance with law. The appeal is allowed for statistical purposes.
ISSUES:
RULINGS / HOLDINGS:
RATIONALE:
Denial of TDS credit - due to technical error and error in writing wrong alphabet in PAN credit of TDS - HELD THAT:- We find substance in the arguments of assessee that the objective of statute and constitution is not to punish the assessee for error of omission not done with malafide and intentional motive.
It is also pertinent to mention here that due to technical fault and omission, some claim is omitted that does not mean the end of lawful claim of the assessee.
Keeping in view the above facts and in the interest of justice, we are inclined to restore both the appeals of the assessee to the file of ld. Assessing Officer for fresh consideration
ISSUES:
RULINGS / HOLDINGS:
RATIONALE:
Nature of expenditure - software expenditure - revenue v/s capital expenditure - HELD THAT:- It is not in dispute that the assessee had separately capitalised hardware purchases and the expenditure in question pertained only to software licences and renewals used in day-to-day business operations.
CIT(A)’s finding that the expenditure related to operating software used in routine inventory and quality control processes and did not result in acquisition of any capital asset or enduring advantage, remains unrebutted by the Revenue.
Revenue has also not pointed out any specific item falling under the disallowed head that contradicts this finding.
As noted the judicial precedent relied on in case of Danfos Industries [2021 (9) TMI 1151 - MADRAS HIGH COURT] where it was decided that a license which is valid for one year and did not confer any enduring benefit, expenditure incurred in acquiring such software license is revenue in nature - Thus, expenditure incurred on application software or renewal of licences in the ordinary course of business is revenue in nature, we see no infirmity in the order of the CIT(A) allowing the claim. This ground of appeal raised by the Revenue is therefore dismissed.
Disallowance of interest expenditure - attributing a notional proportion of interest towards capital work-in-progress and capital advances - CIT(A) deleted addition - HELD THAT:- It is not in dispute that the Assessing Officer has not established any direct nexus between the borrowed funds and the capital assets or advances. The disallowance has been made solely on a presumptive basis by applying a notional allocation formula.
CIT(A), after examining the assessee’s submissions and financial position, has given a categorical finding that the assessee had sufficient own funds amounting to Rs. 51.48 crores as on 31.03.2016, comprising share capital, reserves and surplus, whereas the capital work-in-progress and capital advances aggregated to Rs. 26.38 crores.
CIT(A) also accepted the assessee’s contention that the borrowings were primarily utilised for repayment of old trade liabilities and general business operations, and that there was no evidence to suggest diversion for capital purposes. These findings are not controverted by the Revenue by bringing any positive material on record.
CIT(A) has rightly relied upon the settled legal position laid down Reliance Utilities and Power Ltd. [2009 (1) TMI 4 - BOMBAY HIGH COURT] wherein it has been held that if the assessee possesses both interest-free funds and interest-bearing borrowed funds, and the interest-free funds are sufficient to meet the investments, a presumption arises that the investments are made out of interest-free funds. This principle has been consistently followed in subsequent decisions of various judicial authorities, and is squarely applicable to the present case. Decided against revenue.
Disallowance of Consultancy Fee - revenue v/s capital expenditure - assessee submitted that the consultancy services primarily related to technical documentation, dossier preparation, on-site audit assistance, and compliance facilitation, which are recurring and integral to the export operations of a pharmaceutical enterprise and it was asserted, did not result in the creation of any tangible or intangible asset, nor did it bring about an enduring advantage in the capital field - HELD THAT:- DR despite raising general objections, could not bring on record any tangible material or fact to controvert the above position. No evidence has been placed before us to show that the expenditure led to acquisition of any capital asset or that the approvals obtained resulted in enduring benefit in the capital field. Thus, we hold that the expenditure incurred by the assessee was revenue in nature, incurred wholly and exclusively for the purposes of business, and is therefore allowable under section 37(1) of the Income-tax Act. Decided in favour of assessee.
Disallowance of Foreign Exchange Fluctuation Loss - core argument advanced by the learned AR is that section 43A applies only when the payment is made after the acquisition of the asset and not when advances are made prior to acquisition - HELD THAT:- The term “towards the whole or a part of the cost of the asset” appearing in clause (a) of section 43A clearly contemplates situations where payments, including advance payments, are made in relation to the cost of acquisition of a capital asset. The fluctuation in the rate of exchange, if resulting in an increase or reduction in such liability at the time of making payment, is required to be added to or deducted from the actual cost of the asset, irrespective of the method of accounting adopted by the assessee.
In the present case, the assessee has not disputed that the payments were made as advances for acquisition of capital goods. The change in exchange rate during the relevant previous year has impacted the liability in Indian currency at the time of such payments. It is also not the case of the assessee that the capital goods so ordered were not eventually acquired. Therefore, even though the payments were made before booking the assets in the books of account, they were clearly towards the cost of the asset and hence fall within the ambit of clause (a) to section 43A.
As in Woodward Governor India Pvt. Ltd [2009 (4) TMI 4 - SUPREME COURT] has laid down the principle that exchange fluctuation loss is to be treated in accordance with the nature of the underlying liability. In cases where the liability pertains to acquisition of capital assets from outside India, such exchange difference is capital in nature and not allowable under section 37(1). The Court further held that accounting entries based on Accounting Standard-11 cannot override the specific mandate of section 43A.
AR could not place on record any specific evidence or material to demonstrate the timing of acquisition of the capital assets vis-à-vis the payment of advance, nor was any documentary evidence produced to establish that the fluctuation loss was not relatable to capital goods. In the absence of such details, and in view of the admitted position that the payments were made for capital assets, the assessee’s reliance on the distinction between pre- and post-acquisition payments is misplaced.
Thus, no infirmity in the conclusion drawn by the learned CIT(A) that the foreign exchange fluctuation loss debited to the profit and loss account, being relatable to acquisition of capital assets, is capital in nature and liable to be capitalised u/s 43A. The direction issued by the CIT(A) to restrict the disallowance being the actual amount debited to the profit and loss account, is also fair and reasonable.
ISSUES:
RULINGS / HOLDINGS:
RATIONALE:
Reopening of assessment u/s 147 - reasons to believe - Justification for formation of the reasons recorded - HELD THAT:- We find substance in the submission of Ld. AR that the failure on the part of assessee in disclosing fully and truly all material facts, which should have been brought on record compulsorily as per 1st proviso to section 147, which is the basis of reopening in the present case could not be met out by the revenue.
Further nothing could be brought on record before us also to substantiate that there was a failure on the part of assessee in disclosing fully and truly all material facts during the original assessment, therefore, we are of the considered view that in absence of such information in the reasons recorded by the Ld. AO the assumption of jurisdiction u/s 147 & 148 of the Act itself is in violation of mandatory provisions of law, thus, stands ultra vires, exceeding to the jurisdictional restraints imposed by the 1st proviso to Section 147 of the Act, therefore, the entire proceedings initiated u/s 147 vitiates and the impugned assessment order passed u/s 147 dated 19.03.2022 on the foundation of such ultra vires or void ab initio proceedings does not have the lawful strength to sustain, accordingly, we quashed the same.
Effect of absence of supply of the reasons recorded for reopening of assessment - As following the principal of law and analogy of interpretation accorded in the case of Videsh Sanchar Nigam [2011 (7) TMI 715 - BOMBAY HIGH COURT] Jagat Talkies Distributors [2017 (9) TMI 192 - DELHI HIGH COURT] Shodiman Investments Pvt. Ltd. [2018 (4) TMI 1287 - BOMBAY HIGH COURT] we are of the considered view that in absence of supply of the reasons recorded for reopening of assessment even after assessee’s request so as to enable to object to the same, the reassessment framed cannot be upheld and would make the order passed on reassessment bad in law. That, if the reasons recorded in support of the reopening notice are not provided to the assessee, the same would be contrary to and in defiance of the decision of the Apex Court in GKN Driveshaft [2002 (11) TMI 7 - SUPREME COURT].
Thus, non furnishing of reasons to assessee would make the assessment order bad in law - Assessee appeal allowed.
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RULINGS / HOLDINGS:
RATIONALE:
Nature of expenditure - legal and professional expenditure - AO made disallowance u/s 37(1) and found expenditure to be either capital in nature or unrelated to the business activities of the assessee - allowable business expenditure
Payment to KPMG - Business Strategy and Restructuring - HELD THAT:- This expenditure was clearly aimed at enhancing operational efficiency and exploring avenues for future business, and was neither related to nor contingent upon the capital infusion. There is no evidence that the restructuring led to creation of a capital asset or yielded any enduring commercial advantage of the nature contemplated in Ballimal Naval Kishore [1997 (1) TMI 3 - SUPREME COURT] - CIT(A) rightly appreciated this position and allowed the deduction.
Payment to KPMG India Pvt. Ltd. – Preparation of Information Memorandum - The fact that the invoice was raised after the receipt of funds is not determinative. It is trite law that the timing of payment or billing does not ipso facto determine the nature of expenditure. What matters is the underlying purpose. AO’s inference that the expenditure is capital in nature merely because it relates temporally to the funding is untenable in the absence of any demonstrable link or benefit of an enduring nature.
Information Memorandum did not bring into existence any new asset, nor did it alter the fixed capital structure of the assessee. It was an exercise in business facilitation, squarely falling within the operational domain. Applying the principles enunciated in Empire Jute Co. Ltd. [1980 (5) TMI 1 - SUPREME COURT] we find that the said expenditure is revenue in nature. Accordingly, the disallowance deleted.
Payment to AZB & Partners – Transactional Legal Documentation -Legal fees incurred in the course of facilitating investor-mandated compliance, particularly when the service provider is dictated by the counterparty, cannot be regarded as capital expenditure. The assessee neither acquired any asset nor did the expenditure confer upon it any enduring advantage. The transaction may have resulted in capital receipt, but the costs associated with it, especially when they are ministerial and documentation-related, have been judicially held to be allowable as revenue expenditure. Reference may be drawn by cases Ashima Syntex Ltd. [2000 (8) TMI 22 - GUJARAT HIGH COURT] and Shree Capital Services Ltd. [2009 (7) TMI 172 - ITAT CALCUTTA]
We thus hold that the expenditure was incurred wholly and exclusively for the purposes of business and is allowable u/s 37(1).
Payment to Nishith Desai & Associates – Legal Defence in Post-Investment Dispute - Subsequent to the receipt of investment, disputes arose between the assessee and the nominee director of HSBC PI Holdings. The assessee engaged Nishith Desai & Associates, a leading law firm, to defend itself in legal proceedings arising out of those disputes. The services included representation before investigating agencies and rendering legal advice.
We find considerable merit in the assessee’s submission that these were litigation expenses incurred to protect the interests of the company, its management, and its reputation. Such expenses have been consistently held to be allowable, even where they arise in the context of capital transactions, if the object is to defend or protect the existing business. Accordingly, the payment made is allowed.
Payment to Wadia Ghandy & Co. – Legal Compliance and Subsidiary Governance - The engagement of Wadia Ghandy & Co. was two-fold: first, to review transaction documents and render legal advice relating to the CCP issue, and second, to provide legal opinion on the appointment of statutory auditors for the assessee’s wholly-owned subsidiary in Dubai - CIT(A) allowed part of this expenditure relating to the latter activity and disallowed the balance - We are of the view that even the legal documentation work carried out by Wadia Ghandy & Co. does not result in any acquisition of asset or enduring advantage. It was a standard professional service availed for ensuring legal compliance. The judicial distinction between facilitative expenditure and capital acquisition must be preserved. The review of legal agreements is part of any well-governed business transaction and is not in the nature of capital outlay. Hence, we direct that the balance disallowance also be deleted.
Thus, we hold that none of the components of the impugned expenditure can be said to result in creation of a capital asset, nor do they confer any enduring benefit within the meaning attributed by judicial pronouncements. The expenses were incurred in the ordinary course of business, either in preparation for expansion, to comply with investor-imposed conditions, or to defend the company’s position in legal proceedings.
AO has not demonstrated any nexus between the expenditure and capital creation, and has instead proceeded on generalised assumptions unsupported by evidence. It is equally pertinent that the AO disallowed even the service tax components paid to the Government, without invoking any of the specific disallowance provisions such as section 40(a) or section 43B.
Assessee appeal allowed.
ISSUES:
RULINGS / HOLDINGS:
RATIONALE:
Addition u/s 68 - bogus Share Capital and Premium in the course of assessment - absence of identity of the Creditors, Genuineness and Creditworthiness of the entire transactions - CIT(A) deleted addition - HELD THAT:- It was brought to our notice that the directors did not appear and even the Ld. AR failed to produce the directors.There is no evidence of creditworthiness of the subscribers and no evidence for the genuineness of the transaction.
CIT(A) was, however, was carried away by the fact that the directors did not receive the notices, therefore, they could not appear which, however, is contrary to the facts mentioned by the Ld. AO in the assessment order, as was also pointed out by the Ld. DR before us. Thus, the order of the Ld. CIT(A), not being based upon facts of the case and there being no justification for charging huge premium of ₹90/- on the face value of ₹10/- per share and the inability to produce the directors for examination but response being received for notices issued u/s 133(6) of the Act, all establish the fact that the share capital was arranged by the assessee and therefore, despite the directors not appearing, the self-serving responses to notices u/s 133(6) of the Act were filed.
Thus, considering principles laid down in the decision of BST Infratech Ltd. [2024 (4) TMI 989 - CALCUTTA HIGH COURT] the failure of the assessee to justify the charging of share premium and no further compliance before us, the order of the Ld. CIT(A) is hereby set aside and the order of the Ld. AO is hereby confirmed. Decided in favour of revenue.
