TaxTMI Updates e-Newsletter
Aug 14,2024

Suspension of public servant pending disciplinary proceedings - prima facie case requirement for suspension - quasi-judicial duty of refund adjudication - duty to verify shipping bills through ICEGATE in refund scrutiny - non-requirement to physically verify E-way bills for refund under circular - protection of public interest and exchequer pending inquiry - judicial review limited to malafide, arbitrary or legally unsustainable suspension

Suspension of public servant pending disciplinary proceedings - prima facie case requirement for suspension - judicial review limited to malafide, arbitrary or legally unsustainable suspension - Validity of the suspension order dated 01.11.2023 issued to the petitioner - HELD THAT: - The Court applied the settled principle that suspension should be exercised only where there is a strong prima facie case involving moral turpitude, grave misconduct or serious omission such that, if proved, would ordinarily warrant major punishment. Considering the inquiry report and the materials on record, the Court found absence of strong prima facie material to conclude that the petitioner engaged in moral turpitude or grave misconduct in the exercise of his quasi-judicial duties. The Court observed that mere eventuality of a forged export transaction, without demonstrable prima facie culpability of the officer at the point of adjudication, is insufficient to sustain suspension. In view of these conclusions, interference with the impugned suspension was warranted. [Paras 21, 22]

Impugned suspension order dated 01.11.2023 quashed for lack of strong prima facie material

Quasi-judicial duty of refund adjudication - duty to verify shipping bills through ICEGATE in refund scrutiny - non-requirement to physically verify E-way bills for refund under circular - Whether the petitioner complied with the statutory and circular mandate in processing the refund claim and whether failure to verify E-way bills justified suspension - HELD THAT: - The Court recognised that adjudication of refund claims under the GST regime is a quasi-judicial function and must be performed within statutory timelines. The Commissioner's circular prescribes verification of shipping bill details via the ICEGATE portal and lists documents to be verified online (Annexure-A). The Court recorded that the petitioner had verified export invoices, shipping bills, ICEGATE and EPDMS as reflected in the comparative table and had processed the refund in accordance with the circular and relevant rules. The Court further held that neither the Act nor the circular mandated physical verification of E-way bills before sanctioning the refund, and requiring such an exercise would impede compliance with the statutory time-limit for refund processing. Consequently, the allegation that non-verification of E-way bills constituted culpable omission was not sustained as a basis for suspension. [Paras 18, 19, 20]

Petitioner had complied with the prescribed verification procedures; failure to check E-way bills did not, by itself, justify suspension

Protection of public interest and exchequer pending inquiry - suspension of public servant pending disciplinary proceedings - Relief to be granted and directions regarding petitioner's posting and continuation of departmental proceedings - HELD THAT: - While quashing the suspension for want of prima facie material against the petitioner, the Court balanced the competing public interest and the need to protect the exchequer pending departmental enquiry. The Court recognised the respondents' concern about ongoing investigations and other officers being suspended in the same matter, and therefore directed that the petitioner be posted to an insensitive post at a different station to avoid interfering with the probe. The Court also left departmental proceedings to continue after affording opportunity to the petitioner and directed completion of those proceedings within three months from receipt of the order. [Paras 26, 27]

Petitioner to be posted to an insensitive post in a different station; departmental proceedings to continue with opportunity and to be completed within three months

Final Conclusion: The writ petition is allowed: the suspension order dated 01.11.2023 is quashed; the petitioner shall be posted to an insensitive post at a different station; departmental proceedings shall proceed after affording opportunity and be completed within three months from receipt of this order.

Statutory bail under Section 167(2) CrPC - indefeasible right to bail on expiry of investigative period - investigation not completed within sixty days - custodial period as trigger for release on default - conditions of bail to prevent tampering with evidence

Statutory bail under Section 167(2) CrPC - indefeasible right to bail on expiry of investigative period - investigation not completed within sixty days - Entitlement of the petitioner to be released on statutory bail under Section 167(2) CrPC due to non-completion of investigation within sixty days while in judicial custody. - HELD THAT: - The petitioner had been in judicial custody for 61 days, the investigation remained incomplete and the final report had not been filed. The Court applied the principle that on expiry of the period prescribed by Section 167(2) CrPC an indefeasible right accrues to the accused to be released on bail for default by the investigating agency, as reiterated by the Supreme Court in Uday Mohanlal Acharya v. State of Maharashtra relying on Sanjay Dutt v. State through C.B.I., Bombay . Given that the offence alleged is punishable up to five years and the statutory sixty-day investigation period had lapsed without completion, the petitioner was held entitled to statutory bail. The Court nonetheless imposed conditions to secure the investigation and prevent tampering with evidence, including regular appearance before the Investigating Officer, prohibition against inducement or intimidation of witnesses, surrender of passport or affidavit, and empowerment of the trial court to consider cancellation of bail on breach. [Paras 6, 8, 9, 10]

Petitioner released on statutory bail on furnishing bond and sureties, subject to specified conditions to safeguard the investigation.

Final Conclusion: Application under Section 439 CrPC allowed; statutory bail granted because investigation was not completed within sixty days of custody, subject to conditions safeguarding the investigative process and preventing tampering with evidence.

Violation of principles of natural justice - cancellation of registration - failure to record reasons - non-consideration of objections - restoration of registration - fresh consideration of cancellation proceedings

Violation of principles of natural justice - failure to record reasons - non-consideration of objections - cancellation of registration - The order of cancellation was set aside insofar as it was passed without assigning reasons and without considering the petitioner's objections, thereby violating principles of natural justice. - HELD THAT: - The show cause notice purportedly set out a reason for initiating cancellation and the petitioner filed objections. The order of cancellation dated 14.11.2023, however, did not refer to or deal with those objections and contained no reasons in the body of the order accessible to the petitioner. An order cancelling registration without stating reasons and without considering the objections constitutes a breach of the principles of natural justice. For that reason the impugned cancellation order cannot stand and must be quashed. The Court therefore set aside the order of cancellation and directed restoration of the petitioner's registration. [Paras 7, 8]

Impugned cancellation order quashed for want of reasons and non-consideration of objections; registration restored.

Restoration of registration - fresh consideration of cancellation proceedings - The respondents are permitted to proceed afresh in accordance with law; the setting aside of the order does not preclude initiation of valid cancellation proceedings after affording opportunity of hearing. - HELD THAT: - While the cancellation order was set aside for procedural infirmity, the Court made clear that this quashing does not bar the authority from taking steps under the CGST regime if there is a legitimate case for cancellation. Any further action must follow the statutory scheme and principles of natural justice, including furnishing relevant material to the dealer and considering objections before passing a reasoned order. [Paras 8]

Restoration is without prejudice to the authority's right to initiate or continue proceedings afresh in accordance with law after granting due opportunity.

Final Conclusion: The writ petition is allowed; the cancellation order dated 14.11.2023 in Form GST REG-19 is set aside for breach of natural justice and the petitioner's registration is restored, subject to the respondents' right to take fresh action in accordance with law after affording the petitioner an opportunity to be heard.

Unreasoned order - inadmissible input tax credit - show cause notice - limitation period - fraud on the statute - stay of demand

Unreasoned order - inadmissible input tax credit - Validity of the adjudicating order rejecting the petitioner's reply to the SCN raising demand for alleged inadmissible ITC - HELD THAT: - The Court recorded that the impugned order, passed under Section 73 of the CGST/DGST Acts pursuant to the SCN, simply rejected the petitioner's response on the ground that the reply was "not satisfactory" without any reasoning or consideration of the tabular material submitted by the petitioner contending that no ITC had been availed. The Court observed that such non-speaking orders, particularly when passed at the very end of the limitation period, fail to explain why the taxpayer's material was inadequate and therefore lack the essential requirement of reasoned adjudication.

Impugned order found to be unreasoned in approach; prima facie infirmity recorded and the order stayed.

Limitation period - fraud on the statute - Court's view on the practice of passing unreasoned orders at the end of the limitation period - HELD THAT: - The Court noted a recurring pattern of orders being passed on the last few days of the extended limitation period without reasoned consideration of taxpayer responses, observing that such practice appears designed to create a demand before limitation expires and may amount to a "fraud on the statute." The Court treated this pattern as a matter of concern warranting judicial scrutiny and directed the respondents to furnish information to enable assessment of the extent of the practice.

Practice of issuing unreasoned orders at the expiry of limitation was prima facie criticised and directed to be investigated by filing affidavits by the respondents.

Show cause notice - stay of demand - Interim relief and procedural directions - HELD THAT: - Having recorded the foregoing concerns and having issued notice, the Court granted interim relief by staying the operation of the impugned order pending further proceedings. The Court also directed respondent no. 1 to file a counter-affidavit and respondents nos. 2 and 3 to file an affidavit detailing the number of orders passed during the last three days of the extended limitation period, the number of writ petitions filed challenging such orders, the number set aside as unreasoned, and officer-wise break-up of such orders.

Impugned order stayed; directions issued for filing of affidavits and counter-affidavit; matter listed for further consideration.

Final Conclusion: Notice issued; impugned order (relating to alleged inadmissible ITC for Financial Year 2018-19) stayed pending further proceedings; respondents directed to file specified affidavits and a counter-affidavit; matter listed for further hearing.

Quashing of assessment order and remand for fresh adjudication - opportunity to be heard / audi alteram partem - interim deposit as condition for reopening / continuance of proceedings - alternate remedy before Appellate Commissioner under Section 107

Quashing of assessment order and remand for fresh adjudication - opportunity to be heard / audi alteram partem - Impugned assessment order confirming demand set aside and matter remitted for fresh adjudication - HELD THAT: - The court found that the impugned Assessment Order dated 12.02.2024 confirming the demands proposed in DRC 01A and DRC 01 was passed after the petitioner failed to respond to notices hosted on the common web portal. Noting that the petitioner, a government contractor, pleaded non receipt and sought an opportunity to reply, the court held that although no fault was attributable to the assessing authority for passing the order in the absence of a reply, the petitioner nonetheless deserves a fresh opportunity to be heard. Accordingly, the impugned order is quashed and the matter is remitted to the first respondent for fresh adjudication on merits.

Impugned order set aside; matter remitted for fresh adjudication with direction to hear the petitioner

Interim deposit as condition for reopening / continuance of proceedings - opportunity to be heard / audi alteram partem - Conditions and timeline for fresh adjudication - HELD THAT: - As a condition for remand, the court directed the petitioner to deposit 10% of the disputed tax into the Government's credit from his Electronic Cash Register within 30 days of receipt of the order. The impugned order is to be treated as an addendum to the earlier show cause notices. The petitioner was directed to file a reply within 30 days from the date of the order, and the first respondent was directed to adjudicate the proceedings afresh on merits and pass final orders within two months thereafter, ensuring the petitioner is heard before final orders are passed.

Petitioner to deposit 10% of disputed tax within 30 days, file reply within 30 days; respondent to decide afresh on merits within two months and hear the petitioner

Alternate remedy before Appellate Commissioner under Section 107 - Availability of alternate remedy does not preclude exercise of writ jurisdiction to remand the matter - HELD THAT: - The respondents submitted that an alternate remedy lies before the Appellate Commissioner under Section 107. The court nevertheless exercised its discretion under Article 226 to quash the impugned order and remit the matter for fresh adjudication in view of the petitioner's unresponded notices and the need to afford an opportunity to be heard.

Writ jurisdiction exercised to remit the matter despite existence of an alternate appellate remedy

Final Conclusion: Writ petition disposed of by quashing the Assessment Order dated 12.02.2024 for AY 2020-2021 and remitting the matter to the first respondent for fresh adjudication on merits, subject to deposit and timetable conditions and an opportunity for the petitioner to be heard.

Stay of demand pending adjudication - prima facie case for interim relief - extension of time for initiation of proceedings under Section 73(10) - exercise of power under Section 168A in respect of force majeure - affidavit-in-opposition and exchange of affidavits

Stay of demand pending adjudication - prima facie case for interim relief - identical orders as precedent - Stay of operation of the impugned demand made in the order dated 15th April, 2024 - HELD THAT: - The Court found that a prima facie case had been made out by the petitioner and noted that a coordinate Bench had passed a limited interim order in an identical matter (OSL Exclusive Pvt. Ltd. v. Union of India & Ors.). Having regard to these considerations and the pendency of proceedings, the Court exercised its discretion to grant interlocutory relief by restraining enforcement of the demand contained in the impugned order pending further orders of the Court. The stay is granted for a limited period to preserve the subject matter of adjudication while the respondents file affidavits and the matter is heard on merits.

Operation of the impugned demand in the order dated 15th April, 2024 is stayed until the end of November, 2024 or until further order, whichever is earlier.

Affidavit-in-opposition and exchange of affidavits - adjournment for exchange of affidavits - Procedure for filing affidavits by respondents and timeline for replies - HELD THAT: - The Court directed that, since a jurisdictional issue had been raised, the respondents should be afforded an opportunity to file affidavits in opposition. Specific timelines were fixed to enable an early hearing on the merits: affidavit-in-opposition to be filed within four weeks from the date of the order and any reply thereto to be filed within three weeks thereafter. The Court retained liberty to be mentioned after the expiry of the period for exchange of affidavits.

Respondents to file affidavit-in-opposition within four weeks and any reply within three weeks thereafter; liberty to mention after exchange period.

Extension of time for initiation of proceedings under Section 73(10) - exercise of power under Section 168A in respect of force majeure - colourable exercise of power - Validity of reliance on notifications dated 31st March, 2023 and 28th December, 2023 to extend time for initiation of proceedings in respect of the tax period April 2018 to March 2019 - HELD THAT: - The petitioner challenged the notifications and the subsequent show cause notice and adjudication order as colourable exercises of power, contending that no force majeure existed when the show cause notice was issued on 28th December, 2023. The Court did not adjudicate the merits of that challenge at this stage; instead, having identified it as a jurisdictional and determinative controversy, the Court directed exchange of affidavits and preserved the subject matter by granting interim relief. The question of the validity of the notifications and the lawful application of Section 168A and Section 73(10) to extend time is left for final determination after affidavits and hearing on merits.

Issue of validity of the notifications and related contention remanded for fresh consideration and adjudication after exchange of affidavits; no final adjudication on merits in this order.

Final Conclusion: The Court granted an interim stay of the demand in the order dated 15th April, 2024 until the end of November, 2024 (or until further order), directed respondents to file affidavits within prescribed timelines with liberty to mention thereafter, and remanded for fresh consideration the question of validity of the notifications relied upon to extend time for initiation of proceedings in respect of April 2018 to March 2019.

Restriction on availment of input tax credit under Section 16(4) - delayed availing of Input Tax Credit - intent of Parliament to allow Input Tax Credit - retrospective relief by amendment - remand for fresh consideration in light of proposed statutory amendments - prohibition on refund where amendment would not have applied

Delayed availing of Input Tax Credit - restriction on availment of input tax credit under Section 16(4) - retrospective relief by amendment - remand for fresh consideration in light of proposed statutory amendments - Validity of the impugned appellate order refusing delayed Input Tax Credit and appropriate relief in view of proposed amendments in the Finance (No.2) Bill, 2024 - HELD THAT: - The writ petition challenged the Order-in-Appeal confirming the assessment disallowing Input Tax Credit for delayed availment under the restriction stated in sub-section (4) of section 16. The Court observed that Parliament has addressed the subject by proposing Clause 114 (which would permit availment of credit for specified financial years subject to conditions) and Clause 146 (which would bar refunds in certain cases) of the Finance (No.2) Bill, 2024, reflecting an intention to permit the benefit of Input Tax Credit subject to the limitations and riders contained therein. In view of these legislative proposals and the need to give effect to Parliament's indicated intention, the Court concluded that interference was warranted. Rather than adjudicating the substantive entitlement on the merits, the Court set aside the impugned appellate order and remitted the matter to the assessing authority for fresh consideration after taking stock of the amendments proposed to be incorporated into the GST enactments as per the cited clauses of the Finance Bill. [Paras 5, 6]

Impugned Order-in-Appeal set aside; matter remitted to the assessing authority for fresh adjudication in light of the proposed amendments in the Finance (No.2) Bill, 2024.

Final Conclusion: The appellate order confirming the assessment disallowing delayed Input Tax Credit is quashed and the case is remitted to the assessing authority for fresh disposal after considering the proposed amendments in the Finance (No.2) Bill, 2024; writ petition disposed of with no costs.

Pure agent - exclusion from value of supply under Rule 33 of the CGST Rules - Passenger Services Fee (PSF) and User Development Fee (UDF) taxable in hands of airport operator - input tax credit reversal - invocation of extended period of limitation under Section 74 of the GST enactments - quash and remit for fresh adjudication - Addendum to Show Cause Notice / consolidated corrigendum

Pure agent - exclusion from value of supply under Rule 33 of the CGST Rules - Passenger Services Fee (PSF) and User Development Fee (UDF) taxable in hands of airport operator - Whether amounts collected by the airline as PSF and UDF are taxable in the hands of the petitioner or in the hands of the Airport Authority of India - HELD THAT: - The Court noted that prima facie the amounts collected as PSF and UDF are not liable to tax in the hands of the petitioner if the petitioner acts as a pure agent and satisfies the conditions under Rule 33 of the CGST Rules. The Court relied upon Circular No. 115/34/2019-GST, which explains that where an airline acts as a pure agent and separately indicates the actual PSF and UDF in its invoice, those amounts are excluded from the value of supply and the airport operator (licensee) is liable to pay GST on such PSF and UDF. The Court observed that separate collection charges, if any, payable to the airline for collection may constitute consideration for services by the airline and would be taxable in the airline's hands; that aspect requires detailed examination by the respondent. [Paras 12, 13]

Prima facie PSF and UDF are taxable in the hands of the airport operator and not the petitioner if conditions for pure agent under Rule 33 are satisfied; matter remitted to respondent for fresh adjudication on merits including examination of any separate collection charges.

Input tax credit reversal - Whether input tax credit availed by the petitioner on taxes related to PSF and UDF must be reversed - HELD THAT: - The Court observed that if the petitioner has availed ITC on the taxes collected from passengers towards PSF and UDF, the petitioner would be liable to reverse such input tax credit. The Court directed the respondent to re-examine this aspect during fresh adjudication. [Paras 14]

Issue of reversal of input tax credit is remanded to the respondent for re-examination.

Invocation of extended period of limitation under Section 74 of the GST enactments - Validity of invocation of the extended period of limitation (Section 74) in the notices and assessments - HELD THAT: - The Court recorded the petitioner's contention that the Show Cause Notices did not mention the ingredients for invoking the extended period of limitation under Section 74 and that ASMT-10 notices were not issued. The Court left open the petitioner's right to raise objections, including objecting to invocation of the extended period, before the respondent on remand. [Paras 7, 17]

The petitioner is entitled to raise objections, including against invocation of Section 74, and the respondent shall consider them afresh.

Quash and remit for fresh adjudication - Addendum to Show Cause Notice / consolidated corrigendum - Whether the impugned assessment orders should be quashed and the matter remitted for fresh consideration - HELD THAT: - The Court found lack of clarity in the Show Cause Notices and assessment orders and noted procedural shortcomings in production of readable information by the petitioner. Considering the commonality of issues across the assessment years and absence of clarity in the notices and orders, the Court quashed the impugned assessment orders and directed that they be treated as an Addendum to the original Show Cause Notices (DRC 01). The Court permitted the Department to issue a consolidated corrigendum after calling upon the petitioner to furnish details, and directed re-adjudication on merits within a specified timeframe. [Paras 15, 16, 18]

Impugned assessment orders quashed and remitted to the respondent for fresh adjudication; the quashed orders shall stand as Addendum to the Show Cause Notices and the Department may issue a consolidated corrigendum; re-adjudication to be completed within 12 months.

Final Conclusion: The High Court quashed the impugned assessment orders for Assessment Years 2017-2018 to 2022-2023 and remitted the matters to the respondent for fresh adjudication on merits, directing re-examination of (i) whether PSF/UDF are excluded from the airline's taxable value as a pure agent, (ii) reversal of any input tax credit improperly availed, and (iii) any contention regarding invocation of extended limitation; the quashed orders are to be treated as Addendum to the Show Cause Notices and re-adjudication is to be completed within 12 months.

Supply of warehoused goods to any person before clearance for home consumption - Para 8(a) of Schedule III of the CGST Act - Warehoused goods as defined in the Customs Act - Free Trade and Warehousing Zone (FTWZ) as a unit of Special Economic Zone (SEZ) - Section 30 of the SEZ Act - removal from SEZ/FTWZ subject to customs duty - Amended Section 17(3) of the CGST Act - reversal/apportionment of input tax credit - Explanation 2 to Schedule III - cross reference to Customs Act definition - Section 51 of the SEZ Act - overriding effect

Supply of warehoused goods to any person before clearance for home consumption - Para 8(a) of Schedule III of the CGST Act - Warehoused goods as defined in the Customs Act - FTWZ as a unit of SEZ and authorized warehousing activity - Transfer of title of goods stored in FTWZ by the applicant to DTA customers, and multiple transfers within FTWZ, fall within para 8(a) of Schedule III of the CGST Act - HELD THAT: - The Authority examined statutory definitions in the SEZ Act, SEZ Rules and the Customs Act and the nature of FTWZ activities. FTWZ is a form of SEZ (Section 2(n) SEZ Act) where warehousing on behalf of clients is an authorised operation (Rule 8(5) of SEZ Rules). The term "warehoused goods" in paragraph 8(a) is linked by Explanation 2 to the meaning in the Customs Act, which contemplates goods deposited in licensed warehouses (Sections 57/58/58A read with definitions). The factual matrix shows imported goods are deposited and stored in the FTWZ on behalf of the applicant and transfers of title (including multiple transfers while goods remain warehoused) are effected prior to clearance for home consumption. On this basis the Authority concluded that such transfers fall squarely within para 8(a) of Schedule III and are therefore neither a supply of goods nor a supply of services for the applicant while the goods remain warehoused. [Paras 16, 18, 19, 20, 21]

The transfers are covered under para 8(a) of Schedule III of the CGST Act.

Section 30 of the SEZ Act - removal from SEZ/FTWZ subject to customs duty - IGST on imports and levy at clearance for home consumption - Interplay between SEZ/Customs regime and IGST provisions - Whether IGST is payable by the applicant in addition to customs duty on removal from FTWZ to DTA - question left unanswered because the primary issue was answered affirmatively - HELD THAT: - The Authority noted that removal of goods from FTWZ to DTA is governed by Section 30 of the SEZ Act and is subject to applicable customs duties (including IGST) payable by the DTA customer on clearance for home consumption. However, because the Authority has held that transfers effected by the applicant while goods remain warehoused fall under para 8(a) of Schedule III, the Query framed conditionally ('If answer to (i) is no') became inapplicable and therefore the conditional question on additional IGST liability of the applicant was not answered. [Paras 14, 20, 21]

Not answered as the conditional premise is resolved by the affirmative finding on Query (i).

Amended Section 17(3) of the CGST Act - reversal/apportionment of input tax credit - Paragraph 8(a) of Schedule III and its exception in Section 17(3) explanation - Rule 43 Explanation and intent relating to Duty Free Shops - Whether proportionate reversal of input tax credit is required in terms of the amended Section 17(3) of the CGST Act irrespective of Schedule III coverage - HELD THAT: - The Authority considered the statutory amendment effected by the Finance Act, 2023 which modified the Explanation to Section 17(3) to exclude certain Schedule III activities from the definition of exempt supply, while expressly excepting clause (a) of paragraph 8 only to the extent prescribed. The amendment thus brought specified Schedule III transactions within the scope for apportionment and reversal as prescribed. On a combined reading of the amended Section 17(3), its Explanation and the related rules, the Authority concluded that proportionate reversal of input tax credit of common inputs, input services and capital goods is required to be made by the applicant in terms of the amended provision and the rules. [Paras 6, 16, 20, 21]

Applicant is liable to reverse proportionate ITC of common inputs/capital goods/services under the amended Section 17(3) and the rules.

Final Conclusion: Advance ruling: (i) transfers of title of goods stored in FTWZ by the applicant (including multiple transfers within FTWZ) are covered by para 8(a) of Schedule III to the CGST Act (i.e., not supplies while warehoused); (ii) the conditional question on additional IGST liability of the applicant was not answered because Query (i) was answered affirmatively; and (iii) in view of the amendment to Section 17(3) of the CGST Act, the applicant must reverse/apportion input tax credit of common inputs/input services/capital goods as prescribed.

Wilful disobedience - civil contempt - jurisdiction of assessing officer - duty to refer under Section 124(2) - non application of res judicata across assessment years - removal of outstanding demand from departmental portal

Wilful disobedience - jurisdiction of assessing officer - duty to refer under Section 124(2) - Proceeding with assessment for 2013-14 despite the High Court's order of 31.03.2015. - HELD THAT: - The Court held that the Division Bench's order dated 31.03.2015 was unambiguous and not confined to a particular assessment year but laid down the question of jurisdiction in accordance with the Income Tax Act. When the assessee raised a jurisdictional objection and pending writ proceedings, the assessing officer was obliged to await the writ Court's decision or refer the question of jurisdiction to the Commissioner under the statutory scheme. The opposite party proceeded with assessment activities concerning the assessee despite the writ Court's order and the pendency of the challenge, conduct which the Court found to be a deliberate departure from the settled procedure and therefore amounting to contempt. The Court rejected the contention that each assessment year is wholly independent so as to justify the opposite party's actions in the circumstances, noting that the Division Bench had recorded that the Lucknow authority lacked jurisdiction over the assessee generally. [Paras 18, 19, 51, 61, 62]

Charge that the opposite party proceeded with the assessment despite the High Court's order is proved and amounts to contempt.