ISSUES:
RULINGS / HOLDINGS:
RATIONALE:
Deprecation on temporary structures - as submitted that the assets used for construction power facilities and chain link facilities transit were in the nature of temporary assets and are eligible for 100 % depreciation - as per the agreement the assessee is responsible to make own arrangements for construction power at various location as per his requirements and also for chain link fence between existing main plant facilities and areas identified - HELD THAT:- The assessee has constructed purely temporary structures. Structures were made supply the electricity to the labour and staff and to complete the contractual obligation. The cost of the temporary structures has been borne by the assessee.
The assessee is allowed to make the temporary construction, which is to be dismantled once the work is over. The case law of Dredging International India Pvt. Ltd. [2012 (9) TMI 1263 - ITAT DELHI] assessee that assessee is entitled of 100 % depreciation in respect of the expenses incurred by it on construction of temporary structures. The grounds raised by the assessee are allowed.
Issues: (i) Whether additions under section 69A and section 69C could be sustained solely on the basis of loose papers and a WhatsApp-extracted Excel sheet without independent corroboration; (ii) Whether proceedings under section 153C could be supported on such unverified material.
Issue (i): Whether additions under section 69A and section 69C could be sustained solely on the basis of loose papers and a WhatsApp-extracted Excel sheet without independent corroboration.
Analysis: The additions were founded on unverified electronic and documentary material recovered in search, but the assessee produced sale agreements, cancellation deed, ledger extracts and banking records showing that the stated transactions did not support the alleged on-money and brokerage figures. The material relied upon by the Revenue was not independently confirmed, and the person from whose device it was recovered denied knowledge of the document and explained the reference to cash as token amounts. In the absence of corroborative evidence, the impugned material was treated as insufficient to establish unexplained money or unexplained expenditure.
Conclusion: The additions under section 69A and section 69C were not sustainable and were deleted.
Issue (ii): Whether proceedings under section 153C could be supported on such unverified material.
Analysis: The jurisdictional challenge was raised by way of Rule 27 on the footing that a loose paper or uncorroborated WhatsApp message, without independent inquiry or supporting evidence, cannot furnish a valid foundation for action under section 153C. Reliance was placed on the principle that material used for search-related action must have evidentiary worth and cannot rest on conjecture or untested third-party entries. Since the Revenue brought no corroborative evidence to connect the alleged figures with the assessee's actual transactions, the legal basis for the section 153C assessment failed.
Conclusion: The section 153C-based assessment was quashed on legal grounds.
Final Conclusion: The Revenue's appeals failed, the legal challenge under Rule 27 succeeded, and the additions and assessment action were set aside, leaving the merits otherwise academic.
Ratio Decidendi: Uncorroborated loose papers or electronic messages, without independent verification or supporting evidence, do not constitute a reliable basis for search-related additions or for sustaining action under section 153C.
Admissibility of electronic evidence - uncorroborated WhatsApp message as basis for assessment - loose papers not constituting evidentiary value - assessment under section 153C based on seized documents - addition under section 69A on unexplained money (onmoney) - addition under section 69C on unexplained expenditure/brokerage - requirement of independent corroboration for thirdparty documents - preponderance of probability / balance of convenience in tax evidence
Uncorroborated WhatsApp message as basis for assessment - addition under section 69A on unexplained money (onmoney) - assessment under section 153C based on seized documents - Deletion of additions made under section 69A (onmoney) where additions were founded solely on a WhatsAppextracted Excel sheet recovered from a third party and used to frame assessment under section 153C. - HELD THAT: - The Tribunal found that the addition under section 69A rested exclusively on a WhatsApp message in the form of an Excel sheet retrieved from a mobile device registered to a third party (Shri Tarun Vohra). The person in whose custody the device was found denied knowledge of the document and explained any cash references as token booking amounts; the revenue produced no independent corroboration or confirmation from parties named in the document. The assessee furnished contemporaneous documentary evidence (sale agreements, cancellation deed, bank statements, ledger entries) showing either cancellation or sales at values above stampduty valuation and compliance with section 43CA. Applying the principle that loose/unverified documents and uncorroborated electronic chats cannot, without independent supporting material, form a reliable basis for additions or for initiating proceedings under section 153C, and following binding and coordinate precedents and the balancing test of preponderance of probabilities, the Tribunal held the WhatsAppderived document inadmissible as sole basis for addition. Consequently the addition made under section 69A was quashed and the revenue appeal dismissed on this legal ground. [Paras 7, 8]
Addition under section 69A based solely on the uncorroborated WhatsApp/Excel sheet is deleted; revenue appeal dismissed.
Loose papers not constituting evidentiary value - requirement of independent corroboration for thirdparty documents - addition under section 69C on unexplained expenditure/brokerage - Deletion of additions made under section 69C (alleged cash brokerage/expenditure) where additions were founded solely on loose papers seized from a third party without independent corroboration. - HELD THAT: - In respect of the appeals arising from the seized loose papers, the Tribunal recorded that the Assessing Officer relied solely on those seized papers to compute alleged brokerage and onmoney additions. The assessee produced replies from the purported brokers denying receipt of commission, submitted FIRs, explained commercial reasons for differences in deal values, and produced documentary and banking records. The Tribunal, following Supreme Court authority and consistent coordinatebench decisions, held that loose papers and uncorroborated thirdparty material cannot be treated as reliable evidence to sustain additions under sections 69A/69C or to validate proceedings under section 153C without independent corroboration or inquiry. On that legal basis the additions under section 69C (and related onmoney amounts computed from the loose papers) were quashed; since the decision succeeded on this legal ground, merits were left open. [Paras 20, 21]
Additions under section 69C (and associated additions founded on loose papers) are deleted; revenue appeals dismissed.
Final Conclusion: All revenue appeals (ITA Nos. 3106, 3108 and 3109/Mum/2023) are dismissed: additions computed under sections 69A and 69C, and assessments framed under section 153C, quashed insofar as they were based solely on uncorroborated loose papers/WhatsApp data recovered from a third party; the Tribunal relied on absence of independent corroboration and applicable precedents, leaving merits open as academic.
ISSUES:
RULINGS / HOLDINGS:
RATIONALE:
Challenge to detention order - smuggling - Gold ornaments weighing around 200 grams - personal effects or not - no SCN issued and no opportunity of hearing granted - violation of principles of natural justice - HELD THAT:- A perusal of the Order-in-Appeal would also show that the Appellate Authority itself came to the conclusion that there was no mala fide intention of the Petitioner in non-declaration of jewellery which was for personal use. The Department of Revenue has now filed the revision against the said order - In this matter, no Show Cause Notice has been issued to the Petitioner and no personal hearing was also granted before passing of the Order-in-Original.
The jewellery carried by the Petitioner squarely falls within the ambit of ‘personal effects’ as provided under the Baggage Rules. The jewellery was admittedly received as a gift from her mother-in-law and was being personally worn and carried by the Petitioner at the time of her arrival in India.
Further, once the goods are detained, it is mandatory to issue a show cause notice and afford a personal hearing to the Petitioner. The time prescribed under Section 110 of Act, is a period of six months. However, subject to complying with the requirements therein, a further extension for a period of six months can be taken by the Customs Department for issuing the show cause notice. In this case, the one year period itself has elapsed, yet no show cause notice has been issued - It is also established that a waiver of the Show Cause Notice cannot be done on the basis of a pre filled form and the same being used as a basis for not issuing a Show Cause Notice or not affording a personal hearing, is not permissible.
Under such circumstances, the detention itself would be doubtful. However, considering the fact that the Petitioner herself had filed the appeal and the Order-in-Appeal has been passed releasing the goods upon certain payment of some fine, it is deemed appropriate that the Order-in-Appeal be given effect to - The Petitioner may collect the detained jewellery through an Authorised Representative, in which case, the detained goods shall be released after receiving a proper email from the Petitioner or some form of communication that the Petitioner has no objection to the same being released to the concerned Authorised Representative.
Petition disposed off.
Issues: (i) Whether the detained gold chains worn as used jewellery by a passenger foreign national were personal effects outside customs detention under the Baggage Rules, 2016. (ii) Whether continued detention was impermissible when no show cause notice was issued within the statutory period under Section 110 of the Customs Act, 1962.
Issue (i): Whether the detained gold chains worn as used jewellery by a passenger foreign national were personal effects outside customs detention under the Baggage Rules, 2016.
Analysis: The detained articles were found to be used personal gold items of the petitioner. The settled position was applied that gold jewellery worn by a passenger falls within the ambit of personal effects under the Baggage Rules and is not liable to detention by the Customs Department.
Conclusion: This issue was decided in favour of the petitioner.
Issue (ii): Whether continued detention was impermissible when no show cause notice was issued within the statutory period under Section 110 of the Customs Act, 1962.
Analysis: The goods had been detained and no show cause notice had been issued even after expiry of the prescribed period, including the permissible extension period. In these circumstances, the detention was held to be impermissible.
Conclusion: This issue was decided in favour of the petitioner.
Final Conclusion: The detained gold chains were directed to be released for re-export to the petitioner, subject to verification and payment of storage or warehousing charges, and the writ petition stood disposed of.
Ratio Decidendi: Used jewellery worn by a passenger constitutes personal effects under the Baggage Rules, and detention of such goods cannot continue beyond the statutory period without issuance of a show cause notice.
Seeking release of two gold chains weighing 199 grams detained by the Customs Department - no SCN issued till date - Petitioner is willing to give an undertaking that he would re-export the same - time limit for issuance of SCN - HELD THAT:- In the opinion of the Court, having considered the facts of the case and the documents placed on record, the detained goods clearly appear to be used personal gold items of the Petitioner - The Petitioner is a foreign national and is undertaking to re-export the two gold chains.
The issue whether gold jewellery worn by a passenger would fall within the ambit of personal effects under the Baggage Rules, 2016 has now been settled by various decisions of the Supreme Court - reliance can be placed in Directorate of Revenue Intelligence and Ors. v. Pushpa Lekhumal Tolani [2017 (8) TMI 684 - SUPREME COURT] - Thus, it is no longer in doubt that the used jewellery worn by the passenger would fall within the ambit of personal effects in terms of the Baggage Rules, which would be exempt from detention by the Customs Department.
Further, once the goods are detained, it is mandatory to issue a show cause notice and afford a personal hearing to the Petitioner. The time prescribed under Section 110 of Act, is a period of six months. However, subject to complying with the requirements therein, a further extension for a period of six months can be taken by the Customs Department for issuing the show cause notice. In this case, the one year period itself has elapsed, yet no show cause notice has been issued. Accordingly, the detention is impermissible - Considering that no Show Cause Notice was issued in this matter and no order has been passed till date, the two gold chains are directed to be released for re-export to the Petitioner, subject to verification.
Petition disposed off.
ISSUES:
RULINGS / HOLDINGS:
RATIONALE:
Maintainability of petition - availabilty of alternative remedy - Rejection of petitioner’s scheme for refund under the RoDTEP scheme - HELD THAT:- Section 128A of the Customs Act authorises the appellate authority to send the matter back to the adjudicating authority for instructions, new adjudication, or decision if necessary. The arguments about avoiding precedents, misinterpreting legal provisions, or applying the limitation bar—issues that, according to the petitioner, should not apply—are all matters best considered by the appellate authority initially. On these grounds, we cannot persuade ourselves to entertain this petition, bypassing the statutory remedies provided by the legislature in such matters.
The impugned order was passed on 31 March 2025 and was received by the petitioner on 1 April 2025. This petition was filed on 16 May 2025, i.e, within the limitation period prescribed for instituting an appeal. Therefore, if the petitioner now institutes an appeal within two weeks from the date of uploading of this order, then the appellate authority is directed to decide the said appeal on its merits and without adverting to the issue of limitation. We are satisfied that the petitioner was bona fide pursuing this matter before the Court and therefore, this is a fit case to direct that the petitioner’s appeal be heard on the merits.
Petition disposed off.
ISSUES:
RULINGS / HOLDINGS:
RATIONALE:
Jurisdiction - proper officer for issuance of SCN - DRI officers are proper officer for issuing SCN or not - HELD THAT:- The Supreme Court vide its order dated 7 November 2024 has disposed of the review petition by observing that decision passed in the Canon India Private Limited [2024 (11) TMI 391 - SUPREME COURT (LB)] did not consider the notification and provisions of law since same was not brought to their notice. The Supreme Court in review petition held that DRI officer is a “proper officer” for issuing show cause notice. The Supreme Court also upheld the Validation Act by which amendment, the DRI officers were empowered to issue show cause notice. Now that the review petition filed by the revenue has been allowed, the petition is taken up for disposal.
The Petitioners are granted eight weeks time to file appeal challenging the Order-in-Original dated 5 December 2023 from the date of uploading of the present order.
If such appeal is indeed filed within eight weeks, then the appellate authority, should dispose of such appeal on their own merits and in accordance with law without adverting to the issue of limitation.
Petition disposed off.
ISSUES:
RULINGS / HOLDINGS:
RATIONALE:
Seeking directions to Respondent No. 2 to decide the Miscellaneous Application filed by the Petitioner before the Assistant Commissioner of Customs (Adjudication) - determination of the value of the imports by the Petitioner in terms of Custom Circular No. 5/2016 and Custom Valuation Rules (Determination of Values of Imported Goods) Rules, 2007 - HELD THAT:- The question as to whether the data would be liable to be disclosed or not would be governed clearly by the CVR, 2007 and the judicial precedents in this regard. The prayer of the Petitioner, therefore, ought to be considered in terms of the CVR and the judicial precedents but the application cannot be left pending.
The data, if made available to the Petitioner, may have a bearing on the final adjudication. Accordingly, it is directed that the adjudicating authority shall hear the Petitioner and pass an order in accordance with law in the Miscellaneous Application No. 2/2024 after considering the procedure prescribed in the CVR Rules 2007. The said order shall be passed on or before 15th September, 2025. The Miscellaneous Application No. 2/2024 shall be heard and disposed of by a reasoned order.