Willful disobedience - jurisdiction of assessing officer - non application of res judicata across assessment years - Allegation that the opposite party inserted a local address to create jurisdiction. - HELD THAT: - The Court examined the record and the Division Bench's finding that the Delhi address was known and that the local address had been handwritten into the computer generated notice, which the writ Court regarded as an attempt to create jurisdiction. The opposite party's denial and explanations were considered but the High Court concluded that, on the material before it, the conduct of altering the address and advancing proceedings was contumacious and bore the character of deliberate non compliance with the earlier judgment. The Court emphasised that officials must not interpret or qualify a clear judgment so as to read into it words not contained therein. [Paras 19, 20, 51, 61]

Charge that the opposite party inserted a local address to create jurisdiction is proved and amounts to contempt.

Removal of outstanding demand from departmental portal - wilful disobedience - civil contempt - Failure to delete the outstanding demand from the income tax web portal for several years after the High Court quashed the notice. - HELD THAT: - The Division Bench had directed that the impugned notice and consequential orders be quashed and the assessing officer was required to ensure that the entry reflecting outstanding demand was removed. The Court found that the demand continued to be displayed on the departmental portal for an extended period (recorded by the Court as years) despite the quashing order, causing reputational and financial prejudice to the applicant. The opposite party's explanations about technical or procedural issues and later withdrawal of the demand were considered insufficient; the Court found deliberate and willful disobedience in allowing the outstanding to remain displayed, concluding that this conduct warranted contempt proceedings. [Paras 18, 51, 52, 61, 62]

Charge that the outstanding amount was not deleted from the web portal for several years is proved and amounts to contempt.

Final Conclusion: The Court found the opposite party, Mr. Harish Gidwani (now retired), guilty of civil contempt under Section 12 of the Contempt of Courts Act, 1971 for the charges framed, and imposed a sentence of simple imprisonment for one week together with a fine of Rs. 25,000/-, directing surrender and compliance as recorded; the contempt petition is finally disposed of.

Rectification under Section 154 - Computation of book profit for MAT under Section 115JB - Mistake apparent on the record - Audit objection vis-a -vis assessment proceedings - Exceptions to withdrawal of departmental appeals under CBDT Circular (para-10/ clause 10(c)) - Recall/recall application before the Tribunal

Rectification under Section 154 - Mistake apparent on the record - Audit objection vis-a -vis assessment proceedings - Validity of the order passed by the Assessing Officer under Section 154 and the quashing of the same by the CIT(A). - HELD THAT: - The High Court recorded that the audit objection related to the assessment framed under Section 143(3) read with Section 147 and not to the order giving effect to the CIT(A)'s order dated 23rd July, 2012. The CIT(A) examined the facts and concluded that the audit objection had merged into the appellate order and therefore the Assessing Officer's action in treating the matter as a 'mistake apparent on record' and rectifying the order giving effect by way of Section 154 was contrary to settled law. On merits the CIT(A) also accepted the assessee's contention that waiver of principal was a capital receipt and not an operating item for computing book profit under Section 115JB, and directed deletion of the addition. In view of these findings, the rectification order under Section 154 was quashed and set aside by the CIT(A), a conclusion upheld by the High Court. [Paras 6]

The order under Section 154 was not sustainable and was quashed and set aside by the CIT(A); that conclusion is upheld.

Exceptions to withdrawal of departmental appeals under CBDT Circular (para-10/ clause 10(c)) - Recall/recall application before the Tribunal - Audit objection vis-a -vis assessment proceedings - Whether the Revenue's Miscellaneous Application to treat the case as falling within the Circular exception (and thereby recall the Tribunal's earlier dismissal) was maintainable. - HELD THAT: - The Tribunal had dismissed the Revenue's appeal under ITA No.132/Ahd/2019 on account of low tax effect in light of the CBDT instruction, but left open the possibility of recall if, on re-verification, the tax effect exceeded the threshold or an exception applied. The Revenue filed a Miscellaneous Application contending that audit objections and a corrected scrutiny report placed the case within the exceptions in para-10 of the Circular. The High Court accepted the Tribunal's factual finding (recorded from the parties and the papers) that the audit objection concerned the original reassessment proceedings and not the order giving effect in which the present appeal lay. Because the Section 154 order had already been quashed by the CIT(A) (i.e., there was no accepted audit objection operating in lieu of the appeal), the case did not fall within the Circular's exception. The Tribunal therefore correctly rejected the Miscellaneous Application and was not in error in declining to recall or permit reconsideration on that ground. [Paras 3, 7]

The Tribunal correctly dismissed the Miscellaneous Application; the case does not fall within the CBDT Circular exception and recall was not merited.

Final Conclusion: The High Court dismissed the petition; the CIT(A)'s quashing of the Section 154 rectification was upheld and the Tribunal rightly rejected the Revenue's Miscellaneous Application because the audit objection related to the reassessment order (and had merged into the appellate order), so the case did not fall within the Circular's exception permitting withdrawal or recall.

Reopening of assessment - reason to believe - change of opinion - fresh tangible material - failure to disclose fully and truly all material facts - notice under section 148 of the Income Tax Act, 1961 - audit objection as information - depreciation on exchange rate fluctuation

Reopening of assessment - notice under section 148 of the Income Tax Act, 1961 - reason to believe - Validity of the notice under section 148 issued to reopen assessment for Assessment Year 2014-2015 - HELD THAT: - The Court examined the reasons recorded and the material on which the Assessing Officer purportedly formed a reason to believe. It found that the Assessing Officer's belief was founded only on material already available on the record and that no fresh tangible material having a live nexus with the reasons recorded was placed before him. The Court noted that the regular assessment under section 143(3) had considered depreciation claims and that the Assessing Officer in the original assessment had made an addition only on specific excess depreciation. In these circumstances the Court concluded that the reopening did not rest on any new material or proper application of mind constituting a valid reason to believe that income had escaped assessment. [Paras 18, 19]

Notice under section 148 for AY 2014-2015 quashed and set aside.

Fresh tangible material - change of opinion - audit objection as information - failure to disclose fully and truly all material facts - depreciation on exchange rate fluctuation - Whether reopening was justified on the basis of audit objection or amounted to impermissible change of opinion in absence of failure to disclose - HELD THAT: - The petitioner argued reopening was based solely on audit objection and amounted to a change of opinion since there was no allegation of failure to disclose material facts. The respondent relied on audit observations and contended the Assessing Officer applied his mind and concluded depreciation claimed on exchange rate fluctuation was not allowable. The Court held that an audit objection does not automatically validate reopening where the Assessing Officer's reasons derive only from material already on record and there is no suggestion of nondisclosure by the assessee. Given the absence of any allegation or evidence of failure to disclose fully and truly all material facts, the Court treated the action as a change of opinion and therefore impermissible in the facts of the case. [Paras 18]

Reopening based on the audit objection and on material already available is not tenable; objections disposal order is set aside.

Final Conclusion: The High Court quashed the notice under section 148 for Assessment Year 2014-2015 and the order disposing of the objections, concluding that the Assessing Officer had formed no valid reason to believe based on fresh tangible material and that the reopening amounted to an impermissible change of opinion in the absence of any failure by the assessee to disclose material facts.

Interpretation of 'production' vis-a -vis 'manufacture' under Section 80-IA - test of emergence of a new and distinct commodity for manufacture/production - entitlement to deduction under Section 80-IA where activity amounts to manufacture or production - revenue consequences of denying manufacture where excise duty and other statutory recognition exist

Interpretation of 'production' vis-a -vis 'manufacture' under Section 80-IA - test of emergence of a new and distinct commodity for manufacture/production - entitlement to deduction under Section 80-IA where activity amounts to manufacture or production - Whether the activity of converting sandstone blocks into gitti falls within 'manufacture' or 'production' for the purpose of claiming deduction under Section 80-IA, having regard to the wider meaning of 'production' as held in Arihant Tiles & Marbles P. Ltd. - HELD THAT: - The Court held that the question is no longer res integra in view of the Supreme Court's decision in Income Tax Officer v. Arihant Tiles & Marbles P. Ltd., which applied the test that where processing results in the emergence of a new and distinct commodity the activity constitutes manufacture or production. The Supreme Court observed that blocks converted into slabs or tiles cease to be the original commodity and become a new product, thereby satisfying the test for manufacture/production and entitling the assessees to benefit under section 80-IA. The Court further noted the practical and fiscal consequences of holding otherwise, particularly where the activity is recognised as manufacture by other statutory regimes (such as excise) and where denial would lead to anomalous positions regarding liability to duties and taxes. Applying that ratio to the facts of the present case, the activity of producing gitti from sandstone blocks was held to effect a transformation producing a new and distinct commodity and therefore to constitute manufacture or production for the purposes of Section 80-IA.

The activity of converting sandstone blocks into gitti is manufacture/production within the meaning of Section 80-IA and the claim for deduction is sustainable.

Final Conclusion: The appeal is allowed; the substantial question of law is answered in favour of the assessee and the claim under Section 80-IA is held to be maintainable.

Disallowance under section 14A read with Rule 8D - Computation of disallowance under Rule 8D(2)(ii) where own funds exceed investments - Computation of disallowance under Rule 8D(2)(iii) by reference to investments yielding exempt income - Limitation on disallowance not exceeding the exempt income - Computation of book profits under section 115JB(2) Explanation (1)(f) on annual accounts without regard to section 14A disallowance - Recording of satisfaction/dissatisfaction by the Assessing Officer

Recording of satisfaction/dissatisfaction by the Assessing Officer - Whether the Assessing Officer has recorded dissatisfaction with the assessee's computation under section 14A. - HELD THAT: - The Tribunal examined the assessment orders and found the AO had referred to the quantum of investments, interest expenses and made observations about the assessee's claim and specifically recorded that he was not satisfied with the claim. The statute does not prescribe a specific form or method for recording dissatisfaction; it can be deduced from the discussions in the assessment order. On the facts of these appeals, it cannot be said that the AO failed to record dissatisfaction. [Paras 3]

The contention that the AO did not record dissatisfaction is rejected.

Computation of disallowance under Rule 8D(2)(ii) where own funds exceed investments - Whether interest disallowance under Rule 8D(2)(ii) is called for where the assessee's own funds exceed the value of investments (AY 2014-15). - HELD THAT: - On the material before it the Tribunal accepted the assessee's contention that own funds substantially exceeded investments (reference to balance sheet figures in the assessment record). Applying the principle that interest disallowance is not warranted when own funds are sufficient to cover investments, the Tribunal held that no disallowance out of interest expenses under Rule 8D(2)(ii) is called for for AY 2014-15. [Paras 4]

Interest disallowance under Rule 8D(2)(ii) deleted for AY 2014-15.

Computation of disallowance under Rule 8D(2)(iii) by reference to investments yielding exempt income - Whether, for computing expenditure disallowance under Rule 8D(2)(iii), the AO must consider only those investments which have yielded exempt income (AYs 2014-15, 2016-17, 2018-19). - HELD THAT: - The Tribunal found merit in the assessee's submission, supported by judicial authorities relied upon, that the average value of investments for computing the expenditure disallowance under Rule 8D(2)(iii) should be determined by reference only to those investments which have yielded exempt income. Accordingly, for the years in issue the Tribunal directed the AO to consider only investments yielding exempt income and to recompute the disallowance under Rule 8D(2)(iii) (and Rule 8D generally where applicable). [Paras 4, 5, 7]

Disallowance under Rule 8D(2)(iii) to be recomputed by the AO considering only investments yielding exempt income for AYs 2014-15, 2016-17 and 2018-19.

Limitation on disallowance not exceeding the exempt income - Whether the disallowance under section 14A may exceed the exempt income (AY 2017-18). - HELD THAT: - For AY 2017-18 the assessee had itself made a voluntary disallowance of a stated amount and the Tribunal relied on the Delhi High Court authority cited by the assessee to hold that no further disallowance over and above that voluntarily made was warranted. The Tribunal therefore set aside the addition made by the AO and directed deletion of the excess disallowance for that year. [Paras 6]

Addition under section 14A deleted for AY 2017-18; disallowance limited to the amount already made by the assessee.

Computation of book profits under section 115JB(2) Explanation (1)(f) on annual accounts without regard to section 14A disallowance - Whether additions to book profits under clause (f) of Explanation (1) to section 115JB(2) must be made by reference to the computation under section 14A read with Rule 8D, or whether they must be computed on the basis of annual accounts without regard to the section 14A disallowance. - HELD THAT: - The Tribunal accepted the submission (supported by a Special Bench decision relied upon by the assessee) that the addition under clause (f) of Explanation (1) to section 115JB(2) is to be worked out on the basis of the annual accounts of the assessee and not by importing the computation made under section 14A read with Rule 8D. On that basis the Tribunal set aside the orders of the tax authorities on this aspect and restored matters to the file of the AO with a direction to compute the addition under Explanation (1)(f) to section 115JB(2) on the basis of annual accounts without regard to the section 14A disallowance; the matter was remitted for recomputation for the years where this issue arose. [Paras 4, 5, 6, 7]

Orders set aside and matters remitted to the AO to compute the addition under Explanation (1)(f) to section 115JB(2) on the basis of annual accounts without having regard to disallowance under section 14A.

Final Conclusion: The Tribunal upheld that the AO had recorded dissatisfaction in the assessment orders; for AY 2014-15 interest disallowance under Rule 8D(2)(ii) was deleted as own funds exceeded investments; for AYs 2014-15, 2016-17 and 2018-19 the AO is directed to recompute expenditure disallowance under Rule 8D(2)(iii) considering only investments yielding exempt income; for AY 2017-18 the addition under section 14A was deleted up to the amount voluntarily disallowed by the assessee; and in all relevant years the addition under Explanation (1)(f) to section 115JB(2) is to be recomputed by the AO on the basis of annual accounts without regard to the section 14A disallowance.

Bogus purchases - addition under section 69C of the Income tax Act treated as income - genuineness of purchases versus admitted sales - use of GST returns and bank payments as corroborative evidence - application of gross profit rate for estimation of undisclosed income

Bogus purchases - genuineness of purchases versus admitted sales - use of GST returns and bank payments as corroborative evidence - addition under section 69C of the Income tax Act treated as income - application of gross profit rate for estimation of undisclosed income - Whether the addition made by the Assessing Officer treating purchases as bogus and adding the entire amount to income is sustainable, and if not, the appropriate quantification method. - HELD THAT: - The Tribunal found that the assessee is a bullion dealer where margins are very low and sales have not been disputed by the revenue. The assessee produced purchase invoices, party ledgers, confirmations, bank payments, sample railway tickets for delivery, GSTR 2A entries showing vendors' supplies, stock registers showing corresponding sales, and affidavits of vendors. The Tribunal accepted that bullion is normally hand delivered and that transport documents customary for other goods may not exist. It noted that vendors were GST registered and had shown the transactions in their GST returns at the time of the transactions and that subsequent cancellation of GST registrations by vendors is not within the assessee's control. Given the admitted sales and low, market regulated profit margins in bullion trading, the Tribunal held that the revenue could not sustain rejection of purchases without impugning admitted sales. While acknowledging certain discrepancies pointed out by the Assessing Officer, the Tribunal directed a pragmatic adjustment by applying a conservative gross profit rate of 0.15% on the corresponding sales in respect of the disputed purchases instead of treating the entire purchases as bogus and adding them to income. [Paras 7]

Addition disallowing entire purchases as bogus is not sustainable; disputed purchases to be quantified by applying gross profit @ 0.15% on corresponding sales.

Final Conclusion: The appeal is partly allowed: the Assessing Officer's addition treating purchases of bullion as wholly bogus is set aside and instead the Assessing Officer is directed to compute income from the disputed purchases by applying a gross profit rate of 0.15% on the corresponding sales.

Overriding effect of the Insolvency and Bankruptcy Code over other statutes - liquidator steps into the shoes of the corporate debtor - bar on instituting or continuing proceedings against corporate debtor during liquidation under Section 33(5) of the IBC - interaction of Section 178(6) of the Income-tax Act with the IBC - abatement/dismissal of parallel tax proceedings where liquidation has commenced

Overriding effect of the Insolvency and Bankruptcy Code over other statutes - bar on instituting or continuing proceedings against corporate debtor during liquidation under Section 33(5) of the IBC - interaction of Section 178(6) of the Income-tax Act with the IBC - liquidator steps into the shoes of the corporate debtor - Whether the pending appeals before the Tribunal could be continued or must be dismissed/abated in view of commencement of liquidation proceedings and appointment of a liquidator under the IBC, 2016. - HELD THAT: - The Tribunal noted on record that NCLT had ordered liquidation and an official liquidator had been appointed; from the time of appointment the company becomes defunct and the liquidator steps into the shoes of the corporate debtor. Section 33(5) of the IBC prohibits instituting any suit or other legal proceeding by or against the corporate debtor once a liquidation order is passed. The IBC contains an express overriding provision (section 238) and the Income-tax Act was itself amended (section 178(6)) to recognise that the IBC will have effect notwithstanding anything to the contrary in any other law (subject to the IBC). In light of these provisions and consistent authority, parallel proceedings under the Income-tax Act cannot be sustained once liquidation has commenced. The Tribunal also relied on the coordinate High Court order upholding dismissal of pending income-tax appeals where liquidation had commenced, and accordingly held that the present appeals filed by the Revenue were not maintainable while liquidation proceedings are in place, with liberty to the official liquidator to seek recall of the order if occasion warrants. [Paras 4]

All four appeals filed by the Revenue are dismissed on account of the overriding effect of the IBC and the bar on proceedings against the corporate debtor in liquidation, with liberty to the official liquidator to seek recall of this order when appropriate.

Final Conclusion: Appeals dismissed as non-sustainable in view of commencement of liquidation and the IBC's overriding effect over parallel income-tax proceedings; liberty granted to the official liquidator to recall the order if required.

Reopening assessment as change of opinion - deduction under Section 80P(2)(d) - co-operative bank as co-operative society for Section 80P(2)(d) - validity of reassessment proceedings

Reopening assessment as change of opinion - validity of reassessment proceedings - Reopening of assessment for A.Y. 2014-15 was a change of opinion and reassessment proceedings under Section 147/148 are invalid. - HELD THAT: - The Tribunal found that the reassessment related to the same issue already examined in the original assessment. The assessee had filed the return and the original assessment had dealt with the claim under deduction under Section 80P(2)(d); the reassessment proceeded on the same subject-matter and therefore amounted to a second opinion. The assessee had also sought relief under Rule 27 of the Income Tax (Appellate Tribunal) Rules, 1963. The Tribunal held that where reopening is based on a mere change of opinion on an issue already considered in the original assessment, the reassessment is bad in law. Consequently, the application under Rule 27 was allowed and the reassessment was set aside, rendering the Revenue's contested additions unnecessary to decide. [Paras 8]

ITA No.666/Ahd/2023 for A.Y. 2014-15 is dismissed as the reassessment is invalid.

Deduction under Section 80P(2)(d) - co-operative bank as co-operative society for Section 80P(2)(d) - Interest and dividend received from Ahmedabad District Co-op. Bank Ltd. and Gujarat State Co-operative Bank Ltd. qualify for deduction under Section 80P(2)(d) for A.Y. 2017-18. - HELD THAT: - The Tribunal accepted the view recorded by the CIT(A), following the decision of the Gujarat High Court, that the Ahmedabad District Co-op. Bank Limited and the Gujarat State Co-operative Bank Limited are registered co-operative societies under the Gujarat Co-operative Societies Act and therefore fall within the expression 'co-operative society' for the purposes of deduction under Section 80P(2)(d). On that basis, interest and dividend income from those banks were held to be eligible for the deduction. The Tribunal found no reason to interfere with the CIT(A)'s conclusion which applied the High Court's interpretation to the facts of the case. [Paras 13]

ITA No.533/Ahd/2023 for A.Y. 2017-18 is dismissed and the CIT(A)'s allowance of the deduction is upheld.

Final Conclusion: Both appeals filed by the Revenue are dismissed: the A.Y. 2014-15 reassessment was quashed as a change of opinion and the A.Y. 2017-18 disallowance was reversed by upholding the deduction for interest and dividend from the specified co-operative banks.

Penalty under section 271(1)(c) of the Income Tax Act - concealment of income - furnishing inaccurate particulars - vague notice vitiates penalty proceedings - penalty proceedings separate from quantum proceedings - set-off of brought forward losses - diversion at source / overriding title in favour of DICGC

Penalty under section 271(1)(c) of the Income Tax Act - concealment of income - furnishing inaccurate particulars - set-off of brought forward losses - Validity of levy of penalty under section 271(1)(c) for alleged concealment or furnishing of inaccurate particulars arising from disallowance of set off of brought forward losses - HELD THAT: - The Tribunal found that the assessee had disclosed material facts, including cancellation of banking licence and that the bank was under liquidation, in the original return. The disallowance by the AO was a technical rejection of the claim for set off of brought forward losses and not a finding of deliberate concealment or furnishing of inaccurate particulars. The Tribunal noted that the quantum appeal against the disallowance was dismissed for non prosecution and the assessee had not had the opportunity to argue the merits, and that penalty proceedings cannot be sustained merely because a claim is not accepted. Applying the principle that mere assertion of a claim which is later disallowed does not ipso facto constitute concealment or inaccurate particulars, the Tribunal concluded the penalty was not justified and deleted it. [Paras 6]

Penalty under section 271(1)(c) deleted as levy was not justified on facts and law

Vague notice vitiates penalty proceedings - penalty proceedings separate from quantum proceedings - Whether the notice under section 274 r.w.s. 271(1)(c) was defective or otherwise vitiated the penalty proceedings - HELD THAT: - The Tribunal observed that the AO failed to specify in the notice whether the proceedings were initiated for concealment of income or for furnishing inaccurate particulars. Judicial precedents require clarity in the notice specifying the nature of the default; a vague or non specific notice vitiates the penalty proceedings. Separately, the Tribunal reiterated that penalty proceedings are distinct from and not bound by findings in quantum proceedings. In the circumstances, the procedural deficiency in the notice reinforced the conclusion that the penalty could not be sustained. [Paras 6]

Notice found deficient; penalty proceedings vitiated to the extent they were based on a vague notice

Final Conclusion: The appeal is allowed and the penalty imposed under section 271(1)(c) in relation to AY 2010-11 is deleted.

Arm's length principle - comparability analysis - related party transaction filter - transfer pricing adjustment - cost allocation key - headcount basis - re-determination of ALP by Assessing Officer - depreciation on intangible assets - credit for TDS/advance tax/self-assessment tax

Comparability analysis - related party transaction filter - arm's length principle - Removal of two specified comparables from the benchmarking set and consequent recalculation of ALP - HELD THAT: - The Tribunal examined the annual reports of Inductis India Pvt. Ltd. and Mentor Graphics India Pvt. Ltd. and found that the revenue of these entities for the relevant years was almost entirely from inter-company transactions (99% and 100% respectively), rendering them excessive related party transactions and therefore not comparable. The Revenue did not contest the assessee's contention to exclude these two companies. In view of these findings the Tribunal held that the two companies should be removed from the comparable set and other comparables considered accordingly for computing the arm's length price of the provision of ITeS/BPO services. The Tribunal thereby directed recomputation of the ALP excluding these two comparables. [Paras 7]

Inductis India Pvt. Ltd. and Mentor Graphics India Pvt. Ltd. are to be excluded as comparables; ALP to be recomputed without them.

Cost allocation key - headcount basis - re-determination of ALP by Assessing Officer - Validity of headcount as allocation key for support services and the Assessing Officer's power to retest ALP after TPO acceptance - HELD THAT: - Following and applying the Tribunal's coordinated decision in the assessee's own case, the Bench held that the Transfer Pricing Officer had examined and accepted the cost sharing agreement and the use of the headcount allocation key as being at arm's length. Once the TPO determines the arm's length price under the transfer pricing reference, the Assessing Officer is bound to compute income in conformity with that ALP and is precluded from re-determining the ALP under the guise of testing allowability under section 37. The Tribunal accepted the rationale for headcount allocation (nature of costs such as telecom, technical maintenance, HR, staff welfare and training) and, applying the principle of consistency and precedent, directed that the headcount basis not be disturbed for the year under consideration and that the disallowance made by the AO/DRP be set aside. [Paras 8]

Headcount allocation key accepted; AO cannot re-test ALP determined by TPO; disallowance of support services costs set aside and relief granted to assessee.

Depreciation on intangible assets - Allowability of depreciation on intangible assets (customer contracts and assembled workforce) for AY 2018-19 - HELD THAT: - The Tribunal admitted the additional ground and followed its earlier coordinate-bench decision in the assessee's own case (AY 2010-11), which held that amounts paid for acquisition of customer contracts and assembled workforce were capital in nature and eligible for depreciation. The Tribunal directed the Assessing Officer to grant depreciation for the year under consideration consequent to the earlier order which treated the relevant expenditure as capital expenditure and allowed depreciation at the applicable rate. [Paras 9]

Additional ground allowed; Assessing Officer directed to grant depreciation on the intangible assets in accordance with the earlier Tribunal order.

Credit for TDS/advance tax/self-assessment tax - Direction to Assessing Officer to examine and grant tax credits while computing demand - HELD THAT: - The Tribunal considered the assessee's ground regarding non-grant of credits for taxes already deducted or paid. Rather than deciding the quantum or factual entitlement itself, the Tribunal directed the Assessing Officer to examine the issue and grant the credit of taxes deducted at source, advance tax and self-assessment tax while computing the amount of demand payable, in accordance with law. [Paras 10]

AO directed to examine and, if legally due, grant the tax credits while computing demand.

Final Conclusion: The appeal is allowed. The Tribunal ordered exclusion of Inductis India Pvt. Ltd. and Mentor Graphics India Pvt. Ltd. from the comparable set and directed recomputation of ALP; held the headcount allocation key for support services valid and barred the AO from re-determining an ALP accepted by the TPO, setting aside the disallowance; admitted and allowed the additional ground directing grant of depreciation on intangible assets as per the earlier Tribunal order; and directed the Assessing Officer to examine and grant TDS/advance tax/self-assessment tax credits in accordance with law.