Petition disposed off.
Penalty imposed under FEMA - petitioner was appointed as Vice President of the Board of Control for Cricket in India (“BCCI”), and claims to have been appointed Chairman of the IPL governing body, a subcommittee of the BCCI - relief in this case is firstly against the BCCI on the ground that by-laws require the BCCI to indemnify the petitioner.
HC decided [2024 (12) TMI 1149 - BOMBAY HIGH COURT] Hon’ble Supreme Court and this Court have consistently held that the BCCI is amenable to writ jurisdiction under Article 226 of the Constitution of India. In matters of alleged indemnification of the petitioner in the context of penalties imposed upon the petitioner by the ED, there is no question of discharge of any public function, and therefore, for this purpose, no writ could be issued to the BCCI.
HELD THAT:- Even if the petition under Article 226 of the Constitution of India is not maintainable the petitioner will be entitled to avail a civil remedy.
The special leave petition is dismissed as withdrawn making it clear that the petitioner will be entitled to avail such civil remedies as may be available to him in law.
ISSUES:
RULINGS / HOLDINGS:
RATIONALE:
Order of the Appellate Tribunal in passing order of remand of 16 years delay - Whether in passing the Adjudication order passed by the Respondent and non-considering any of the judgments of the various courts would amount to non-application of mind, self-contradictory and therefore unsustainable in law? - HELD THAT:- Now that the Tribunal has remanded the matter, we propose to clarify that the Appellant, upon remand, will be entitled to contend the issue of delayed adjudication. Appellant pointed out that the show cause notice in this case was issued on 29 November 1983 and the adjudicating authority disposed of the show cause notice only on 20 September 2000, i.e. after a delay of 17 years.
As Appellant submits that such a delayed adjudication is impermissible and warrants interference and relied on the decision of this Court in M/s. Esjaypee Impex Pvt. Ltd. V/s. The Union of India And Ors. [2024 (8) TMI 1480 - BOMBAY HIGH COURT] in support of his contention.
Accordingly, although we do not interfere with the Tribunal’s order dated 08 July 2024, we clarify that upon remand, the Petitioner shall be entitled to raise the issue of delayed adjudication, i.e. the delay between 1983 and 2000. The adjudicating authority will have to decide on this issue in light of the submissions made and the decisions cited before it.
Whether Remand is now to the authority constituted under FEMA? - Now that the matter is remanded, we will keep the above issue open. This means that the Appellant will be entitled to raise the issue of the adjudicating authority lacking jurisdiction to adjudicate upon a show cause notice issued under FERA, 1973. All contentions of all parties in this regard are expressly left open to be decided by the adjudicating authority. Needless to add that if the adjudicating authority concludes that it has no jurisdiction or authority, then the show cause notice issued on 29 November 1983 under FERA, 1973, will have to be discharged.
Appellant states that this matter has been pending since 1983, and unless any time-bound directions are issued, it has the potential to remain pending even longer pursuant to the remand. Accordingly, he requests that directions be issued to the adjudicating authority to dispose of the proceedings on remand within a maximum period of three months from today.
As submitted that at least six months’ time be granted. Accordingly, we direct the adjudicating authority to adjudicate the show cause proceedings pursuant to the remand, as expeditiously as possible and, in any event, within four months from the date of production of an authenticated copy of this order.
Issues: (i) Whether anticipatory bail was warranted in proceedings under the Prevention of Money Laundering Act, 2002 where investigation had remained pending for a prolonged period and no prosecution complaint had been filed. (ii) Whether the relevant bail considerations, including flight risk, tampering with evidence and influencing witnesses, justified grant of protection.
Issue (i): Whether anticipatory bail was warranted in proceedings under the Prevention of Money Laundering Act, 2002 where investigation had remained pending for a prolonged period and no prosecution complaint had been filed.
Analysis: Anticipatory bail was assessed in the context of alleged misuse and siphoning of funds, with the evidence described as largely documentary in nature. The investigation had been continuing for a substantial period, the applicant had not been called for investigation for a considerable time, and no prosecution complaint had yet been filed in the predicate matter. These circumstances weighed in favour of protection of liberty pending further proceedings.
Conclusion: Anticipatory bail was granted in favour of the applicant.
Issue (ii): Whether the relevant bail considerations, including flight risk, tampering with evidence and influencing witnesses, justified grant of protection.
Analysis: The Court considered the applicant's age, roots in society, cooperation during investigation, and the documentary character of the evidence. There was no material showing likelihood of absconding, influencing witnesses, or tampering with evidence. The balance of factors favoured conditional protection rather than custodial arrest.
Conclusion: The bail conditions were sufficient and the applicant was entitled to anticipatory bail.
Final Conclusion: Conditional pre-arrest protection was ordered, with the petition disposed of accordingly.
Ratio Decidendi: In anticipatory bail matters, prolonged investigation, absence of material showing flight risk or witness interference, and predominantly documentary evidence can justify conditional protection of liberty.
Misuse and siphoning-off the funds received from the Foreign Companies and violation of the Rules of RBI - apprehension of arrest -seeking Anticipatory Bail u/s 3 and 4 of the Prevention of Money Laundering Act, 2002
HELD THAT:- As has been rightly pointed out, the cases got registered in 2020 but even in the predicate offence, the investigations have not been concluded nor any Charge-Sheet filed.
There is also nothing on record to suggest that the Applicant has been called since 2023 ever to join the investigations - Applicant is a respectable man, aged about 75 years, having roots in the Society. The evidence is essentially documentary in nature and there is no likelihood of tampering with the evidence or of influencing the witnesses.
Considering the prolonged investigations, and in view of the aforesaid circumstances, it is directed that in the event of arrest, the Applicant/Accused shall be admitted to Anticipatory Bail by the Investigating Officer/Arresting Officer, subject to be following conditions:-
(i) The Applicant/Accused shall furnish a personal bond in the sum of Rs .25,000/- with one surety in the like amount to the satisfaction of the Investigating Officer/Arresting Officer.
(ii) The Applicant/Accused shall join the investigations, as and when called by the Investigating Officer and shall co-operate during the investigations.
(iii) The Applicant/Accused shall furnish his cell-phone number to the Investigating Officer on which he may be contacted at any time and shall ensure that the number is kept active and switched-on at all times.
(iv) The Applicant/Accused shall not contact, nor visit, nor offer any inducement, threat or promise to any of the prosecution witnesses or other persons acquainted with the facts of case.
(v) The Applicant/Accused shall not tamper with evidence nor otherwise indulge in any act or omission that is unlawful or that would prejudice the proceedings in the pending trial.
Issues: Whether the suit for specific performance was barred by Section 31 of the Foreign Exchange Regulation Act, 1973.
Analysis: Section 31 restricts acquisition, holding, transfer or disposal of immovable property by a non-citizen without prior permission of the Reserve Bank of India, while Section 47 recognises that a contract is not invalid merely because the eventual transfer requires such permission, provided the agreement does not itself evade or defeat the Act. The agreement for sale did not itself effect a transfer of title, did not on its terms frustrate the statutory scheme, and contemplated compliance before execution of the conveyance. The civil suit sought enforcement of the agreement and alternative reliefs, and the Act did not create a bar against institution of such a suit. Section 78 also did not oust civil court jurisdiction in these circumstances.
Conclusion: The suit was not barred by Section 31 of the Foreign Exchange Regulation Act, 1973, and the preliminary objection to maintainability failed.
Operation or application of the FERA, 1973 - execution of an agreement for sale - mandation to get prior permission of the Reserve Bank of India (RBI) - HELD THAT:- In the case in hand, no property had been sold or transferred, offending and without taking any permission of the Reserve Bank of India. No succinct or actual transfer took place. Issue is the agreement for sale. Section 47 may be looked into in this respect. Sub-section 2 is very clear.
Any provision that the thing shall not be done without permission of the Central Government or the Reserve Bank shall not render invalid any agreement by any person to do that thing if it is a term of the agreement that the thing shall not be done unless permission is granted by the Central Government or the Reserve Bank of India and it shall be implied term of every contract that anything agreed to be done by any term of the contract which is a prohibited act unless permission is taken, shall not be done, unless such permission is granted.
This specific provision does not support the argument of Mr. Sarkar. Any such interpretation of section 47 is opposed to the whole scheme, purport and meaning of the Act.
The agreement for sale was executed on 2nd January, 1989 copy of which was marked as Ext. 3. There is no specific averment in the agreement that permission under Section 31 of FERA, 1973 should be taken from the Reserve Bank of India. It is in the agreement that prior to execution of a deed of conveyance compliances should be made with the West Bengal Urban Land (Ceiling and Regulation) Act, 1976 as well as the Income Tax Act,1961.
There is no provision which can be interpreted as calculated to defeat or frustrate the operation or application of the FERA, 1973. The agreement, in fact, does not come within the mischief of Section 47. It rather contemplates and by deeming provision of Section 47 deemed to contain provision that permission requisite for transfer of title would have to be taken. The agreement itself as such is not illegal, offending any of the provision of the FERA, 1973 for which the Court would not come to the assistance by entertaining a suit. Inference of this Court, therefore, is that the agreement itself is not illegal or void.
Bar of jurisdiction of the civil suit - Execution of an agreement for sale is not barred by Section 31 itself. Section 31 frowned upon specific transactions mentioned therein, namely, holding, acquiring and transferring by way of mortgaged, sale or other transactions were transferred of title is involved except without previous permission of the Reserve Bank of India. So far as, agreements are concerned, those are separately dealt with Section 47 of the Act.
Since, the instant agreement is not one which comes within mischief of Section 47 and prohibitory one, enforcing those agreements is not barred. A civil suit to enforce that agreement is, of course, not barred. The question whether the agreement is enforceable or not yet to be decided; that goes to the merit of the suit but that itself doesn’t bar intuition of the civil suit in a civil Court.
Plaintiff can still pursue for alternative remedy. Whether that remedy is available to him or not is a question of adjudication to be decided later on at the time of deciding the merit of the suit; but that cannot operate as a jurisdictional bar on this Court.
Section 78 of the FERA, 1973 bars jurisdiction of civil courts in some specific cases. It does not bar jurisdiction of civil court to enforce an agreement for sale which is not otherwise offensive to the statute or illegal or invalid.
This Court is of opinion for reasons stated above that neither the agreement is offensive to the FERA, 1973 nor jurisdiction of this Court is barred to enforce the agreement.
Issues: Whether anticipatory bail should be granted in a case where the investigation was continuing, the evidence was largely documentary, and no material showed a likelihood of tampering with evidence or influencing witnesses.
Analysis: The allegations arose from an economic offences investigation, but the predicate proceedings had not culminated in a charge-sheet or complaint. The record indicated that the applicant had joined the investigation and there was no material showing persistent non-cooperation. The evidence was essentially documentary in nature, and the Court found no real basis to apprehend tampering with evidence or influencing witnesses. In these circumstances, the considerations relevant to grant of anticipatory bail weighed in favour of protection from arrest.
Conclusion: Anticipatory bail was granted.
Seeking Anticipatory Bail u/s 406/420/120-B of the Indian Penal Code, 1860 - investigation into the FIR relates to FDI transactions in the year 2018 and is completely documentary in nature - only allegation that may be attributed to the Applicant is that he is at present, a Director in PNSPL.
HELD THAT:- Admittedly the cases got registered in 2020 but even in the predicate offence, the investigations have not been concluded nor any Charge-Sheet filed. No Complaint has got filed. There is also nothing on record to suggest that the Applicant has been called since 2021 ever to join the investigations.
The Applicant is a Director/Editor of the Company and is responsible for writing news articles and creating videos for the “newsclick.com” platform of the company.
The evidence is essentially documentary in nature and there is no likelihood of tampering with the evidence or of influencing the witnesses.
Considering the prolonged investigations, and in view of the aforesaid circumstances, it is directed that in the event of arrest, the Applicant/Accused shall be admitted to Anticipatory Bail by the Investigating Officer/Arresting Officer, subject to be following conditions:-
(i) The Applicant/Accused shall furnish a personal bond in the sum of Rs. 25,000/- with one surety in the like amount to the satisfaction of the Investigating Officer/Arresting Officer.
(ii) The Petitioner/Accused shall join the investigations, as and when called by the Investigating Officer and shall co-operate during the investigations.
(iii) The Applicant/Accused shall furnish his cellphone number to the Investigating Officer on which he may be contacted at any time and shall ensure that the number is kept active and switched-on at all times.
(iv) The Applicant/Accused shall not contact, nor visit, nor offer any inducement, threat or promise to any of the prosecution witnesses or other persons acquainted with the facts of case.
(v) The Applicant/Accused shall not tamper with evidence nor otherwise indulge in any act or omission that is unlawful or that would prejudice the proceedings in the pending trial.
ISSUES:
RULINGS / HOLDINGS:
RATIONALE:
Refund claim - barred by time limitation as stipulated u/s 11B of the Central Excise Act, 1944 as made applicable to Finance Act by virtue of Section 83 of the Finance Act, 1994.
HELD THAT:- The issue is no more res-integra. When it comes to the issues pertaining to the claim of refund being made pertaining to the Central Excise or Customs Enactments, it is not required to look further than advert to the locus classicus, namely, the Judgement of the 9 Judge Constitution Bench in the case of Mafatlal Industries Ltd v. Union of India, [1996 (12) TMI 50 - SUPREME COURT], wherein, in the Judgement of Hon’ble J.S. Verma, S.C.Agrawal, B.P. Jeevan Reddy, A.S. Anand and B.N. Kripal JJl, delivered by B.P. Jeevan Reddy, J., per majority, the matter has been thrashed out exhaustively. S.C. Sen, J. has authored the lone dissenting opinion.