Liability for failure to deduct tax at source under section 201(1) - interest for delayed deduction and payment of TDS under section 201(1A) - double recovery prohibition where TDS is subsequently deducted - non-applicability of TDS where deductee is unknown or transactions reversed or cancelled - remand for verification of TDS deduction, payment and computation of interest

Liability for failure to deduct tax at source under section 201(1) - interest for delayed deduction and payment of TDS under section 201(1A) - double recovery prohibition where TDS is subsequently deducted - Whether demand under section 201(1) can be sustained where the assessee deducted and deposited TDS in a subsequent year and the correct extent of liability for interest under section 201(1A). - HELD THAT: - The Tribunal upheld the finding of the CIT(A) that where the assessee has in fact deducted tax at source and deposited it in a subsequent year, the demand under section 201(1) cannot be sustained, since tax has ultimately been remitted and a second recovery would amount to double recovery. The Tribunal adopted the appellate view (following the ITAT, Bangalore decision referred to by the CIT(A)) that the consequence of delayed deduction is limited to liability for interest under section 201(1A). The correct measure of interest is the period from the date on which tax was deductible to the date on which tax was actually deducted (and not until the date of the impugned order). Consequently the CIT(A)'s direction to restrict interest to the date of deduction and to compute interest accordingly was affirmed.

Demand under section 201(1) set aside to the extent TDS was deducted and deposited in a subsequent year; interest under section 201(1A) limited to period up to date of actual deduction (to be computed by the AO).

Non-applicability of TDS where deductee is unknown or transactions reversed or cancelled - remand for verification of TDS deduction, payment and computation of interest - Whether TDS liability is attracted where (a) the deductee was unknown at the time provisions were made, or (b) provisions were reversed/cancelled in subsequent year, and the scope of factual verification required. - HELD THAT: - The Tribunal concurred with the CIT(A)'s approach that where party/deductee was unknown at the time of making provisions, or where year-end provisions were subsequently reversed or related to payments on which TDS is not attracted, the provisions of TDS may not be applicable. The appellate order correctly refrained from imposing a blanket demand and instead directed the Assessing Officer to verify the assessee's claim with respect to each category of provision (including whether invoices were ultimately received, whether payments were made, and whether TDS was deducted and deposited). That factual verification and consequent application of law were left to the AO to undertake; the Tribunal affirmed the CIT(A)'s direction and declined to interfere.

TDS not to be charged under section 201(1) on amounts where deductee was unknown or transactions were reversed/cancelled if AO's verification confirms the assessee's claim; AO to verify facts and compute interest only as warranted.

Final Conclusion: The Tribunal dismissed all four Revenue appeals, affirming that where TDS was subsequently deducted and deposited the demand under section 201(1) does not survive and that liability is limited to interest under section 201(1A) up to the date of actual deduction; factual verification by the Assessing Officer was directed in respect of claims about unknown deductees and reversed/cancelled provisions, and interest computation was directed accordingly.

Rectification under section 154 - section 154(3) - notice and opportunity to be heard - mistake apparent from record - disallowance under section 36(1)(va) read with section 43B - allowability of employers' PF/ESI contributions paid before due date - void ab initio for non-compliance with principles of natural justice

Rectification under section 154 - section 154(3) - notice and opportunity to be heard - void ab initio for non-compliance with principles of natural justice - Validity of the rectification order dated 15/06/2019 where no prior notice/opportunity was given before making an adverse adjustment - HELD THAT: - The Tribunal found on the record that the CPC-Bengaluru did not place any evidence of issuing notice or intimation to the assessee proposing the disallowance before passing the rectification order dated 15/06/2019. Following the coordinate decision of the Delhi Tribunal in ACIT v. Humboldt Wedag and the Telangana High Court in Apollo Specialty Hospitals, the Tribunal applied section 154(3) and the statutory mandate that any amendment under section 154 which enhances assessment or increases liability requires notice and a reasonable opportunity of being heard. Non-compliance with that statutory requirement renders the rectification order unsustainable and void ab initio. The Tribunal therefore held the rectification order passed without such notice to be bad in law. [Paras 10, 11, 13]

Rectification order dated 15/06/2019 is set aside as violative of section 154(3) for failure to give notice and opportunity to be heard.

Mistake apparent from record - disallowance under section 36(1)(va) read with section 43B - allowability of employers' PF/ESI contributions paid before due date - Whether disallowance of employers' PF/ESI contributions by way of rectification under section 154 was a permissible 'mistake apparent from record' - HELD THAT: - The Tribunal observed that as on the date of the rectification (15/06/2019) the question whether employer contributions to PF/ESI paid before the due date under section 139(1) were allowable was a debatable legal issue, with the jurisdictional High Court (CIT v. AIMIL Ltd.) and other High Courts having decided in favour of allowability. Where a claim involves a debatable point of law, it cannot be treated as a 'mistake apparent from the record' so as to justify a suo motu disallowance under section 154. Consequently the adjustment disallowing PF/ESI contributions by rectification could not be sustained on the ground of a mistake apparent from record. [Paras 5, 14]

Disallowance of employer PF/ESI contributions by way of rectification under section 154 is not sustainable because the issue was debatable and not a 'mistake apparent from record'.

Final Conclusion: The rectification order dated 15/06/2019 is quashed as violative of section 154(3) and, additionally, the disallowance under section 36(1)(va) could not be sustained as a 'mistake apparent from record' given the debatable nature of the issue; the assessee's additional grounds are allowed and the appeal is partly allowed. The merits of the disallowance were left academic and not adjudicated.

Addition on account of excess stock found during search - reliance on statements recorded under search proceedings - presumption under section 132(4A) - misinterpretation of accounting system of finished goods - requirement of corroborative evidence for unaccounted sales - valuation of stock at lower of cost or net realizable value

Addition on account of excess stock found during search - reliance on statements recorded under search proceedings - presumption under section 132(4A) - requirement of corroborative evidence for unaccounted sales - misinterpretation of accounting system of finished goods - Whether the addition made by the Assessing Officer on account of excess stock found during the search, confirmed by the CIT(A), is sustainable - HELD THAT: - The Tribunal analysed the material on record and rejected the conclusion of the authorities below that the excess physical stock recorded by the search party necessarily represented unaccounted income. The Tribunal noted that (i) the plant's stock updating process involves unloading, verification by store and quality teams and subsequent entry at the Head Office, a process that may take days, (ii) the search inventory was prepared on 24.03.2021 whereas the stock summary ledger used for comparison related to an earlier date, so goods received and finished goods produced during the interim period were not reflected in the books at the plant, (iii) finished goods identified by the search represented production out of raw material which was accounted for and therefore were not necessarily unaccounted stock, and (iv) the search party's quantification classified items by finished-product descriptions which could overlap raw-material classifications in the books, making direct comparison misleading. The Tribunal observed that the Assessing Officer and the CIT(A) had primarily relied on statements recorded during search and the inventory without independent corroborative evidence of sales or purchases outside the books. In these circumstances the Tribunal concluded that the authorities misinterpreted the assessee's accounting system and that nothing incriminating on unaccounted sales or purchases was found to justify the addition. Accordingly the addition sustained under the impugned orders could not be upheld. [Paras 10, 11]

Addition on account of excess stock found during search is unsustainable and is deleted; appeal allowed.

Final Conclusion: The Tribunal allowed the appeal, deleting the addition made on account of excess stock found during search on the ground that the addition was based on a misinterpretation of the assessee's accounting and solely on search statements and inventory without corroborative evidence of unaccounted sales.

Exemption under section 11 - Registration under section 12AA and fresh registration under section 12AB - Provisional registration in Form 10AC - Filing of audit report in Form 10B as procedural requirement - Effect of belated or non uploaded compliance on substantive exemption claim

Exemption under section 11 - Registration under section 12AA and fresh registration under section 12AB - Provisional registration in Form 10AC - Filing of audit report in Form 10B as procedural requirement - Effect of belated or non uploaded compliance on substantive exemption claim - Denial of exemption under section 11 for AY 2021-22 on the ground of non furnishing of fresh registration details and delayed/uploading of Form 10B. - HELD THAT: - The assessee, a society registered earlier under section 12AA, filed the return for AY 2021-22 on 31.03.2022 and claimed exemption under section 11. A fresh registration regime under section 12AB required applications within the extended time; the assessee applied in time and was granted provisional registration by the Principal CIT in Form 10AC on 05.04.2022. The return could not, therefore, contain the 12AB details because the provisional registration post dated the ITR filing. The assessee had furnished the Form 10B audit report, albeit after the prescribed date, and the Tribunal followed coordinate bench authorities holding that filing/uploading of Form 10B is a procedural requirement and non compliance will not be fatal to the substantive claim of exemption where the requisite documents are made available to the assessing authority before completion of assessment. Given that the assessee held valid registration under section 12AA through AY 2021-22, had applied for 12AB within the time allowed and obtained provisional registration effective from the year of application, and had placed the Form 10B and 12AB details before the appellate authority, the denial of exemption solely on the ground of non furnishing of fresh registration details in the ITR and delayed uploading of Form 10B was unsustainable. The Tribunal therefore allowed the grounds raised by the assessee and upheld entitlement to exemption for AY 2021-22. [Paras 3, 4]

The claim of exemption under section 11 for AY 2021-22 is allowed.

Final Conclusion: The appeal is allowed: exemption under section 11 for AY 2021-22 is sustained because the assessee's prior registration under section 12AA covered AY 2021-22, the application for fresh registration under section 12AB was made within the time allowed and provisional registration was subsequently granted, and the procedural lapse in uploading Form 10B did not defeat the substantive right to exemption.

Cash credit addition under section 68 - unexplained expenditure disallowance under section 69C - onus on assessee to prove identity, genuineness and creditworthiness of creditors - preponderance of human probability is not a substitute for evidence - repayment in subsequent years as relevant to genuineness - non-service of summons alone not sufficient to treat credits as bogus

Cash credit addition under section 68 - onus on assessee to prove identity, genuineness and creditworthiness of creditors - preponderance of human probability is not a substitute for evidence - repayment in subsequent years as relevant to genuineness - non-service of summons alone not sufficient to treat credits as bogus - Deletion of additions made by AO by treating unsecured loans as unexplained cash credits under section 68 - HELD THAT: - The Tribunal found that the assessee discharged the onus by furnishing confirmations, ID proofs of directors, bank statements, acknowledgements of returns and other documents establishing identity, genuineness and source of funds. The AO's conclusion that the lenders were paper companies rested largely on assumption and the principle of preponderance of human probability without concrete contradictory evidence. Non-service of notices/summons to some creditors, or their change of registered office, was not treated as conclusive proof of non-existence where the assessee had produced supporting material and subsequent year transactions showed repayment. Reliance on precedents of the Gujarat High Court (including Rohini Builders and Ayachi Chandrashekhar Narsangji) supports the view that mere non-compliance with summons or suspicion does not justify treating credits as the assessee's income when satisfactory explanation and corroboration are produced and repayments are accepted in later years. In these circumstances the additions under section 68 were not sustainable. [Paras 6]

Addition under section 68 deleted and Ld.CIT(A)'s order upheld; Revenue's ground in respect of cash credit dismissed.

Unexplained expenditure disallowance under section 69C - onus on assessee to explain payments and transactions - preponderance of human probability is not a substitute for evidence - repayment in subsequent years as relevant to genuineness - non-service of summons alone not sufficient to treat payments as bogus - Deletion of disallowance of interest treated as unexplained expenditure under section 69C - HELD THAT: - The Tribunal observed that the AO disallowed interest payments only on the basis of conjecture and perceived non-existence of creditor entities, without adducing substantive evidence to contradict the documentation furnished by the assessee. The assessee had produced confirmations, bank records, TDS compliance and other materials, and the loans were repaid in subsequent years, which corroborated genuineness. The remand report did not record substantial adverse findings on identity, genuineness or creditworthiness. Following authoritative decisions holding that suspicion or non-service of summons does not automatically warrant disallowance, the Tribunal concluded that the AO's reliance on probability rather than evidence did not justify the additions under section 69C. [Paras 3, 6]

Disallowance under section 69C deleted and Ld.CIT(A)'s order upheld; Revenue's ground in respect of unexplained expenditure dismissed.

Final Conclusion: The Tribunal upheld the CIT(A)'s deletion of additions made under sections 68 and 69C for AY 2016-17, holding that the assessee had discharged its onus by furnishing corroborative evidence and that the AO's additions based on assumption and human probability were unsustainable; Revenue's appeal dismissed.