When the Apex Court, sitting in a combination of nine, has categorically held that in the case of mis-interpreting or mis-applying any of the rules, regulations or notifications issued under the Central Excise or Customs Enactments, such a claim has necessarily to be preferred under and in accordance with the provisions of the respective enactment before the authorities specified thereunder and within the period of limitation prescribed therein, it is opined that even in a case of payment of service tax, made by an assessee, without proper examination of whether or not the activity of the assessee gets covered under the definition of “works contract service” that is exigible to service tax, it would still have to be dealt with under the refund provisions as provided for in the Finance Act 1994, namely Section 11B as made applicable vide Section 83 of the Finance Act, 1994. When the Apex Court has categorically held that the Central Excise and Customs Enactments are self-contained enactments providing for levy, assessment, recovery and refund of duties, imposed thereunder and that Section 11B of the Central Excises and Salt Act and Section 27 of the Customs Act, both before and after the 1991 (Amendment) Act are constitutionally valid and have to be followed and given effect to, no assessee under these enactments, or any other lower judicial forum, can tenably contend to the contrary.
The contentions raised by the appellant on inapplicability of time limit under Section 11B are unsustainable and the claim being barred by limitation, the Appellate Authority has rightly upheld the same.
The Order in Appeal passed by the Appellate Authority merits no interference - appeal dismissed.
ISSUES:
RULINGS / HOLDINGS:
RATIONALE:
Refund of unutilised Cenvat Credit of service tax paid on input services - export of services - Rule 5 of the Cenvat Credit Rules, 2004, read with N/N. 27/2012-ST dated 18.06.2012 - availment of such Cenvat credit was not challenged by the department in the first place under Rule 14 of the Credit Rules - refund can be denied to the appellant now under Rule 5 of the Credit Rulesor not - HELD THAT:- It is settled principle law that the eligibility of Cenvat credit availed by the assesse cannot be disputed in the refund proceedings under Rule 5 of the Cenvat credit Rules as held by the Hon’ble Allahabad High Court in the case of Commissioner, service Tax, Commissionerate Vs. M/s HCL Comet System & Services Ltd. [2017 (12) TMI 1661 - ALLAHABAD HIGH COURT], wherein it has been held that the refund of Cenvat credit was correctly allowed as no show cause notice for recovery of wrongly availed credit was issued.
Further, the Tribunal in the case of Qualcomm India Pvt. Ltd. Vs. Commissioner of Cus. C.Ex. & S.T. Hyderabad [2019 (8) TMI 1645 - CESTAT HYDERABAD] as held that Rule 5 nowhere specifies that Cenvat credit can be denied on the ground of irregular availment or utilization of the same in the absence of specific provision contained in the statute, denial of refund benefit provided under Rule, 5, cannot stand for judicial scrutiny. This decision of the Tribunal was challenged by the Department before the Telangana High Court and Telangana High Court vide its order in [2021 (11) TMI 72 - TELANGANA HIGH COURT] dismissed the appeal of the Revenue and upheld the order of the Tribunal.
The impugned order is not sustainable in law. Therefore, the same is set aside by allowing the appeal of the appellant - Appeal allowed.
Issues: (i) Whether the services rendered under the distributorship arrangement were taxable as Management, Maintenance or Repair Service, or constituted export of service not liable to service tax; (ii) Whether the demand could be sustained on the basis of a new ground relating to non-receipt of consideration in foreign currency when that issue was not part of the show cause notice; (iii) Whether the extended period of limitation was invocable in the absence of suppression of facts or intent to evade tax.
Issue (i): Whether the services rendered under the distributorship arrangement were taxable as Management, Maintenance or Repair Service, or constituted export of service not liable to service tax.
Analysis: The distributorship agreement showed that the appellant acted as an exclusive distributor and earned sales commission. The invoices were not treated as conclusive; instead, the actual commercial arrangement was examined. The recipient of the service was located outside India, and the commission was received in convertible foreign currency. The record did not establish that the services were rendered in India in the manner alleged by the department.
Conclusion: The services qualified as export of service and were not liable to service tax.
Issue (ii): Whether the demand could be sustained on the basis of a new ground relating to non-receipt of consideration in foreign currency when that issue was not part of the show cause notice.
Analysis: The show cause notice and the order-in-original proceeded only on the classification and taxability of the services. The appellate authority introduced a fresh ground concerning foreign currency receipt, which was neither alleged nor adjudicated earlier. The authority could not travel beyond the scope of the notice.
Conclusion: The demand could not be sustained on that new ground.
Issue (iii): Whether the extended period of limitation was invocable in the absence of suppression of facts or intent to evade tax.
Analysis: The transactions were recorded in the books and reflected in regular returns. No specific finding or evidence established suppression, wilful misstatement, or intent to evade payment of tax. In the absence of such proof, invocation of the extended period was unjustified.
Conclusion: The extended period of limitation was not invocable.
Final Conclusion: The impugned order was set aside and the appeal succeeded with consequential relief as admissible in law.
Ratio Decidendi: In service tax matters, the true nature of the underlying commercial arrangement prevails over invoice nomenclature, and a demand cannot be sustained on grounds not alleged in the show cause notice or by invoking the extended period without proof of suppression or intent to evade.
Scope of SCN - Classification of services - Management, Maintenance or Repair Service or not - distribution and marketing of fans and related products in India and other specified territories - export of services - entire demand made on the basis of a superficial reading of the invoice descriptions without examining the distributorship agreement - invocation of extended period of limitation -Demand of interest and penalty.
Classification of services - HELD THAT:- On going through the various provisions of the distribution agreement, it is found that the actual transaction as per the agreement is 'Distributorship' and the amount received for the said service is clearly that of 'sales commission' earned by the Appellant as an exclusive distributor.
The appellant has received 'commission' in foreign currency, for the services rendered by them. The appellant claimed that the services rendered by them falls within the ambit of ‘Export of Services’ and hence not liable to service tax. In this regard, it is found that during the period prior to and after 01.07.2012, Service Tax is not chargeable on Export service" subject to fulfilment of two essential conditions: (i) the services are to be provided to a recipient located outside India and (ii) the payments are to be received in convertible foreign currency in respect of such services.
The lower authorities has rejected the claim of ‘export of service’ by the appellant on the ground that the appellant failed to produce the requisite documents, viz., export bill contracts to show that the services were provided in a place located outside India in support of fulfilment of the conditions. In this regard, it is found that the benefit of the distribution agreement is received by the foreign companies as it promoted their sales. Further, from the Balance Sheet of the appellant, it is found that that they had earned commission in foreign currency paid by foreign companies, Ms Greystone Energy. Systems INC, Canada and M/s. Eltafentech Asia SDN. BHD, Malaysia. It is also found that the department has not produce any evidence to substantiate the claim that the services rendered by the appellant were partly received in Pune. This allegation in the impugned order is not supported by any evidence. Accordingly, the appellant has fulfilled the conditions required for categorizing the services rendered as 'Export of Service'. Accordingly, the said services are exempted from payment of service tax.
Scope of SCN - introduction of new issue of non receipt of payments in foreign currency - HELD THAT:- It is found that this issue of non-payment in foreign currency was neither alleged in the Show Cause Notice nor considered or adjudicated upon in the Order-in-Original. The Show Cause Notice was issued on the allegation that the services rendered by the Appellant were taxable under the category of "Management, Maintenance or Repair Service". There was no allegation regarding the mode of payment or requirement of payment in foreign currency. Similarly, the Order-in-Original confirmed the demand purely on the basis of the nature of services and did not deal with any issue relating to foreign currency payment. Thus, the appellate authority has exceeded its jurisdiction by introducing a completely new ground that was not part of the original show cause notice.
Extended period of limitation - suppression of facts or not - HELD THAT:- There is no suppression of facts or intention to evade payment of service tax. All transactions were duly recorded in their books of accounts which were open to inspection by the department at any time - the impugned order has not provided any specific finding or evidence to establish that there was suppression of facts or intention to evade payment of service tax or connivance by the Appellant recipient. In the absence of such finding, the confirmation of demand by invoking the extended period of limitation is not sustainable.
Demand of interest and penalty - HELD THAT:- As the demand of service tax is not sustained, the question of demanding interest or imposing penalty does not arise.
The impugend order is set aside - appeal allowed.
1. ISSUES PRESENTED and CONSIDERED
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Eligibility for Refund of Service Tax on Services Wholly Consumed within SEZ
Legal Framework and Precedents: Notification No. 9/2009-S.T. exempts taxable services provided in relation to authorized operations in a SEZ from service tax. Notification No. 15/2009-S.T. amended this by excluding services consumed wholly within the SEZ from refund claims, as these services are exempt ab initio. Section 26(1)(e) of the SEZ Act, 2005 provides exemption from service tax on taxable services provided to SEZ developers or units. Section 51 of the SEZ Act establishes its overriding effect over other laws.
Tribunal precedents (Reliance Industries Ltd., Intas Pharma Ltd., Reliance Ports & Terminals Ltd.) clarified that the notifications operationalize the exemption and do not deny refund claims where service tax was paid. The refund mechanism is applicable where service tax liability was discharged, even if services are wholly consumed within the SEZ.
Court's Interpretation and Reasoning: The Tribunal held that the amendment in Notification No. 15/2009 excludes services consumed wholly within the SEZ from the refund route because such services are exempt from levy ab initio. However, where service tax was paid, the appellant is entitled to refund under Section 11B of the Central Excise Act, 1944. The SEZ Act's provisions have primacy and override conflicting provisions in other laws. The notifications merely provide a procedural mechanism to operationalize the statutory exemption.
Key Evidence and Findings: The appellant's records showed the services were used for authorized operations within the SEZ and refund claims were filed within the prescribed time. The appellant bore the incidence of service tax, and the services were either covered by the default list or approved by the SEZ authorities.
Application of Law to Facts: The Tribunal applied the SEZ Act provisions and relevant notifications harmoniously, confirming that exemption is available and refund claims are maintainable where service tax was paid. The exclusion in Notification No. 15/2009 does not preclude refund claims under Section 11B for services consumed wholly within the SEZ.
Treatment of Competing Arguments: The Revenue's contention that refund claims are not admissible for services wholly consumed within the SEZ was rejected. The Tribunal emphasized the overriding effect of the SEZ Act and the policy objective that exports should not bear tax burden.
Conclusion: Refund claims for service tax paid on services wholly consumed within the SEZ and used for authorized operations are admissible under Section 11B of the Central Excise Act, notwithstanding the exclusion in Notification No. 15/2009.
Issue 2: Requirement of Approval by SEZ Approval Committee for Refund Claims
Legal Framework and Precedents: Notification No. 9/2009-S.T. requires that the list of specified services be approved by the SEZ Approval Committee to claim exemption/refund. However, the appellant relied on a letter from the Additional Director & Coordinator, SEZ Cell (STPI), confirming that services in the default list are eligible for service tax benefits without separate approval.
Court's Interpretation and Reasoning: The Tribunal accepted the letter as evidence that the services rendered by the appellant were covered under the default approved list and thus eligible for refund claims. The absence of a separate approval for the disputed services was not fatal to the refund claim.
Key Evidence and Findings: The appellant produced the letter dated 22.09.2010 from the SEZ authority confirming eligibility to avail service tax benefits on the default list of services.
Application of Law to Facts: The Tribunal held that since the services were covered under the default approved list, the refund claims could not be rejected solely on the ground of lack of separate approval by the SEZ Approval Committee.
Treatment of Competing Arguments: The Revenue contended that lack of approval invalidated the refund claim, but this was rejected in view of the authority's letter and the default list's applicability.
Conclusion: Refund claims cannot be denied solely due to absence of separate approval where services are covered under the default approved list by the SEZ authority.
Issue 3: Interpretation of Notification No. 9/2009-S.T. and Amended Notification No. 15/2009-S.T. in Context of SEZ Service Tax Exemption and Refund
Legal Framework and Precedents: Notification No. 9/2009-S.T. exempts taxable services provided in relation to authorized operations in SEZ from service tax, subject to conditions including approval and use for authorized operations. Notification No. 15/2009-S.T. amended the refund procedure, excluding services consumed wholly within the SEZ from refund claims, as these are exempt ab initio.
Tribunal decisions emphasized that these notifications operationalize the statutory exemption under the SEZ Act and do not curtail the immunity granted by the SEZ Act itself.
Court's Interpretation and Reasoning: The Tribunal construed the notifications harmoniously with the SEZ Act, recognizing that the notifications provide procedural mechanisms for exemption/refund but cannot override the statutory immunity. The exclusion of wholly consumed services from refund claims under Notification No. 15/2009 is procedural, not substantive, and does not preclude refund where service tax was paid.
Key Evidence and Findings: The appellant's refund claims were made in accordance with the notifications and supported by evidence of authorized use within SEZ.
Application of Law to Facts: The Tribunal applied the notifications in conjunction with the SEZ Act, concluding that refund claims are maintainable where service tax was paid, and services were used for authorized operations.
Treatment of Competing Arguments: Revenue's strict interpretation to deny refunds for services wholly consumed within SEZ was rejected as inconsistent with statutory provisions and judicial precedents.
Conclusion: Notifications No. 9/2009 and 15/2009 operationalize the exemption under the SEZ Act and do not deny refund claims where service tax was paid on services used for authorized SEZ operations.
Issue 4: Primacy of SEZ Act Provisions over Other Laws Concerning Service Tax Exemption and Refund
Legal Framework and Precedents: Section 26(1)(e) of the SEZ Act, 2005 exempts service tax on taxable services provided to SEZ developers or units. Section 51 of the SEZ Act provides that its provisions prevail notwithstanding anything inconsistent in any other law.
Tribunal decisions have consistently held that the SEZ Act's provisions enjoy primacy and must be harmoniously construed with other laws to effectuate the exemption and refund rights of SEZ units.