Definition of "benami transaction" under section 2(9)(A) as amended by 2016 - retrospective application of the PBPT Amendment, 2016 in light of the Ganpati Dealcom judgment - provisional attachment and confirmation under section 24(4) and adjudication under section 26(3) - onus on the Initiating Officer to establish consideration and benefit - revocation and confirmation of provisional attachment

Definition of "benami transaction" under section 2(9)(A) as amended by 2016 - provisional attachment and confirmation under section 24(4) and adjudication under section 26(3) - onus on the Initiating Officer to establish consideration and benefit - Validity of revocation of provisional attachment by the Adjudicating Authority in respect of properties which were acquired after 25.10.2016 (specific immovable properties in Table-A items 20-28; Table-B items 15-19; Table-C items 5-6 and movable properties in Table-C(1)) - HELD THAT: - The Tribunal examined whether the Adjudicating Authority correctly applied the amended definition of "benami transaction" and the evidentiary burden required to confirm provisional attachment. The Adjudicating Authority had declined to confirm attachment for certain post 2016 acquisitions by treating the onus as lying upon the Initiating Officer to prove that (a) consideration was provided by the putative beneficial owner and (b) the beneficial owner was reaping immediate or future benefit. The Tribunal found those findings to be perverse and contradictory to the material on record where the IO had adduced seller statements, cash payment evidence, and comparative financial profiles showing insufficiency of the benamidars' means. Applying the two limbs of section 2(9)(A) as relevant to post amendment acquisitions, the Tribunal concluded that the Adjudicating Authority erred in its fact finding, misallocated the burden, and unjustifiably revoked provisional attachment. On that basis the Tribunal set aside the impugned order insofar as it revoked attachment of the specified post 2016 immovable and movable properties and confirmed the attachment for those items.

Impugned order set aside and provisional attachment confirmed in respect of the specified post 2016 properties (Table A items 20-28; Table B items 15-19; Table C items 5-6 and movable properties in Table C(1)).

Retrospective application of the PBPT Amendment, 2016 in light of the Ganpati Dealcom judgment - revocation and confirmation of provisional attachment - Treatment of properties and bank deposits acquired or created prior to 25.10.2016 pending the outcome of the review petition against the Ganpati Dealcom judgment - HELD THAT: - The Tribunal recognised that the Adjudicating Authority relied on the Supreme Court's decision in Ganpati Dealcom to decline confirmation of attachment for properties/ accounts alleged to have been acquired or created prior to 25.10.2016. Noting that a review petition against Ganpati Dealcom is pending before the Apex Court and that the appellant did not advance separate substantive challenges to the AA's reasoning on those pre 25.10.2016 items, the Tribunal held it would be inappropriate to determine their fate pending the final outcome of the review. Consequently, the Tribunal left the attachments relating to pre 25.10.2016 acquisitions (Table A items 1-19 and 29, Table A(1) movable items 1-5, Table B items 1-14 and B(1) movable items, and Table C items 1-4) subject to the final decision in the review petition, and permitted the Directorate liberty to seek review of that interim disposition after the Apex Court rules.

Attachments in respect of properties/accounts acquired or created prior to 25.10.2016 are to remain subject to the final outcome of the review petition; parties permitted to seek further relief after the Apex Court's decision.

Onus on the Initiating Officer to establish consideration and benefit - definition of "benami transaction" under section 2(9)(A) as amended by 2016 - Whether the Adjudicating Authority improvidently shifted the legal burden and thereby erred in assessing the factual matrix and seller statements when declining confirmation of attachment - HELD THAT: - The Tribunal reviewed the Adjudicating Authority's reasoning and concluded that it exhibited internal contradictions: while recording findings suggestive of investments from unaccounted income and adducing seller statements and cash payment evidence, the AA nonetheless required the IO to discharge a burden it had effectively borne. The Tribunal held that the AA's approach produced perverse findings, ignored or undervalued material evidence (including seller statements and cash payment indications) and misapplied the two limbed test in section 2(9)(A). The Tribunal therefore substituted its assessment and, where the material supported a benami finding for post 2016 acquisitions, confirmed attachment; where the question turned on the legal effect of the Ganpati Dealcom judgment for pre 2016 items, it left the matter pending the Apex Court review.

Adjudicating Authority's shifting of burden and resultant findings held to be erroneous and perverse in relation to post 2016 items; attachments confirmed where record supports benami character; pre 2016 items reserved pending finality of Ganpati Dealcom review.

Final Conclusion: The Tribunal allowed the appeal in part: it set aside the Adjudicating Authority's revocation and confirmed provisional attachment of specified properties and bank deposits acquired/created after 25.10.2016 (as listed), while leaving those properties/accounts allegedly acquired or created prior to 25.10.2016 subject to the final outcome of the review petition against the Ganpati Dealcom judgment; the Directorate was granted liberty to seek further relief after the Apex Court's decision.

Condonation of delay - No error apparent on the face of the record - Review petition dismissed

Condonation of delay - Delay in filing the Review Petition was condoned. - HELD THAT: - The Court recorded satisfaction with the explanation for the delay and exercised its discretion to condone the same prior to considering the merits of the Review Petition. This procedural relief was granted to permit adjudication on the substantive ground raised in the petition. [Paras 1]

Delay condoned.

No error apparent on the face of the record - Review petition dismissed - The Review Petition raised no error apparent on the face of the record and was dismissed on merits. - HELD THAT: - After reviewing the Review Petition, the impugned order and the annexed papers, the Court found no error apparent on the face of the record that would warrant reconsideration of the earlier order. Consequently, the petition did not satisfy the limited scope for review and was held to lack merit. The Court therefore declined to modify or rehear the earlier decision. [Paras 2, 3]

Review Petition dismissed for lack of merit; no error apparent on the face of the record.

Final Conclusion: Delay in filing the Review Petition was condoned; on merits the Review Petition was dismissed as no error apparent on the face of the record; pending applications disposed of.

Violation of principles of natural justice - non-consideration of reply to show-cause notice - show-cause notice under Section 18(2) of the Customs Act, 1962 - opportunity of personal hearing - remand for fresh adjudication - alternative remedy by way of appeal

Violation of principles of natural justice - non-consideration of reply to show-cause notice - opportunity of personal hearing - The order-in-original dated 13th November, 2020 is vitiated for recording that no reply was received and for not considering the petitioner's response, thereby violating principles of natural justice. - HELD THAT: - The Adjudicating Officer's order recorded that no reply was received to the show-cause notice despite the petitioner's contention and documentary assertion that a response was filed and that a personal hearing was granted. The very object of a show-cause notice is to elicit the importer's explanation; treating the matter as if no reply existed and failing to consider the response amounted to a mechanical approach. Although the respondents contend that submissions made at personal hearing were noted, the record reflects an inconsistency between the adjudicating officer's conclusion and the petitioner's asserted compliance, which the Court found to vitiate the order on natural justice grounds. [Paras 5, 9, 10]

Order-in-original set aside and remanded for fresh consideration due to failure to consider the petitioner's response and resultant breach of natural justice.

Remand for fresh adjudication - show-cause notice under Section 18(2) of the Customs Act, 1962 - alternative remedy by way of appeal - The entitlement to exemption claimed by the petitioner under Notification No.146/94-Customs (as applied to the project subcontracted by NBCC) is not finally adjudicated and is remanded for fresh consideration on merits. - HELD THAT: - Although an appellate remedy exists, the Court held that the impugned order is vitiated and therefore cannot be sustained. The matter is remitted to the Adjudicating Authority to rehear and decide the claim of exemption on merits after giving an effective opportunity of hearing and by taking into consideration the response filed by the petitioner. The Court directed expeditious disposal of the matter, preferably within eight weeks from communication of this order. [Paras 10]

Matter remanded to the Adjudicating Authority for re-hearing and disposal on merits after considering the petitioner's response, to be completed preferably within eight weeks.

Final Conclusion: The writ petition is allowed to the extent that the adjudication order dated 13th November, 2020 is set aside for breach of natural justice; the matter is remitted to the Adjudicating Authority for fresh hearing and merit determination of the claimed exemption, to be disposed of preferably within eight weeks.

Exemption from Additional Duty of Customs (SAD) - interpretation of exemption notification read with amendment to the First Schedule - strict interpretation of exemption notifications - self-assessment and responsibility of importer - limitation - extended period for suppression, misstatement or wilful default

Exemption from Additional Duty of Customs (SAD) - interpretation of exemption notification read with amendment to the First Schedule - strict interpretation of exemption notifications - The appellant was not eligible for exemption from Additional Duty of Customs (SAD) under Notification No.20/2006 and Notification No.21/2012 for the period April 2011 to March 2013. - HELD THAT: - The Notifications exempted from SAD only those goods specified in the First Schedule to the Additional Duties of Excise (Goods of Special Importance) Act, 1957. Section 78(c) of the Finance Act, 2011 (Thirteenth Schedule) omitted specific headings including 5407, 5516 and 5903 from the First Schedule with effect from the commencement date. The goods imported by the appellant were classifiable under those omitted chapter headings. Reading the exemption Notifications together with the amendment to the First Schedule therefore rendered the appellant ineligible for the claimed exemption. Given the settled principle that exemption notifications are to be strictly construed, the Tribunal upheld the denial of benefit for the disputed period. [Paras 5]

Benefit of the exemption Notifications denied for goods under headings 5407, 5516 and 5903 for April 2011 to March 2013.

Self-assessment and responsibility of importer - limitation - extended period for suppression, misstatement or wilful default - Extended period of limitation could not be invoked as there was no proof of wilful misstatement, suppression or deliberate default by the appellant; consequential confiscation and penalty were set aside. - HELD THAT: - The Ex-bond Bills of Entry recorded the correct description, chapter headings and payment of Basic Customs Duty and CVD while claiming the exemption. The record does not disclose any material mis-declaration or deliberate attempt to evade duty. Reliance on the principle in Uniworth Textiles and related decisions requires specific averments in the show-cause notice to invoke the proviso for extended limitation, which are absent on the record. In the absence of proof of wilful default, the demand beyond the normal period could not be sustained and the confiscation under Section 111(m) and penalty under Section 114A were quashed. [Paras 6]

Extended period not invocable; confiscation and penalty set aside.

Re-quantification of demand - interest for the normal period - Remand for re-quantification of the duty demand and computation of interest for the normal period. - HELD THAT: - While the Tribunal held the appellant ineligible for the exemption and disallowed invocation of the extended period, the quantification of duty payable (excluding the 4% SAD benefit) and the interest payable for the normal period were not computed by the adjudicating authority. The matter is remitted to the adjudicating authority to determine the correct demand and interest for the normal limitation period in accordance with this decision. [Paras 7]

Matter remanded for re-quantification of demand and computation of interest for the normal period.

Final Conclusion: The appeal is allowed in part: denial of exemption under the Notifications for goods under headings 5407, 5516 and 5903 for April 2011 to March 2013 is sustained; extended limitation, confiscation and penalty are set aside for want of wilful default; the matter is remanded solely for re-quantification of demand and computation of interest for the normal period.

Confiscation under Section 111(d) - redemption fine under Section 125 - penalty for import without licence - market survey for ascertaining margin of profit and value - stay of operation of appellate order

Stay of operation of appellate order - The Revenue's stay petition against the Commissioner (Appeals) order was rejected. - HELD THAT: - The Tribunal examined the Revenue's application for stay of the Commissioner (Appeals) Order dated 12.12.2017 and found, prima facie, that the impugned order was not ex facie illegal or without jurisdiction. The stay petition was characterised as routine, mechanical and devoid of merit and hence rejected. The Tribunal therefore refused to stay operation of the impugned order and proceeded to hear the appeals on merits with the consent of the Revenue's authorised representative. [Paras 3]

Revenue's stay petition rejected and operation of the Commissioner (Appeals) order not stayed.

Confiscation under Section 111(d) - redemption fine under Section 125 - penalty for import without licence - market survey for ascertaining margin of profit and value - Whether the redemption fine and penalty fixed at 10% and 5% respectively on the assessed value are sufficient in respect of confiscation for import of old and used garments without the required licence. - HELD THAT: - The Tribunal noted that the goods were found to be old and used worn clothing and that import under the relevant tariff heading required a specific licence; lack of such licence supported confiscation under Section 111(d). Relying on the approach adopted in earlier Tribunal authority (Venus Traders), the Tribunal accepted that while confiscation was maintainable, the original authorities had failed to comply with directions regarding disclosure/ascertainment of margin of profit and the validity of post-facto market surveys was questionable. In view of the narrow compass of the issue and following the cited precedent, the Tribunal held that the redemption fine and penalty as reduced by the Commissioner (Appeals) to 10% and 5% of the assessed value respectively were sufficient to meet the ends of justice and reduced/confirmed the monetary burdens accordingly. [Paras 8, 9]

Redemption fine and penalty fixed at 10% and 5% of the assessed value are sufficient; impugned order upheld.

Final Conclusion: The Tribunal rejected the Revenue's stay petition and, on merits, upheld the Commissioner (Appeals) order reducing the redemption fine and penalty to 10% and 5% respectively; the Revenue's appeals were dismissed.

Capital Goods - Spares/Parts/Components - Status Holder Incentive Scrip (SHIS) benefit under Notification No. 104/2009-Cus - 10% restriction on import of components/spares under SHIS - Condition 5A - undertaking/actual user requirement - Chartered Engineer's Certificate as admissible evidence of installation/use

Capital Goods - Spares/Parts/Components - Status Holder Incentive Scrip (SHIS) benefit under Notification No. 104/2009-Cus - Chartered Engineer's Certificate as admissible evidence of installation/use - Whether the imported goods fall within the definition of 'Capital Goods' and are therefore eligible for exemption under Notification No. 104/2009-Cus when imported under SHIS. - HELD THAT: - The Tribunal held that the imported items (roller sets, blades, spacers and spares for cold rolling mills) fall within the FTP definition of 'Capital Goods', which is broad enough to include plant, machinery, equipment and accessories required for manufacture, including those required for replacement or modernization. The Tribunal accepted the Chartered Engineer's certificate and related material demonstrating the goods were integral to setting up the stainless steel slitting and cold roll forming mill lines and were essential to make the plant operational. On that basis the Tribunal concluded the imports were capital goods (including accessories/spares as defined) and thus eligible for the exemption under Notification No. 104/2009-Cus. The Tribunal found no error in the adjudicating authority's acceptance of the respondent's case and the dropping of the demand. [Paras 11]

Imports held to be 'Capital Goods' within the FTP/notification meaning and eligible for benefit of Notification No. 104/2009-Cus; impugned order dropping demand upheld.

10% restriction on import of components/spares under SHIS - Status Holder Incentive Scrip (SHIS) benefit under Notification No. 104/2009-Cus - Whether the 10% limitation on use of a scrip for import of components/spares applies to the imports in question or precludes utilisation of multiple SHIS licences for parts forming part of a single plant import. - HELD THAT: - The Tribunal examined Para 3.16.3 of FTP and condition (4)(iii) of Notification No. 104/2009 and held that the 10% restriction applies only to import of components/spares in respect of capital goods 'imported earlier'. Where the imports constitute capital goods (including accessories) for setting up a new plant, there is no application of the 10% cap. The Tribunal also noted that where an entire plant is being imported under a single contract and the goods cannot be cleared in a single Bill of Entry, debiting multiple SHIS licences for parts/accessories does not ipso facto infringe the 10% limitation if the goods themselves qualify as capital goods under the policy and notification. [Paras 11]

10% restriction held inapplicable to the imports found to be capital goods for setting up the plant; use of multiple SHIS licences for such capital goods not disallowed on that ground.

Condition 5A - undertaking/actual user requirement - Chartered Engineer's Certificate as admissible evidence of installation/use - Whether the respondent complied with condition 5A (undertaking/actual user) of the notification and whether non-compliance warranted sustaining the demand. - HELD THAT: - The Tribunal noted the respondent furnished undertakings as required and subsequently produced a Chartered Engineer's Certificate certifying installation of the capital goods, upon which the departmental acceptance and cancellation of the undertakings took place. On the facts, the Tribunal accepted that condition 5A's requirements were met through the certificate and departmental action, and therefore non-compliance as alleged in the show cause notice did not survive. [Paras 11]

Condition 5A requirements treated as complied with on the evidence; no sustaining of demand on this ground.

Final Conclusion: The Tribunal upheld the adjudicating authority's order dropping the demand: the imported goods were held to be capital goods eligible for Notification No. 104/2009-Cus relief, the 10% limit did not apply to these imports, and the condition 5A requirement was satisfied; Revenue's appeal dismissed.

Penalty under Section 114(1) of the Customs Act, 1962 - knowledge of nature of goods - abetment by arranging transport - absence of admissible evidence - onus of proof on investigating agency - lack of knowledge as ground to set aside penalty

Penalty under Section 114(1) of the Customs Act, 1962 - knowledge of nature of goods - abetment by arranging transport - absence of admissible evidence - Whether penalty imposed under Section 114(1) of the Customs Act, 1962 on the appellant for arranging transportation of export consignments is sustainable in the absence of evidence that the appellant knew about the prohibited nature of the goods. - HELD THAT: - The Tribunal noted that it is admitted the appellant arranged fifteen lorries for transportation of the consignment but there is no evidence produced by the investigating agency to show that the appellant had knowledge of the presence of Muriate of Potash in the containers at the time of arranging transport. The Tribunal relied on the legal principle that mere arrangement of vehicles, without proof of awareness of the nature of the goods, does not establish culpable abetment under the provision invoked. In the absence of any admissible evidence proving the appellant's knowledge, the imposition of penalty could not be sustained. The Tribunal also recorded that a prior decision of the same forum had set aside a similar penalty where no knowledge of the offending goods by the appellant or his agents was established, reinforcing the conclusion that knowledge is a prerequisite for imposing the penalty under the circumstances. [Paras 2, 3, 5]

Penalty imposed on the appellant under Section 114(1) of the Customs Act, 1962 set aside for lack of evidence of knowledge of the prohibited nature of the goods.

Final Conclusion: Appeal allowed and the penalty under Section 114(1) of the Customs Act, 1962 imposed on the appellant is set aside for want of admissible evidence establishing that the appellant knew about the nature of the goods; consequential relief, if any, to follow.

Extraordinary jurisdiction under Article 226 - powers under Chapter III B of the RBI Act - exercise of powers under Section 45MA / special audit - exercise of powers under Section 45ID / removal of board - judicial review limited in economic and financial matters - interplay of NCLT/NCLAT administration/observer with regulatory action

Extraordinary jurisdiction under Article 226 - interplay of NCLT/NCLAT administration/observer with regulatory action - Interim procedural directions in public interest and issuance of notice to Reserve Bank of India - HELD THAT: - The Court entertained the writ petition invoking Article 226 and, after hearing senior counsel for the parties, directed issuance of notice. In view of the pendency of proceedings before the NCLT/NCLAT (including appointment of an Administrator/Observer and interim directions in CO. PET. 48/(ND)/2024 and its modification), the Court refrained from expressing any opinion on the merits of the matters before the Company Law fora. The Court recorded prima facie concerns about the conduct of affairs of the NBFC (respondent No.2) but treated those as matters requiring further examination only after receiving a response from respondent No.1/RBI. [Paras 14, 16, 17, 18]

Notice issued; respondent No.1 (RBI) directed to file an updated Status Report within two weeks and matter re-notified for hearing (13.08.2024); no expression of opinion on NCLT/NCLAT proceedings.

Powers under Chapter III B of the RBI Act - exercise of powers under Section 45MA / special audit - exercise of powers under Section 45ID / removal of board - judicial review limited in economic and financial matters - Allegations of mismanagement, requests for RBI action and scope of further adjudication remanded for consideration after RBI status report - HELD THAT: - The petitioner alleged serious financial irregularities and sought mandamus directing RBI to enquire, conduct a special audit from October 2021, remove the present Board and take other regulatory measures under Chapter III B of the RBI Act. The Court noted these allegations and observed prima facie shortcomings in the NBFC's conduct and in its cooperation with regulatory process, but did not adjudicate the substantive claims. Instead, the Court directed that the questions raised (including whether RBI should exercise its statutory powers such as under Section 45MA/45ID/45-IE/45MB) would require deeper examination and invited an updated status report from respondent No.1 so that the Court could consider the matter after examining RBI's reply and the steps taken so far. [Paras 7, 11, 12, 13, 16]

Substantive claims regarding exercise of Chapter III B powers by RBI and allegations of mismanagement are not finally decided and are remitted for determination after respondent No.1 files an updated status report.

Final Conclusion: The High Court issued notice and directed respondent No.1 (Reserve Bank of India) to file an updated Status Report within two weeks; the Court recorded prima facie concern about the NBFC's affairs but declined to express any view on the merits of matters pending before the NCLT/NCLAT, and remitted substantive adjudication on RBI's exercise of Chapter III B powers to be considered after receipt of the Status Report.

Consent terms recorded under Article 142 - revival of company on consent - recall/withdrawal of liquidation order and initiation of Corporate Insolvency Resolution Process - interlocutory impleadment allowed - binding effect of consent terms - liberty to protect operational creditor's claim by fresh proceedings - no adjudication of inter se disputes between operational creditor and corporate debtor

Interlocutory impleadment allowed - Application for impleadment I.A. No.143116/2024 allowed. - HELD THAT: - The Court allowed the application for impleadment filed by the applicant. The order records that I.A. No.143116/2024 for impleadment is allowed, permitting the applicant to be brought on record in the proceedings before this Court.

I.A. No.143116/2024 for impleadment is allowed.

Consent terms recorded under Article 142 - binding effect of consent terms - Consent terms between the parties are taken on record under Article 142 and are binding on the parties. - HELD THAT: - Having received consent terms executed by the appellant and certain creditors (including the ex-wife and another creditor), the Court exercised its power under Article 142 of the Constitution to take those consent terms on record. As a consequence, the parties are bound by the consent terms and may approach this Court for recall of the order in case of any violation. The Court expressly recorded the consent terms and gave them effect by its order.

Consent terms are taken on record under Article 142 and are binding on the parties; breach may be remedied by invoking this Court's jurisdiction for recall.

Recall/withdrawal of liquidation order and initiation of Corporate Insolvency Resolution Process - revival of company on consent - Order of liquidation and the order initiating the Corporate Insolvency Resolution Process are treated as withdrawn/ recalled and the company is revived; NCLT proceedings are disposed of. - HELD THAT: - By recording the consent terms and exercising equitable powers under Article 142, the Court declared that the earlier order of liquidation and the order initiating CIRP stand treated as withdrawn/ recalled. Consequentially, the corporate debtor, Virtue Infra and Entertainment Private Limited, is restored/revived and the proceedings pending before the National Company Law Tribunal are treated as disposed of.

The liquidation order and the CIRP initiation order are treated as withdrawn/ recalled; the company stands revived and the NCLT proceedings are disposed of.

Liberty to protect operational creditor's claim by fresh proceedings - no adjudication of inter se disputes between operational creditor and corporate debtor - M/s. A.M. Patel Infrastructure Pvt. Ltd. is given liberty to initiate fresh proceedings to protect its claim; the Court has not adjudicated disputes between that entity and the corporate debtor. - HELD THAT: - Although proceedings are disposed of on the basis of the consent terms, the Court preserved the rights of M/s. A.M. Patel Infrastructure Pvt. Ltd. by granting liberty to institute proceedings as per law, including under the IBC, after issuing notice. The Court clarified that it has not decided or determined any disputes inter se M/s. A.M. Patel Infrastructure Pvt. Ltd. and Virtue Infra and Entertainment Private Limited, leaving such contentions to be adjudicated in appropriate proceedings.

Liberty granted to M/s. A.M. Patel Infrastructure Pvt. Ltd. to initiate proceedings to protect its claim; no adjudication of inter se disputes was undertaken.

Final disposal of appeal subject to consent terms - The appeal is disposed of and pending applications, including intervention applications, are disposed of in view of the recorded consent terms. - HELD THAT: - Recording the consent terms and giving them effect, the Court disposed of the appeal. It further directed that pending applications, if any, including applications seeking intervention, shall stand disposed of, consistent with the terms recorded by the Court.

The appeal and pending applications, including intervention applications, are disposed of in view of the consent terms recorded by the Court.

Final Conclusion: The Court allowed impleadment, recorded and gave effect to the parties' consent terms under Article 142, treated the liquidation and CIRP initiation orders as withdrawn thereby reviving the corporate debtor, disposed of the NCLT proceedings and the appeal, while preserving liberty for M/s. A.M. Patel Infrastructure Pvt. Ltd. to pursue its claim by fresh proceedings and clarifying that inter se disputes were not adjudicated.

Application under Section 9 of the Insolvency and Bankruptcy Code - limitation - date of default - running account versus invoice-to-invoice accounting - extension of limitation by admission under Section 18 of the Limitation Act - pre-existing dispute

Limitation - date of default - running account versus invoice-to-invoice accounting - extension of limitation by admission under Section 18 of the Limitation Act - Whether the claims founded on the first ten invoices were barred by limitation and whether the alleged outstanding of Rs. 5.96 crore remained unpaid so as to avoid the limitation bar - HELD THAT: - The Tribunal examined the date of default pleaded in Part IV of the Section 9 application (25.07.2016) and the dates of the first ten invoices (between 25.07.2016 and 02.02.2017). As the limitation period for an application under Section 9 is three years from the date of default, the Tribunal held that, given the date of default pleaded, the limitation period expired before the Section 9 application was filed and therefore the first ten invoices were time-barred. The Adjudicating Authority had treated the parties' accounts as not being a running account but as settled on an invoice-to-invoice basis; the Tribunal agreed with that approach and with the conclusion that the payment of Rs. 71,61,378 on 30.01.2019 related to Invoice No. 77 and did not revive the earlier invoices. The Tribunal further addressed the contention that the admitted balance of Rs. 5.96 crore extended limitation under Section 18 of the Limitation Act: documentary material placed before the Adjudicating Authority and this Tribunal, including the letter dated 13.06.2019 and the ledger entry showing the balance as cleared, led the Tribunal to conclude that the parties had consented to transfer that balance to TDT Copper Ltd. and that the ledger demonstrated the amount had been extinguished. The Appellant's omission of that ledger from its present pleadings was noted and deprecated. On the evidence, the Tribunal concluded there was no foundational outstanding amount to extend limitation, and therefore the Adjudicating Authority correctly held the first ten invoices to be time-barred. [Paras 10, 14, 17]

First ten invoices are time-barred; the alleged outstanding of Rs. 5.96 crore was shown to have been transferred/adjusted and did not revive the barred claims.