Court's Interpretation and Reasoning: The Tribunal emphasized the overriding effect of the SEZ Act over other statutes, including the Finance Act and Central Excise Act, to uphold the exemption and refund claims of SEZ units. The statutory intent to exempt SEZ operations from service tax cannot be diluted by procedural or other legal provisions.
Key Evidence and Findings: The appellant's operations and refund claims fell squarely within the ambit of authorized SEZ operations protected by the SEZ Act.
Application of Law to Facts: The Tribunal applied the overriding provisions of the SEZ Act to set aside the impugned orders denying refund claims.
Treatment of Competing Arguments: Revenue's reliance on other laws and notifications to deny refunds was held subordinate to the SEZ Act's provisions.
Conclusion: The SEZ Act's provisions, particularly Sections 26(1)(e) and 51, have overriding effect and protect SEZ units' entitlement to service tax exemption and refund.
Issue 5: Maintainability of Refund Claims under Section 11B of the Central Excise Act, 1944 read with Section 83 of the Finance Act, 1994
Legal Framework and Precedents: Section 11B of the Central Excise Act, 1944, read with Section 83 of the Finance Act, 1994, provides for refund of service tax paid erroneously or in excess. Tribunal decisions have held that refund claims under these provisions are maintainable even where exemption notifications exist but service tax was paid.
Court's Interpretation and Reasoning: The Tribunal held that refund claims under Section 11B are maintainable for service tax paid on services used in SEZ authorized operations, notwithstanding the exemption notifications. The appellant's refund claims were filed within the prescribed time and borne the incidence of taxation.
Key Evidence and Findings: The appellant's refund claims complied with procedural requirements and were supported by records showing authorized use and payment of service tax.
Application of Law to Facts: The Tribunal applied the provisions of Section 11B and Section 83 to uphold the appellant's right to refund.
Treatment of Competing Arguments: The Revenue's argument that refund claims are not maintainable due to exemption notifications was rejected in light of statutory provisions and judicial precedents.
Conclusion: Refund claims filed under Section 11B of the Central Excise Act read with Section 83 of the Finance Act are maintainable for service tax paid on services used for authorized SEZ operations.
Refund of service tax on taxable services used in relation to authorised operations in a Special Economic Zone - ab initio exemption for services consumed wholly within a Special Economic Zone - operationalisation of SEZ exemption by notification regime - primacy of the Special Economic Zones Act over other laws - pre-approval / Approval Committee requirement for specified services - refund under Section 11B of the Central Excise Act
Pre-approval / Approval Committee requirement for specified services - refund of service tax on taxable services used in relation to authorised operations in a Special Economic Zone - Refund claim rejected for lack of SEZ Authority approval was not sustainable where records showed inclusion of the services in the default/approved list for SEZ operations. - HELD THAT: - The Tribunal examined the record including the letter placing on record the list of services allowed by the SEZ cell and the default list of services. Having regard to that documentary material, the ground of rejection - that taxable services were not approved by the SEZ Authority - could not be sustained. The impugned order rejecting the refund on that basis was set aside and the appeal allowed.
Appeal ST/28358/2013 allowed; refund claims held admissible as the services were covered by the SEZ-authorised/default list.
Ab initio exemption for services consumed wholly within a Special Economic Zone - operationalisation of SEZ exemption by notification regime - primacy of the Special Economic Zones Act over other laws - refund under Section 11B of the Central Excise Act - Refund claims relating to services used for authorised SEZ operations could not be denied merely because Notification No. 15/2009 limited the refund procedure in respect of services consumed wholly within the SEZ; entitlement to refund or exemption flows from the SEZ Act and the notifications only operationalise that entitlement. - HELD THAT: - The Tribunal applied a harmonious construction of Notification Nos. 9/2009 and 15/2009 with the Special Economic Zones Act, 2005. The notifications provide procedural mechanisms to operationalise the immunity/exemption conferred by the SEZ Act; they do not displace or deny the substantive exemption. Where services are procured from outside and tax has been paid, refund remedies (including under Section 11B of the Central Excise Act) remain available. The amendment in Notification No. 15/2009 restricting the refund route for services consumed wholly within the SEZ does not disentitle an entity to exemption or to a refund where the statutory provisions and prior decisions establish entitlement. Relying on earlier Tribunal reasoning, the impugned rejection on the ground that services were wholly consumed within the SEZ and therefore not refundable was held unsustainable.
Appeals ST/28359-28360/2013 allowed; impugned orders set aside and refund claims held admissible in accordance with law and applicable Tribunal precedents.
Final Conclusion: All three appeals are allowed; the orders rejecting the refund claims are set aside and the claimants are entitled to consequential relief in accordance with law, having regard to the SEZ Act's primacy and the role of Notifications 9/2009 and 15/2009 as procedural mechanisms to operationalise the exemption.
ISSUES:
RULINGS / HOLDINGS:
RATIONALE:
Eligibility for SSI exemption - denial of benefit on the ground that since the appellant has paid the Excise Duty in respect of one product, he cannot claim SSI exemption in respect of the other product in respect of the same assessee - HELD THAT:- It is noted that the SSI limit was Rs.1 crore from 1.3.2003 to 31.3.2007, which was increased to Rs.1.50 crores from 1.4.2007. This is referred as ‘inner limit’ for ease of reference. Similarly, the outer limit was initially at Rs.3 crores, which was increased to Rs.4 crores subsequently. The assessee opting for SSI, has to start to pay Excise Duty the moment he exceeds the inner limit. However, within the same financial year, if the outer limit is not exceeded, he can once again claim the SSI limit for the next financial year. But once the outer limit of Rs.3 or Rs.4 crores is exceeded, he would not get the SSI benefit in the subsequent financial year.
Para 3 (a) of the Notification specifically removes the exemption benefit when the clearance is that of any branded goods. This means that in respect of the branded goods of others, cleared by the SSI, would require payment of Excise Duty, even if the unit per se is exempted from payment of Excise Duty.
Coming to the point about the turnover of the branded goods also being considered as part the total turnover of the appellant, we have seen that as per Para 3 (a) of the Notn No.8/2003 CE dated 1.3.2007, the turnover in respect of other branded goods cleared is excluded from the SSI exemption and hence Excise Duty is required to be paid. When Para 2 (vii) and Para 3(a) are read together it get clarified that the turnover of Excise Duty paid goods in respect of the branded goods cannot be clubbed with the turnover of the unit to deny the SSI benefit. In the present case, it is not disputed that for Brand ‘Monginis’, the appellants have paid the Excise Duty - the Revenue cannot add the turnover in respect of the Mongini Turnover of the appellant, so as to deny the SSI benefit.
In respect of turnover of 2007-2008, the turnover being Rs.1.41 crores, the same is less than the increased SSI inner limit of Rs.1.50 crores. On this ground, the confirmed demand is not sustainable - For the year 2008-09 the total turnover is Rs.1,51,04,201 as per the Table B, which is more than Rs.1.50 cr inner turnover limit. However, from Annexure A we find that cum-duty benefit has been given while quantifying the demand. If cum-duty benefit is considered the turnover would be Rs.1,48,95,042 [13758995 + 1136047]. Therefore, the demand is not sustainable as the turnover is less than Rs.1.50 cr. For the year 2009-10, the turnover is less than Rs.1.46 cr. Hence, the demand is not sustainable for this year.
The appellant is in error in partly paying the Excise Duty on one product and opting for SSI exemption in case of another product, which is not allowed. However, it is found that their turnover during the entire period under dispute is less than the respective inner limit (Rs. 1 Cr/Rs. 1.50 Cr) specified for SSI exemption for the concerned year - the impugned order is set aside - appeal allowed.
ISSUES:
RULINGS / HOLDINGS:
RATIONALE:
CENVAT Credit - non-application of mind/non-speaking order - Credit taken on proportionate basis by excluding the Credit amount involved in trading activity - Services used out of the factory gate - input services or not - violation of principles of natural justice.
Whether the Cenvat Credit taken on proportionate basis by excluding the Credit amount involved in trading activity i.e. Cenvat Credit involved in trading activity was reduced from the total Credit available or not? - HELD THAT:- Appellants on a notional basis by themselves are not taking 10% of the credit considering that the same pertains to traded goods portion and not to the clearance of excisable goods. However, this kind of notion is not provided for under the Cenvat Credit Rules, 2004 which require that separate account should be maintained and Cenvat Credit is not availed on the exempted goods which included traded goods. Only the credit that has gone in to the manufacture of excisable goods could be availed as Cenvat Credit. It appears to us that principle of 10% notionality in respect of trading goods, at the time of receipt, is not provided for in the CENVAT Credit Rules. Therefore, this issue needs thorough consideration by the authorities as to whether the 10% credit not taken by the appellant fulfils the requirement of Rule 6(3) of the CCR, 2004 as far as reversal of credit on proportionate basis is concerned. The method to determine ineligible credit on exempted goods and/or service as per CCR, 2004 as amended needs to be applied and same is required to be reversed by the appellant alongwith appropriate interest. This while involves exercise of re-determination on the basis of records or on the basis of balance sheet which we find so far has not been carried out. What has been brought on record during first remand proceeding is only the fact that appellant had reversed 10% credit on a notional basis for the traded goods in advance, which we are afraid is not mandated by the provisions of Cenvat Credit Rules, 2004. It therefore needs re-determination as to what is actual quantum of Cenvat Credit required to be reversed and benefit of Cenvat permitted accordingly.
Other issues have not been adequately discussed in the impugned order of the Commissioner (Appeals). He has not dealt with many issues as well as elaborate on the case laws, on each points involved. The order therefore, is not a speaking order and is cryptic.
Matter remanded back to the original authority with directions to re-determine demand after due consideration of various case laws as well as observations as have been made on the basis of availment of Cenvat Credit considering that only 10% of goods were considered as traded goods - appeal allowed by way of remand.
ISSUES:
RULINGS / HOLDINGS:
RATIONALE:
CENVAT Credit - duty paying documents - credit disallowed to the party for the reason that challan was produced which was not one of the stipulated documents under Rule 9 of the Cenvat Credit Rules, 2004 - HED THAT:- The issue as to whether Cenvat credit can be allowed on various other evidences, other than those mentioned in Rule 9 of Cenvat Credit Rules, 2004 is no more res-integra. In their own case, the matter has already been decided in their favour. While department is not denying the correctness of transactions, it is only doubted the conduct of the party from whatever happened at the Customs port. It is found that this is none of the concerns if wrong duty had been intended to be paid under Customs Act to disallow the credit on excise side.
Appeal allowed.
ISSUES:
RULINGS / HOLDINGS:
RATIONALE:
Calculation of Central Excise Duty - non-inclusion of the amount of VAT/Sales Tax collected and retained by them in the assessable value - violation of Section 4 of the Central Excise Act, 1944 - demand of differential duty alongwith interest and penalty - HELD THAT:- The appellant was eligible for remission under the State VAT scheme. Therefore, while the appellant were charging 100% VAT on their customers, they were retaining 99% of the VAT and paying only the balance 1% VAT to the State Govt. There is nothing on record that this 99% was required to be paid subsequently in instalments. Thus, it gets clarified that this amount is simply retained by the appellant.
By relying on the decision of the Hon’ble Supreme Court in the case of Commnr. Of Central Excise, Jaipur vs M/S. Super Synotex (India) Ltd. & Ors [2014 (3) TMI 42 - SUPREME COURT], it is held that the sales tax concession retained by the Appellant is required to be added in the assessable value for the purpose of levy of Central Excise duty.
The appellant is required to pay the differential Excise Duty for the normal period along with interest. However, considering the factual details of the case, all the penalties are set aside - appeal allowed in part.
Issues: (i) Whether the goods cleared by the assessee were liable to be treated as manufactured goods on the basis of alleged branding with the assessee's logo. (ii) Whether the assessee was entitled to cum-duty benefit while determining eligibility under the small scale industry threshold.
Issue (i): Whether the goods cleared by the assessee were liable to be treated as manufactured goods on the basis of alleged branding with the assessee's logo.
Analysis: The record did not show any evidence that the assessee had branded the traded goods with its logo. There was also no material to establish that the assessee had a manufacturing facility for such goods. The Department's view that all clearances were manufactured goods was therefore not supported by evidence.
Conclusion: The goods could not be treated as manufactured goods merely on the basis of the alleged logo branding, and the assessee's plea was accepted.
Issue (ii): Whether the assessee was entitled to cum-duty benefit while determining eligibility under the small scale industry threshold.
Analysis: The assessee had not charged excise duty from buyers. The turnover therefore had to be treated as inclusive of duty for computing the relevant threshold. On that basis, the clearances for the relevant years remained below the applicable exemption limit.
Conclusion: Cum-duty benefit was directed to be granted and the assessee was found to remain within the exemption threshold.
Final Conclusion: The demand was unsustainable on the facts found, and the impugned order was set aside with relief to the assessee.
Ratio Decidendi: In the absence of evidence of branding or manufacturing facility, traded goods cannot be treated as manufactured goods, and where duty has not been collected from buyers, turnover must be examined on a cum-duty basis for exemption eligibility.
Nature of activity - Sale of goods - branding of goods with own logo - simply trading the goods by way of buying and selling or activity of manufacture is also involved - Revenue submits that the Appellant was branding the goods with their logo even for the traded goods because of which the same is required to be treated as manufactured goods - invocation of extended period of limitation - HELD THAT:- There is no evidence coming to the effect that the Appellant was branding the goods with their Logo. Even otherwise there is no evidence brought in to the effect that the Appellant had manufacturing facility for such goods. Therefore, the view of the Revenue is not ascribed.
It is found from the records that the Appellant has not charged any Excise duty on their buyers. Therefore, they are required to be given the cum-duty benefit. If this is considered, it is found that in all the years the Appellant was having turnover which is less than the threshold limit for the respective years.
The impugned order is set aside - appeal allowed.
Issues: Whether CENVAT credit was admissible on the disputed input services used by the assessee.
Analysis: The Tribunal noted that the same dispute had already been decided in favour of the assessee in an earlier final order of the Bench. It also took note that for the subsequent period the Department itself had allowed the credit. In these circumstances, the Tribunal found no reason to take a different view for the intervening period involved in the appeal.
Conclusion: CENVAT credit on the disputed services was held admissible and the denial of credit was not sustained.
CENVAT Credit - input services - Architect & Interior Designers Service - Interior Decorator Service - Photography Services - Pandal & Shamiana Services - Mandap Keeper’s Service - Outdoor Catering Service - Works Contract service - Insurance Auxiliary Services - HELD THAT;- Revenue disputes that the credit of service tax paid on certain input services utilized by the appellants is not available to them. It is found that the very same issue was deliberated at length by this Bench in M/S HERO MOTOR CORP LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, DELHI-III [2024 (11) TMI 607 - CESTAT CHANDIGARH]. It is further found that for the subsequent period, the Department themselves has allowed the credit. Therefore, there are no reason as to why it should be differed from the same in the impugned case wherein the intervening period that is the period between the one covered by the order of this Bench and the period for which credit was allowed by the Revenue authorities.
Appeal allowed.
ISSUES:
RULINGS / HOLDINGS:
RATIONALE:
Seeking condonation of delay of 440 days in filing the application - sufficient reasons for delay or not - no Way-bill was generated in Form- 50A - intent to evade tax present or not - penalty - HELD THAT:- It is an admitted fact that on the said date, no Way-bill was generated in Form- 50A. On information being received that a huge stock of cement was being shifted from the railway rake point, the officers of the respondent/department inspected the godown on 7th May, 2013. On the very same day, the petitioner had generated the Way-bill and it was placed before the authority. Thus, it is clear that on the date when the cement bags were moved to the godown from the railway station, there was no valid Way-bill. This would undoubtedly be a statutory violation but while imposing penalty, what is required to be seen is whether there was any intention on the part of the petitioner, who is a registered dealer to evade payment of tax.
The Hon’ble Supreme Court in Hindusthan Steel Ltd. v. State of Orissa [1969 (8) TMI 31 - SUPREME COURT] observed that the “liability to pay penalty does not arise merely upon proof of default in registering as a dealer. An order imposing penalty for failure to carry out the statutory obligation is the result of quasi-criminal proceedings and penalty could not ordinarily be imposed unless the party concerned either acted deliberately in defiance of law or was guilty of conduct which was contumacious or dishonest or that the dealer in question had acted in conscious disregard of his obligation”. It was further observed “penalty could not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation was a matter of discretion of the authority to be exercised judicially and on a consideration of all relevant circumstances.”
It is no doubt true that there was a statutory obligation on the part of the petitioner to generate the Way-bill, which it had done only on 7th May, 2013, which ought to have been done on 5th May, 2013 before the goods were despatched to the godown from the railway rake point. Certain reasons have been assigned by the petitioner in not being able to do so including glitches in the system etc., which has not been established beyond reasonable doubt - non-generation of the Way-bill can be construed to be a clerical error for which there is discretion vested with the Commissioner to impose lesser penalty than the penalty provided in the table under sub-section (1) of section 77.
The petitioner should have exercised more caution and care especially when the petitioner is a very large business house and has been carrying on such activities for a prolonged period of time. There has been some carelessness and clerical mistake on their part and therefore, penalty has to be imposed but not @14.5% imposed by the authority.
The order passed by the learned tribunal is set aside and the order passed by the authority imposing penalty @ 14.5% is modified and the rate of penalty is reduced to 5% of the fair market value of the seized goods on the date of seizure - Petition allowed.
Issues: Whether interest on refund arising from an assessment made under the repealed Haryana General Sales Tax Act, 1973 was governed by the Haryana General Sales Tax Act, 1973 or the Haryana Value Added Tax Act, 2003, and whether the assessee was entitled to interest for the entire period from deposit till refund.
Analysis: The assessment order was passed under the Haryana General Sales Tax Act, 1973 after the Haryana Value Added Tax Act, 2003 had come into force. The saving provision in Section 61 of the Haryana Value Added Tax Act, 2003 preserved the previous operation of the repealed Act, rights and liabilities accrued thereunder, and actions taken under it, and the rule in Section 6 of the General Clauses Act, 1897 required the repealed law to continue for matters saved by the repeal unless a contrary intention appeared. The Court applied the principles governing repeal and reenactment to hold that the legislative scheme did not evince an intention to shift the substantive incidents of the demand and refund to the new Act so as to attract Section 20(8) of the Haryana Value Added Tax Act, 2003 for the entire period claimed. The Tribunal's view was therefore inconsistent with the applicable statutory framework under the Haryana General Sales Tax Act, 1973.
Conclusion: The issue is answered against the assessee and in favour of the Revenue. Interest was not payable under Section 20(8) of the Haryana Value Added Tax Act, 2003 for the entire period from deposit to refund.
Ratio Decidendi: In a repeal-and-saving regime, rights and liabilities arising under the repealed taxing statute continue to govern the matter unless the later enactment clearly manifests a contrary intention; the successor statute does not automatically govern substantive refund interest merely because the refund is granted after repeal.
Validity of demand under the repealed act - Scope of saving clause - Interest on the delayed payment from the date of deposit and not from the date of order in contravention of the provisions of Section 43 and Rule 35(1)(b) of HGST Act, 1973 - non-appreciation of provisions of Section 43 of the HGST Act, 1973 - HELD THAT:-In the judgment passed by this Court in Khazan Chand Nathi Ram’s case [2004 (3) TMI 720 - PUNJAB AND HARYANA HIGH COURT], as referred to by learned counsel for the appellant, this Court held that right of appeal is a substantive right that vests at the date of commencement of the lis and is governed by the law prevailing at that time. Section 39(5) of the HGST Act, requiring pre-deposit of tax, interest, and penalty, continues to apply even after the repeal of the Act, as the right is saved under Section 4 of the Punjab General Clauses Act, 1898. Further that lis under taxation laws commences on the date when returns are filed or required to be filed. Cause of action arises from failure to furnish returns or rejection of returns by the Assessing Authority. Pre-deposit condition under Section 39(5) HGST Act for filing appeals remains enforceable despite repeal, as the right to appeal is preserved by the General Clauses Act. Right of appeal under taxation laws is substantive and accrues at the commencement of the lis. It is governed by the law prevailing at the date of initiation of proceedings, not by the law prevailing at the time of filing the appeal or decision. Subsequent enactments cannot alter vested rights unless expressly stated or implied.
Hon’ble the Supreme Court in Mohar Singh Pratap Singh’s case [1954 (10) TMI 38 - SUPREME COURT] and M/s Gammon India Ltd.’s case [2006 (2) TMI 278 - SUPREME COURT] held that whenever there is repeal of an enactment and simultaneous re-enactment, re-enactment is to be considered/construed as re-affirmation of old/earlier law and provisions of repealed Act which are thus, re-enacted continue in force uninterruptedly unless, re-enacted enactment manifests an intention incompatible with or contrary to the provisions of repealed Act. Further it was held that such incompatibility will have to be ascertained from a consideration of relevant provisions of the reenacted enactment and mere absence of saving clause is, by itself, not material for consideration of all the relevant portions of new enactment.
In the present case, Section 61 (Repeal and Saving) of HVAT Act, 2003, repeals HGST Act, 1973, by saving the previous operation of the Act so repealed or anything duly done or suffered thereunder and further saves any right, title, privilege, obligation or liability acquired, accrued or incurred under the repealed Act. Further it saves any act done or any action taken (including any appointment, notification, notice, order, rule, form, regulation, certificate) in the exercise of any power conferred by or under the repealed Act. Section 61 (Repeal and Saving) of HVAT Act thus clearly shows/reflects the legislative intention to preserve the continuity of legal consequences flowing from acts or omission under the repealed HGST Act. the intention of the legislation.
In view of Section 6 of the General Clauses Act, 1897 and law laid down by Hon’ble the Supreme Court, the substantial questions of law are answered in favour of the appellant and against the respondent.
Impugned order dated 03.07.2017 passed by the Haryana Tax Tribunal in STA No.34 of 2014-15 is hereby set aside - Appeal allowed.
ISSUES:
RULINGS / HOLDINGS:
RATIONALE:
Breach of principles of natural justice in passing the impugned Assessment Order - ex-parte assessment order - petitioner is willing to deposit the amount in compliance with the order with the respondent, within one month - HELD THAT:- It is not in dispute that the petitioner has migrated out of India since 2021, and therefore, was not made aware about any notices or impugned Assessment Order at any point of time. This fact is evident from the letters written by the advocate of the petitioner which are placed on record at page Nos. 49 and 50. As the certified copy of the Assessment Order was obtained by the advocate of the petitioner only in the month of January 2025, which is evident from the record that the petitioner was not aware about the impugned order nor was served with the notice of hearing.
It is also apparent now that the petitioner has shown the willingness to deposit Rs. 5 lakhs to show her bona fides and to co-operate with the assessment proceedings if the impugned Assessment Order is quashed and set aside and the matter is remanded back to the respondent- Assessing Officer to pass a fresh De novo order after granting an opportunity of hearing.
Considering the facts of the case and the affidavit of undertaking filed by the petitioner, the impugned Assessment Order passed for the Financial Year 2013-14 is hereby quashed and set aside and the matter is remanded to the respondent – Assistant Commissioner, Sales Tax, Unit-5, Ahmedabad, to pass a fresh de novo order if the petitioner deposits Rs.5 lakhs within a period of one month from today as per the undertaking filed before this Court.
Petition disposed off by way of remand.
Issues: (i) Whether an application under Section 156(3) of the Code of Criminal Procedure, 1973 can be entertained without first approaching the police authorities; (ii) whether the Magistrate's order directing registration of FIR was passed without application of mind; (iii) whether completion of investigation and filing of chargesheets barred quashing of the FIR and the Magistrate's order; (iv) whether the dispute was purely civil and devoid of criminality; and (v) whether the impugned FIR was a successive FIR based on the same allegations as an earlier FIR.
Issue (i): Whether an application under Section 156(3) of the Code of Criminal Procedure, 1973 can be entertained without first approaching the police authorities.
Analysis: The statutory scheme requires the informant to first approach the officer in charge of the police station under Section 154(1) and, on refusal, the Superintendent of Police under Section 154(3). Only thereafter may recourse be taken to the Magistrate under Section 156(3). Direct approach to the Magistrate without exhausting those remedies is ordinarily improper, though the Magistrate remains competent to act where a cognizable offence is disclosed.
Conclusion: The application ought ordinarily not to have been entertained directly, but the order was not rendered jurisdiction solely on that account.
Issue (ii): Whether the Magistrate's order directing registration of FIR was passed without application of mind.
Analysis: An order under Section 156(3) must reflect application of mind and be supported by reasons. The order in question recorded that counsel was heard, the complaint was perused, and the material disclosed a cognizable offence. That recording was sufficient to show application of mind for the limited purpose of directing registration of the FIR.
Conclusion: The Magistrate's order was not vitiated for want of application of mind.
Issue (iii): Whether completion of investigation and filing of chargesheets barred quashing of the FIR and the Magistrate's order.
Analysis: Since the foundational order directing registration of FIR was not illegal or without jurisdiction, the investigation undertaken pursuant to it and the chargesheets filed thereafter could not be nullified merely because the High Court was invited to exercise its extraordinary or inherent jurisdiction. Discretionary interference was not warranted in the absence of miscarriage of justice.
Conclusion: The refusal to quash the FIR and the Magistrate's order on this ground was justified.
Issue (iv): Whether the dispute was purely civil and devoid of criminality.
Analysis: Although the dispute arose out of a memorandum of understanding and involved contractual breach-like allegations, the complaint also contained assertions of inducement, cheating, and criminal conspiracy. At the quashing stage, the Court cannot test the truthfulness of those allegations or separate the civil and criminal elements on a factual inquiry requiring evidence.
Conclusion: The FIR disclosed allegations that could constitute criminal offences, and it could not be quashed merely as a civil dispute.
Issue (v): Whether the impugned FIR was a successive FIR based on the same allegations as an earlier FIR.
Analysis: Though the later FIR was similar to the earlier one, it was not shown to be virtually identical in all respects. The earlier FIR had not culminated in trial, conviction, acquittal, or discharge, and the bar against multiple proceedings for the same offence did not operate in the manner urged. The later FIR was therefore not liable to be struck down on the basis of successive FIR principles.
Conclusion: The impugned FIR was not shown to be impermissible as a successive FIR.
Final Conclusion: The challenges to the FIR and the Magistrate's order failed, and the Court declined to interfere with the concurrent orders below.
Ratio Decidendi: Direct recourse to a Magistrate under Section 156(3) without first availing the statutory police remedies is ordinarily irregular but not void if a cognizable offence is disclosed; an order under Section 156(3) is sustained where it reflects application of mind and reasons, and quashing is not warranted where the FIR discloses criminal allegations and no impermissible successive FIR bar is established.
Power of High Court under Section 482 of Code of Criminal Procedure to quash the FIR - filing of an application u/s 156(3) of the CrPC without approaching the police authorities - order passed without application of mind - denial of quashing of order for the reason that the investigations have been completed and the chargesheets have been filed against the accused persons - nature of dispute raised in the offending FIR is of a civil nature or not - present FIR amounts to a successive FIR and to be investigated independently.
Whether an application under Section 156(3) CrPC could have been filed without approaching the police authorities? - HELD THAT:- On a conspicuous reading of the provisions of Sections 154, 156 and 190 of the CrPC together, it is crystal clear that an informant who wants to report about a commission of a cognizable offence has to, in the first instance, approach the officer-in-charge of the police station for setting the criminal law into motion by lodging an FIR. However, if such an information is not accepted by the officer-in-charge of the police station and he refuses to record it, the remedy of the informant is to approach the Superintendent of Police concerned. It is only subsequent to availing the above opportunities if he is not successful, he may approach the Magistrate under Section 156(3) CrPC for necessary action or of taking cognizance in accordance with Section 190 of the CrPC.
In the instant case, a bare perusal of the application filed under Section 156(3) of the CrPC dated 01.07.2005 would reveal that the informant therein had simply stated that an offence under Sections 420, 120-B and 34 of the IPC have been committed and that the informant had approached the “police officials” several times but in vain, but the application is completely silent as to when did the informant approach the Police or the Superintendent of Police. The application nowhere states that the informant has ever approached the officer-in-charge of the police station for lodging the FIR in accordance with Section 154 of the CrPC or that on refusal to record such information he has availed the remedy of approaching the Superintendent of Police concerned. The mere bald allegation without any details or proof thereof, that the police authorities were approached several times is not acceptable.
The Magistrate ought not to ordinarily entertain an application under Section 156(3) CrPC directly unless the informant has availed and exhausted his remedies provided under Section 154(3) CrPC, but as the Magistrate is otherwise competent under Section 156(3) CrPC to direct the registration of an FIR if the allegations in the application/complaint discloses the commission of a cognizable offence, it is opined that the order so passed by the Magistrate would not be without jurisdiction and would not stand vitiated on this count.
Whether the order dated 01.07.2005 passed by the Metropolitan Magistrate is an order passed without application of mind, irrespective of the fact that it states that the parties were “heard” and the documents were “perused”? - HELD THAT:- The provisions of Section 156 (3) of the CrPC have subsequently been interpreted and it has been held that the Magistrate while directing for registering an FIR has to apply his independent mind based upon legal principles and the order so passed has to be a reasoned order. The provision so interpreted exists from its inception. Merely because a judgment by the Court has simply interpreted and reiterated the established principles of law that ought to have been into practice, it would not mean that such principles would be applicable prospectively only from the date of its interpretation. The interpretation made later on would not mean that the provision had a different meaning prior to its above interpretation. Therefore, the High Court manifestly erred in holding that at the relevant time there was no requirement of application of mind and for passing a speaking order, as the judgments of the higher courts holding otherwise have been penned down subsequently.
The mere stating in the order that the counsel has been heard and the application and the material produced have been perused, may not be indicative of the fact that the Magistrate had actually applied his mind to the controversy in issue. However, the fact that the perusal of the application and complaint attached to it, satisfied the Magistrate that it discloses a cognizable offence, is very material and relevant which proves the application of mind by him. Once such a satisfaction has been recorded by the Magistrate, even if wrongly, it is not liable to be interfered with in exercise of inherent powers by the higher courts. The powers vested in the court either under Section 482 CrPC or Article 226/227 of the Constitution of India are not for the purposes of appreciating the evidence or examining the correctness of the evidence collected during investigation to record a different conclusion other than recorded by the Magistrate that he is satisfied that a cognizable offence has been disclosed in the application/complaint.
In these facts and circumstances, for the reason that the Magistrate not only heard the counsel and perused the documents but has even considered the case law cited and has opined that the information discloses a cognizable offence, implies that he has actually applied his mind to the contents of the application before passing the impugned order directing for the registration of the FIR. Therefore, there is no fault with the order of the High Court in refusing to quash the order.
Whether the High Court can deny quashing of the order dated 01.07.2005 passed by the Metropolitan Magistrate and the FIR registered pursuant to it for the reasons that the investigations have been completed and the chargesheets have been filed against the accused persons? - HELD THAT:- In the present case with which we are dealing, we have already opined earlier that there is no legal flaw in the order passed by the Magistrate dated 01.07.2005 directing for the registration of the FIR. The order clearly states that the Magistrate is satisfied that the allegations indeed make out a cognizable offence for the purposes of investigation. The said satisfaction recorded by the Magistrate cannot be disturbed in exercise of inherent powers. Therefore, if in pursuance of the said order, the FIR has been registered which discloses a cognizable offence, the same cannot be struck down at this stage.
Once much water has flown down the bridge subsequent to the order of the registration of FIR and the registration of FIR, giving rise to a fresh cause of action to challenge the chargesheets, it is opined that the High Court has rightly refused to exercise its discretionary jurisdiction so as to interfere with the FIR as the investigations have been completed and the chargesheets have been filed.
Whether the nature of dispute raised in the offending FIR is of a civil nature and there is no involvement of criminality when both sides have previously lodged FIRs originating from the same MoU dated 11.03.1995? - HELD THAT:- The breach of conditions of the MoU or allegations of false promises in relation to the aforesaid MoU are undisputedly subject matter of the different FIRs lodged by VLS itself. Therefore, violation of those conditions for some reasons have been considered by VLS to be offensive. Therefore, the High Court rightly held that if breach of those conditions of the MoU itself has been considered to be of criminal nature by VLS, it cannot be permitted to turn around and allege that such breach of conditions would be of pure civil nature.
Whether the present FIR amounts to a successive FIR based upon the same allegations as contained in an earlier FIR No.326/2004 and as such cannot be investigated independently? - HELD THAT:- It has been well settled that successive FIRs in respect of a same cognizable offence are not maintainable provided that on the basis of the earlier FIR, investigations have been completed and the trial had either resulted in conviction or acquittal of the accused.
In the case at hand, FIR No.326/2004 was lodged at Police Station, Connaught Place, New Delhi, whereas the subsequent FIR No.380/2005 was lodged at Police Station, Defence Colony, New Delhi. Both the FIRs may be based on similar allegations but they are not virtually the same. The allegations are different and even the parties against whom the FIRs were filed are not the same. Therefore, such a subsequent FIR may be maintainable but refrained from making any final comment on the above aspect as no such finding on this aspect has been returned by the court below.
Since in connection with FIR No.380/2005, investigations have been completed and the High Court has refused to quash the said FIR in exercise of its discretionary power, it is not deemed necessary to exercise discretion to override that of the High Court and leave the matter to proceed further in accordance with law.
It is not required to interfere with the orders impugned and the petitions are dismissed.
ISSUES:
RULINGS / HOLDINGS:
RATIONALE:
Dishonour of Cheque - requirement file his complaints in relation to offences punishable under Section 138 of the Negotiable Instruments Act, 1881 - territorial jurisdiction for instituting a complaint in relation to dishonor of a cheque - HELD THAT:- Section 142(2)(a) of the N.I. Act makes it clear that an offence under Section 138 thereof should be inquired into and tried only by a Court within whose local jurisdiction, if the cheque is delivered for collection through an account, the branch of the bank where the payee maintains the account is situated. This provision, as it stands after its amendment in 2015, was considered in Bridgestone India Private Limited vs. Inderpal Singh [2015 (12) TMI 777 - SUPREME COURT] and this Court affirmed that Section 142(2)(a) of the N.I. Act vests jurisdiction apropos an offence under Section 138 thereof in the Court where the cheque is delivered for collection, that is, through an account in the Branch of the Bank where the payee maintains that account.
Therefore, once it is established that, at the time of presentation of the cheques in question, the appellant maintained his account with the Kotak Mahindra Bank at its Bendurwell, Mangalore Branch, he was fully justified in filing his complaint cases before the jurisdictional Court at Mangalore. The understanding to the contrary of the learned Magistrate at Mangalore was erroneous and completely opposed to the clear mandate of Section 142(2)(a) of the N.I. Act. The High Court proceeded to confirm the erroneous order passed by the learned Magistrate under the wrong impression that the appellant maintained his bank account at the Opera House Branch of the Kotak Mahindra Bank at Mumbai.
The impugned order is set aside - appeal allowed.
Issues: Whether the appellant was in conscious possession of the poppy husk recovered from the three cartons, so as to sustain conviction under the NDPS Act.
Analysis: The recovery was made after prior information was reduced into writing and the appellant was found travelling with three cartons, one of which was under his seat and the other two were placed close to him. The Court held that possession under the NDPS Act must be established by the prosecution as conscious possession, meaning physical control coupled with awareness of the contraband. On the facts proved, the appellant's explanation that he had no knowledge of the cartons was found unacceptable. Once conscious possession was established, the statutory presumption under Section 54 became applicable, and the appellant failed to account satisfactorily for the contraband. The Court also referred to Section 35 in support of the presumption relating to culpable mental state.
Conclusion: The conviction was rightly sustained because the appellant was proved to be in conscious possession of the contraband and the presumption under the NDPS Act was not rebutted.
Appellant is guilty of alleged offence under NDPS Act or not - smuggling - conscious possession of contrabend item or not - HELD THAT:- In Avtar Singh [2002 (9) TMI 836 - SUPREME COURT], some of the occupants who were travelling in the car on being intercepted were in a position to escape. In such circumstances, the prosecution was unable to identify them during the course of investigation. This Court observed that anyone of those who made good their escape could be the actual custodian of the contraband seized from the vehicle. This Court further observed that the persons who were merely sitting on the bags, in the absence of proof of anything more, cannot also be presumed to be in possession of the contraband seized from the vehicle. Further, this Court held that for failure of the Trial Court to examine the accused under Section 313(1)(b) CrPC with respect to their possession which is the main and foremost incriminating element to attract the offence alleged against the accused, the prosecution could not have claimed to have established the guilt of the accused under Section 15 of the NDPs Act beyond the reasonable doubt. In such circumstances, the judgment of the Trial Court convicting the accused for the offence under Section 15 NDPS Act was reversed by this Court.
Thus, before the Court holds the accused guilty of the offence under the NDPS Act, possession is something that the prosecution needs to establish with cogent evidence. If the accused is found to be in possession of any contraband which is a narcotic drug, it is for the accused to account for such possession satisfactorily, if not, the presumption under Section 54 comes into place.
On looking into the evidence as regards possession and are convinced that the appellant was found to be in conscious possession of the three cartons containing poppy husk. The defence put forward by the appellant that he had no idea about the three cartons and that he got down from the coach alongwith the three cartons only because the officers asked him to come out of the coach is something which is not palatable.
Conscious possession refers to a scenario where an individual not only physically possesses a narcotic drug or psychotropic substance but is also aware of its presence and nature. In other words, it requires both physical control and mental awareness. This concept has evolved primarily through judicial interpretation since the term “conscious possession” is not explicitly defined in the NDPS Act. This Court through various of its decisions has repeatedly underscored that possession under the NDPS Act should not only be physical but also conscious. Conscious possession implies that the person knew that he had the illicit drug or psychotropic substance in his control and had the intent or knowledge of its illegal nature.
In Abdul Rashid Ibrahim Mansuri v. State of Gujarat [2000 (2) TMI 807 - SUPREME COURT], this Court highlighted that once the prosecution proves physical possession, the burden shifts to the accused to explain how he came into possession of the contraband and prove that he was not aware of its presence or nature. The Court ruled that a person who admits that drugs were found in his possession must prove that he had no knowledge of the illicit nature of the substance.
In the overall view of the matter, it is convinced that the High Court committed no error in dismissing the appeal and thereby affirming the judgment and order of conviction passed by the Trial Court - the appeal fails and is hereby dismissed.
Issues: (i) Whether the presumption under Section 139 of the Negotiable Instruments Act, 1881 includes the existence of a legally enforceable debt; (ii) whether a debt arising from a cash transaction above Rs. 20,000 in violation of Section 269SS of the Income-tax Act, 1961 can be treated as a legally enforceable debt; (iii) whether the accused rebutted the presumption and whether the complainant proved a legally enforceable debt on the facts of the case.
Issue (i): Whether the presumption under Section 139 of the Negotiable Instruments Act, 1881 includes the existence of a legally enforceable debt.
Analysis: Section 138, read with its Explanation, treats the expression "debt or other liability" as a legally enforceable debt or liability. Section 139 creates a presumption that the holder of the cheque received it for discharge of such debt or liability. The earlier view that the presumption did not extend to legally enforceable debt was held to be overridden by the later authoritative interpretation relied on by the Court.
Conclusion: Yes. The presumption under Section 139 covers legally enforceable debt.
Issue (ii): Whether a debt arising from a cash transaction above Rs. 20,000 in violation of Section 269SS of the Income-tax Act, 1961 can be treated as a legally enforceable debt.
Analysis: Section 269SS prohibits acceptance of loans, deposits, or specified sums above the statutory threshold otherwise than through prescribed banking modes, and Section 271D provides for penalty for contravention, subject to the reasonable-cause protection in Section 273B. The Court held that a transaction in cash beyond the statutory limit, when unsupported by a valid explanation, cannot be treated as a legally enforceable debt for the purpose of Section 138 of the Negotiable Instruments Act, 1881. The criminal process cannot be used to validate an illegal cash transaction or defeat the policy of curbing unaccounted cash dealings.
Conclusion: No. Such a cash-based illegal transaction is not a legally enforceable debt unless a valid explanation is established.
Issue (iii): Whether the accused rebutted the presumption and whether the complainant proved a legally enforceable debt on the facts of the case.
Analysis: The complainant admitted that the amount was paid in cash and gave no satisfactory explanation consistent with the statutory scheme. The Court found that the accused raised a probable defence sufficient to displace the statutory presumption on a preponderance of probabilities. On the evidence, the complainant failed to establish that the alleged liability was legally enforceable.
Conclusion: The presumption stood rebutted and the complainant failed to prove a legally enforceable debt.
Final Conclusion: The conviction and sentence were set aside and the revision petitioner was acquitted, with consequential reliefs flowing from the acquittal.
Ratio Decidendi: A cheque issued towards a liability arising from an unaccounted cash transaction contrary to Section 269SS of the Income-tax Act, 1961 is not enforceable under Section 138 of the Negotiable Instruments Act, 1881 unless a valid statutory explanation is shown, and the presumption under Section 139 is rebuttable on a preponderance of probabilities.
Dishonour of Cheque - legally enforceable debt or not - insufficient funds - payment of Rs. 9,00,000/- by the complainant to the accused in cash - rebuttal of presumptions.
Whether the presumption under Section 139 of the NI Act cover the “legally enforceable debt”? - HELD THAT:- From a reading of Section 139 of the NI Act, it is clear that it shall be presumed, unless the contrary is proved, that the holder of a cheque received the cheque of the nature referred to in section 138 for the discharge, in whole or in part, of any debt or other liability. Therefore, the holder of the cheque is presumed that, he received the cheque in discharge, in whole or in part, of any debt or other liability and in the explanation to the section, it is stated that the debt or other liability is a legally enforceable debt. Therefore, there is no doubt to the fact that the presumption under Section 139 of the NI Act covers legally enforceable debt also. Therefore the holder of a cheque is presumed that, he received the cheque in whole or in part of any legally enforceable debt.
It is true that in Krishna Janardhan Bhat v. Dattatraya G. Hegde [2008 (1) TMI 827 - SUPREME COURT], the Apex Court observed that there is no presumption as far as legally enforceable debt under Section 139 of the NI Act is concerned - in the light of the clear wording in Section 139 of the NI Act, it is clear that there is a presumption under Section 139 of the NI Act as far as legally enforceable debt is concerned.
How can a presumption under Section 139 of the NI Act be rebutted by an accused? - HELD THAT:- The presumption under Section 139 of the NI Act can be rebutted by an accused by raising a probable defence which creates doubts about the existence of a legally enforceable debt or liability. In Rangappa's case [2010 (5) TMI 391 - SUPREME COURT] itself, this point is considered by the Apex Court about the manner in which an accused can rebut the presumption under Section 139. Therefore, it is clear that the accused can rebut a presumption under Section 139 of the NI Act by a probable defence by preponderance of probability as stated in Rangappa's case - therefore, the accused can rebut the presumption under Section 139 of the NI Act by the standard of proof of a probable defence through preponderance of probabilities, which creates doubts about the existence of a legally enforceable debt.
Whether debt created by a cash transaction above Rs. 20,000/- in violation of the provisions of the Act 1961 can be treated as a “legally enforceable debt”? - HELD THAT:- It is clear that, no person shall take or accept from any other person, any loan or deposit or any specified sum, otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed, if the amount is above Rs. 20,000/-, provided that such transactions will not come within the purview of the exemptions mentioned in the section. Similarly, Section 269ST also prohibit that no person shall receive an amount of two lakh rupees or more in aggregate from a person in a day; or in respect of a single transaction; or in respect of transactions relating to one event or occasion from a person otherwise than by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed. Section 271D of Act 1961 says that if a person takes or accepts any loan or deposit or specified sum in contravention of the provisions of Section-269SS, shall be liable to pay, by way of penalty, a sum equal to the amount of the loan or deposit or specified sum so taken or accepted.
It is declared that debt created by a cash transaction above Rs. 20,000/- in violation of the provisions of Act 1961 is not a “legally enforceable debt” unless there is a valid explanation for the same. But the accused should challenge such transactions in evidence, and he has to rebut the presumption under section 139 of NI Act, of course, through preponderance of probability. If there is no challenge, it is presumed, in the light of Section 139 of the NI Act that, there is a valid explanation to the complainant under Section 273B of the Act 1961. Hereafter, if anybody pays an amount in excess of 20,000/ to another person by cash in violation of Act 1961, and thereafter receives a cheque for that debt, he should take responsibility to get back the amount, unless there is a valid explanation for such cash transactions. If there is no valid explanation in tune with Section 273B of the Act 1961, the doors of the criminal court will be closed for such illegal transactions.
Whether the presumption under Section 139 of the NI Act is rebutted in the facts and circumstances of the case, and whether the complainant established that there is any “legally enforceable debt”? - HELD THAT:- The complainant has not paid any income-tax for the amount paid to the accused in cash. He has no explanation for the payment of the amount in cash to the accused. It is a settled position that the ignorance of the law is not an excuse. The accused specifically cross-examined about the same when PW1 was in the box, as far as the legally enforceable debt is concerned. He has absolutely no explanation regarding the payment of the amount above Rs. 20,000/- by cash. In such circumstances, in the light of the principle laid down by the Apex Court in Rangappa's case, the accused rebutted the presumption. The debt alleged to be due to the complainant cannot be treated as a legally enforceable debt.
This is a case in which the complainant fails to prove that there is legally enforceable debt. The accused rebutted the presumption under Section 139 of NI Act. Consequently, the conviction and sentence imposed on the accused are to be set aside.
The conviction and sentence imposed on the revision petitioner/accused on the file of the Judicial First Class Magistrate Court-II, Pathanamthitta and the judgment dated 30.11.2023 in Crl. Appeal No.59/2019 on the file of the Additional District & Sessions Court-III, Pathanamthitta is set aside, and the revision petitioner is acquitted - this Criminal Revision Petition is allowed.
ISSUES:
RULINGS / HOLDINGS:
RATIONALE:
Fraud and collusion - liability for price of goods sold and delivered - duty of customs clearing and forwarding agent - letters of credit - strict compliance - use of non-approved transporter and substitution of documents - onus of proving delivery - civil liability for acts beyond authority
Liability for price of goods sold and delivered - fraud and collusion - letters of credit - strict compliance - use of non-approved transporter and substitution of documents - onus of proving delivery - civil liability for acts beyond authority - Whether the appellants (defendant Nos. 6 and 7) are liable to the plaintiff for the price of goods sold and delivered and/or damages arising from the non-payment under the Letters of Credit - HELD THAT: - The Court examined pleadings, evidence and the Single Judge's findings and upheld the conclusion that the appellants' acts and conduct caused the plaintiff's non-receipt of payment under the Letters of Credit. The negotiating bank in Bangladesh refused payment on grounds that transport documentation did not strictly comply with the LC requirement that the truck operator be Indian Banks' Association (IBA) approved. The appellants admitted that defendant No.6 was not an IBA-approved transporter and that consignments were transported under the consignment note of an IBA-approved carrier without the plaintiff's authority. Evidence established that defendant No.7 (the CNF agent) forwarded documents prepared at the border and that delivery to the importer/its CNF could not be reliably substantiated by authenticated proof of delivery. The Bangladesh Customs investigation further showed rerouting and forgery of documents, and the cumulative evidence supported an inference of connivance among defendants. Even assuming the appellants were not direct perpetrators of the fraud, the appellants acted beyond their authority and failed in their duty of care and good faith as transporter and CNF agent; that breach materially caused non-payment under the LCs. Given the conditional nature of payment under the LCs and the appellants' failure to preserve verifiable documentary proof of delivery or to explain the substitution of transporter documents, the appellants were held civilly liable. The Court thus affirmed that the plaintiff's loss was compensable by awarding the price of the goods sold and delivered as a reasonable estimate of the loss caused by the appellants' culpable conduct. [Paras 47, 48, 53, 54, 55]
Appellants held liable to the plaintiff for the price of goods sold and delivered (and/or damages) for their conduct in using a non-approved transporter, permitting substitution of documentation, failing to prove delivery, and acting beyond their authority; Single Judge's decree affirmed.
Final Conclusion: The appeal by defendant Nos. 6 and 7 is dismissed and the decree of the learned Single Judge holding them liable is affirmed; no order as to costs.
Issues: (i) Whether refusal of sanction under Section 19 of the Prevention of Corruption Act, 1988 bars prosecution under the Indian Penal Code, 1860; (ii) whether the Indian Penal Code offences were so inextricably linked with the corruption allegations that they could not stand alone; (iii) whether sanction under Section 197 of the Code of Criminal Procedure, 1973 was required.
Issue (i): Whether refusal of sanction under Section 19 of the Prevention of Corruption Act, 1988 bars prosecution under the Indian Penal Code, 1860.
Analysis: The refusal of sanction was confined to the proposal placed under Section 19 of the Prevention of Corruption Act, 1988. No sanction was sought or decided upon under Section 197 of the Code of Criminal Procedure, 1973 for the Indian Penal Code, 1860 offences. Sanction under the two provisions operates in distinct spheres, and refusal under the corruption statute does not create a blanket embargo on prosecution for independent penal offences.
Conclusion: The issue was answered in the negative.
Issue (ii): Whether the Indian Penal Code offences were so inextricably linked with the corruption allegations that they could not stand alone.
Analysis: The allegations under the Indian Penal Code, 1860 involved substantive offences such as criminal breach of trust, cheating, forgery, and destruction of evidence, supported by prima facie material including forensic indicators of deletion of data and concealment of documents. Those offences had independent ingredients and were legally severable from the misconduct alleged under the Prevention of Corruption Act, 1988.
Conclusion: The issue was answered in the negative.
Issue (iii): Whether sanction under Section 197 of the Code of Criminal Procedure, 1973 was required.
Analysis: The acts alleged, namely tampering with digital evidence, deletion of records, and concealment of material, were not acts done in the discharge of official duty. A reasonable nexus with official functions was absent, and the protection of Section 197 of the Code of Criminal Procedure, 1973 was therefore unavailable. Acts amounting to a cloak for independent criminal conduct do not attract the statutory bar.
Conclusion: The issue was answered in the negative.
Final Conclusion: The challenge to the summoning and revisional orders failed, as the prosecution under the Indian Penal Code, 1860 was not barred by the refusal of sanction under the Prevention of Corruption Act, 1988 or by Section 197 of the Code of Criminal Procedure, 1973.
Ratio Decidendi: Refusal of sanction for corruption offences does not bar prosecution for distinct Indian Penal Code offences, and sanction under Section 197 of the Code of Criminal Procedure, 1973 is required only where the alleged act bears a direct and reasonable nexus to official duty.
Seeking quashing of summoning order - Proceeding in respect of acts allegedly committed during his tenure as Deputy Director (Investigation, Income Tax, Gurugram)- violation of the mandatory preconditions contemplated under Section 19 of the PC Act, and Section 197 of the Cr.P.C., despite denial of sanction by the competent authority - scope of protective umbrella of Section 197 of the Cr.P.C. - refusal of sanction under Section 19 of the PC Act bars prosecution under the IPC - IPC offences are inextricably linked to allegations under the PC Act.
Whether the refusal of sanction under Section 19 of the PC Act bars prosecution under the IPC? - HELD THAT:- The refusal was limited to prosecution under the PC Act. The proposal considered was one seeking sanction under Section 19 of the PC Act, and the decision was rendered accordingly. No decision was taken on, nor was any sought, under Section 197 of the Cr.P.C. in relation to offences under IPC.
The Hon'ble Supreme Court in A. Sreenivasa Reddy's case [2023 (8) TMI 650 - SUPREME COURT] has authoritatively clarified that sanction under Section 19 of the PC Act and under Section 197 of the Cr.P.C. operate in distinct spheres. A refusal of sanction under the PC Act does not operate as a blanket bar on prosecution under provisions of the IPC, provided the ingredients of those offences are independently satisfied - the issue is answered in the negative.
Whether the offences under IPC are inextricably linked to allegations under the PC Act and cannot stand alone? - HELD THAT:- In Sachin Ahlawat's [2025 (4) TMI 1526 - PUNJAB AND HARYANA HIGH COURT], the only offence under IPC alleged was conspiracy under Section 120-B, and the prosecution was inseparable from the charge under the PC Act. In the present case, however, the petitioner is charged with substantive offences under Sections 409, 420, 468, 471, and 201 IPC—each of which is independently defined and supported by prima facie evidence, including the report of CFSL noting deletion of data and alteration of the contents of the hard disk, as well as recovery of official documents from the personal device of the petitioner - In A. Sreenivasa Reddy's case, the Supreme Court held that even if the public servant is discharged of offences under the PC Act, prosecution under IPC may continue if the allegations constitute distinct offences.
The offences under IPC in the instant case involve distinct ingredients—breach of trust, forgery, falsification of digital records, and destruction of evidence—which are legally severable from the misconduct alleged under the PC Act - the issue is answered in the negative.
Whether sanction under Section 197 of the Cr.P.C. was required in the facts of the present case? - HELD THAT:- The acts alleged— tampering with digital evidence, deletion of official records, and resealing a forensic device with altered content—are not acts that can be said to have been committed in the discharge of official duty, but rather in derogation of it - Similarly in Suneeti Toteja's case [2025 (2) TMI 1218 - SUPREME COURT], the Supreme Court reaffirmed that the requirement of sanction under Section 197 of the Cr.P.C. is attracted only where the act is directly and reasonably connected with official duty, which in turn would depend on the facts and circumstances of the case.
The Hon’ble Supreme Court in G.C. Manjunath's case [2025 (4) TMI 1670 - SUPREME COURT] itself reiterated the principle laid down in D. Devaraja Vs. Owais Sabeer Hussain, [2020 (6) TMI 802 - SUPREME COURT], that “an offence committed entirely outside the scope of the duty of the public servant would certainly not require sanction”, and that “if the act is connected to the discharge of official duty, sanction is necessary; but if it is a cloak to justify independent criminal acts, it is not.” Applying this test, the present acts cannot be said to have a reasonable nexus to the discharge of official duties under the Income Tax Act. No public servant is empowered by his official function to erase or falsify forensic material or to suppress evidence for the benefit of a private assessee.
This Court finds no legal infirmity in the impugned orders. The summoning order dated 29.03.2025 (Annexure P-6) discloses due application of mind. The learned Revisional Court has rightly upheld that the prosecution under the provisions of IPC is not barred by the refusal of sanction under Section 19 of the PC Act or the embargo under Section 197 of the Cr.P.C. The prosecution is supported by prima facie material, including reports of Forensic Science Laboratory, and cannot be interdicted on technical grounds.
Petition dismissed.
TaxTMI 