Pre-existing dispute - application under Section 9 of the Insolvency and Bankruptcy Code - running account versus invoice-to-invoice accounting - Whether the claim under invoice No. 77 dated 30.01.2019 was a debt due and payable or was hit by a pre-existing dispute - HELD THAT: - The Tribunal considered the material placed before the Adjudicating Authority showing that Invoice No. 77 related to supply of 14 MT of copper cathodes against an original purchase order for 25 MT, that the parties had agreed by email on 30.01.2019 to treat payment at 95% for the delivered quantity, and that the balance would be paid on delivery of the remaining quantity. The Adjudicating Authority found, and the Tribunal agreed, that the Corporate Debtor had raised the dispute prior to issuance of the demand notice and that the Operational Creditor had acknowledged the 95% payment arrangement. Applying the legal test for a pre-existing dispute, the Tribunal accepted that the claim under Invoice No. 77 was disputed and therefore not a sum 'due' and payable for the purposes of initiating CIRP under Section 9. [Paras 18, 19, 20]

Claim under Invoice No. 77 was subject to a pre-existing dispute and was not a sum due and payable; the Adjudicating Authority rightly rejected the Section 9 application on this basis.

Final Conclusion: The Tribunal found no error in the Adjudicating Authority's conclusion: the first ten invoices were time barred and the eleventh invoice was pre existingly disputed. The appeal is dismissed. No costs.

Performance Bank Guarantee - Moratorium under Section 14 of the Insolvency and Bankruptcy Code - Unconditional and irrevocable bank guarantee - Bank guarantee as an independent contract - Exceptions to invocation: fraud or irretrievable injustice / special equities - Right to invoke bank guarantee during CIRP

Performance Bank Guarantee - Unconditional and irrevocable bank guarantee - Bank guarantee as an independent contract - Validity of the invocation of the Performance Bank Guarantee by the appellant - HELD THAT: - The tribunal held that the terms of the Letter of Guarantee plainly described the instrument as an "unconditional and irrevocable" guarantee and obliged the bank to pay on first written demand without right of set off or counterclaim. Established Supreme Court principles treat an unconditional bank guarantee as an independent contract which the beneficiary is entitled to realise irrespective of disputes under the underlying contract, save in narrow exceptions. The Adjudicating Authority's finding that the guarantee did not appear unconditional was erroneous as it contradicted the clear terms of the guarantee. Given the admitted delay in achieving Mechanical Completion and the correspondence about leakage during the defect liability period, the appellant had prima facie made out grounds for invocation in accordance with the contract and the terms of the guarantee.

Invocation of the Performance Bank Guarantee was valid and the Adjudicating Authority erred in restraining its encashment.

Moratorium under Section 14 of the Insolvency and Bankruptcy Code - Right to invoke bank guarantee during CIRP - Whether the moratorium under Section 14 IBC prohibits invocation/encashment of the Performance Bank Guarantee during the CIRP - HELD THAT: - The tribunal noted the exclusion in the proviso to Section 3(31) and the amendment to Section 14(3) by Act 26/2018, which clarify that a surety in a contract of guarantee is outside the scope of the moratorium. Reliance on the Insolvency Law Committee's report and Supreme Court precedent supports that assets and remedies against third party sureties are not caught by the moratorium. Accordingly, Section 14 does not in itself bar invocation of a performance guarantee during the moratorium period.

Moratorium under Section 14 IBC does not bar invocation/encashment of the Performance Bank Guarantee.

Exceptions to invocation: fraud or irretrievable injustice / special equities - Applicability of exceptions (fraud; irretrievable injustice / special equities) to restrain encashment of the bank guarantee in the present case - HELD THAT: - The tribunal examined the limited exceptions recognized by the Supreme Court-fraud of an egregious nature and irretrievable harm or special equities that would outweigh commercial considerations. The Adjudicating Authority did not base its order on a finding of fraud or special equities; rather it held that the appellant failed to prove default. On the material before the tribunal (delay in mechanical completion, defect communications, and the terms of the guarantee), no prima facie case of fraud or such exceptional irretrievable injury was made out to justify injuncting encashment.

No exceptional circumstances of fraud or irretrievable injustice were established to justify restraint of encashment; the exceptions do not apply.

Jurisdiction of the Adjudicating Authority - Whether the Adjudicating Authority lacked jurisdiction to entertain the RP's application restraining invocation of the bank guarantee - HELD THAT: - The tribunal observed that the Adjudicating Authority had previously entertained and decided similar applications arising out of the same CIRP and that those orders had not been interfered with. Although the appellant raised a jurisdictional objection, the court found it unnecessary to decide the jurisdiction point because, on merits, the Adjudicating Authority's order was in any event erroneous and was set aside.

No determination of lack of jurisdiction was necessary; the impugned order was set aside on merits.

Final Conclusion: The appeal is allowed; the Adjudicating Authority's order restraining encashment of the Performance Bank Guarantee (I.A. No. 2478/2019 re numbered as I.A. 4393/2023) is set aside and the application of the RP is dismissed. Parties to bear their own costs.

Dissolution of corporate debtor under Section 54 of the Insolvency and Bankruptcy Code, 2016 - compliance with Regulation 45 of IBBI (Liquidation Process) Regulations, 2016 - Stakeholder Consultation Committee's role in dissolution - liquidator's duty to convene SCC meeting and place proposal for dissolution - requirement to file Final Report and sale certificate with dissolution application

Dissolution of corporate debtor under Section 54 of the Insolvency and Bankruptcy Code, 2016 - Stakeholder Consultation Committee's role in dissolution - liquidator's duty to convene SCC meeting and place proposal for dissolution - requirement to file Final Report and sale certificate with dissolution application - Maintainability of the liquidator's application for dissolution under Section 54 read with Regulation 45 where the liquidator did not convene an SCC meeting to place the dissolution proposal and initial filing omitted Final Report and sale certificate. - HELD THAT: - The Adjudicating Authority examined whether the application for dissolution complied with the procedural and consultative requirements envisaged by the liquidation regime. The liquidator had carried out sale proceedings, prepared and audited a Final Report, filed a Compliance Certificate in Form H and informed statutory authorities. However, the record showed that the liquidator had not convened a meeting of the Stakeholder Consultation Committee to place the proposal for dissolution, nor did the initial application annex the Final Report and sale certificate. The Tribunal observed that the independent auditor's report and an email forwarding it did not substitute for a formal SCC decision proposing dissolution. In the absence of a meeting of the SCC and a proposal placed before it, and given the initial omission of required documents with the application, the application for dissolution could not be considered on merits and required return to the liquidator for compliance and fresh filing based on the SCC's advice. [Paras 10, 11]

Application rejected and returned to the liquidator with directions to convene an SCC meeting, place the proposal for dissolution before the SCC, ensure all requisite documents (including the Final Report and sale certificate) are annexed, and submit a fresh application based on the SCC's advice.

Final Conclusion: The application for dissolution under Section 54 read with Regulation 45 was rejected because the liquidator failed to convene the Stakeholder Consultation Committee to place the proposal for dissolution and initially omitted the Final Report and sale certificate; the matter is remitted to the liquidator to convene the SCC, obtain its advice, comply with documentary requirements and file a fresh application.

Discharge of accused in predicate offence - proceedings under the Prevention of Money Laundering Act, 2002 cannot continue if predicate offence ceases - provisional attachment and its confirmation cannot survive - liberty to recall or revive proceedings upon successful challenge by predicate agency

Discharge of accused in predicate offence - proceedings under the Prevention of Money Laundering Act, 2002 cannot continue if predicate offence ceases - provisional attachment and its confirmation cannot survive - Whether the impugned orders retaining seized documents, digital evidence and Indian currency should be set aside in view of the appellants' discharge from the predicate offence and consequent termination of proceedings under the Prevention of Money Laundering Act, 2002. - HELD THAT: - The appellants were discharged in respect of the scheduled/predicate offence by the Magistrate on 20.05.2019 and the Special Court, PMLA, discharged the appellants from money laundering proceedings by order dated 16.12.2022. Relying on the principle affirmed by the Apex Court in Vijay Madanlal Choudhary , the Tribunal accepted that once the accused are discharged in the predicate offence the proceedings under the Prevention of Money Laundering Act, 2002 cannot continue. Consequent upon the termination of the scheduled offence, the foundation for the provisional attachment and its confirmation ceases to exist and therefore those orders cannot be sustained. The Tribunal, while setting aside the impugned orders, recognised that the respondent/predicate agency retains the right to challenge the orders of the Magistrate or the Special Court and accordingly granted liberty to seek recall or revival of these appeals should the predicate agency or Enforcement Directorate succeed in such challenges.

Impugned orders set aside and appeals allowed, with liberty to respondent to seek recall or revival if the predicate agency succeeds in challenging the Magistrate's or Special Court's orders.

Final Conclusion: The Tribunal set aside the orders confirming retention of seized material and allowed the appeals on the ground that proceedings under the Prevention of Money Laundering Act, 2002 cannot continue after discharge in the predicate offence; liberty granted to the respondent to seek recall or revival if the predicate agency succeeds on challenge.

Forfeiture of illegally acquired properties - Burden of proof under SAFEMA - Requirement of nexus or link for issuance of Section 6 notice - Distinction between SAFEMA and TADA - Principles of natural justice in adjudicatory proceedings

Distinction between SAFEMA and TADA - Forfeiture of illegally acquired properties - Applicability of decisions under the TADA regime to proceedings under SAFEMA and effect of prior TADA orders on SAFEMA forfeiture proceedings - HELD THAT: - The Tribunal held that the judgment relied upon under the TADA Act (Amina Ahmed Dossa) concerned different statutory provisions and procedural scheme and therefore cannot be imported into SAFEMA proceedings. The provisions governing attachment and forfeiture under TADA (including the special applicability of certain Code of Criminal Procedure sections and the six month return provision) are materially different from SAFEMA's scheme. Consequently, orders or proceedings under TADA do not automatically preclude or negate independent proceedings under SAFEMA, and declaratory or civil proceedings pending under other forums do not alter the Competent Authority's power under SAFEMA.

The contention that prior TADA proceedings or orders precluded forfeiture under SAFEMA was rejected.

Burden of proof under SAFEMA - Requirement of nexus or link for issuance of Section 6 notice - Forfeiture of illegally acquired properties - Whether the Competent Authority must, before issuing a Section 6 notice, establish a nexus between the detenue's income and the properties sought to be forfeited - HELD THAT: - Relying upon binding precedent interpreting SAFEMA, the Tribunal held that Section 6 requires the Competent Authority to have a reason to believe, to be recorded in writing, that the properties are illegally acquired; it does not mandate that the Authority establish a direct link or nexus to the detenue's income before issuing the notice. The statutory scheme places the burden of proof on the person served with the notice to demonstrate that the property is not illegally acquired. Imposing an additional requirement of proving nexus at the notice stage would render Section 8 (which casts the burden on the person affected) otiose and frustrate the legislative purpose of reaching properties traceable to the detenu or convict.

The argument that a prior nexus must be shown by the Competent Authority before issuing a Section 6 notice was rejected; the burden lies on the person served with the notice to disprove illegality.

Principles of natural justice in adjudicatory proceedings - Allegation of breach of natural justice because the matter was heard and disposed of by an Authority different from officers previously handling proceedings - HELD THAT: - The Tribunal found that hearings before the Competent Authority may be conducted by the Authority posted at the time and that the decisive requirement is that the Authority which passes the final order must have heard the case. The appellants' contention that a brief hearing on the final date violated natural justice was unsupported by material; the record showed that the same Competent Authority passed the order after hearing. Therefore no substantial breach of natural justice was established.

The challenge based on violation of principles of natural justice was dismissed.

Final Conclusion: The appeal is dismissed; the Tribunal affirmed that SAFEMA proceedings are governed by their own statutory scheme distinct from TADA, the issuance of a Section 6 notice does not require pre establishment of a nexus by the Authority and the burden to prove lawful acquisition rests on the person served, and no breach of natural justice was made out.

Admissibility of documents seized under other statutes - Presumption under Section 72 of FERA - Distinction between adjudication and prosecution proceedings - Nature of foreign remittance as investment or temporary loan - Contravention of Section 9(1)(c) of FERA - Liability of directors under Section 68(1) - Contravention of Section 8(1) of FERA and confiscation under Section 63

Admissibility of documents seized under other statutes - Presumption under Section 72 of FERA - Admissibility of documents and statements originating from Income Tax proceedings in adjudication under FERA - HELD THAT: - The Tribunal accepted that documents recovered during Income Tax proceedings were lawfully referred to the Enforcement Directorate and are utilisable in adjudication under FERA by virtue of Section 72. The Court distinguished the limited holding in KTMS Mohd., observing that KTMS addressed use of FERA statements in Income Tax proceedings and did not preclude the reciprocal use sanctioned by Section 72. In consequence, the objection to use of material seized under the Income Tax Act was rejected and the material was held admissible in the present adjudication. [Paras 12]

Documents seized under other laws and referred to the Directorate are admissible in FERA adjudication under Section 72; the objection is rejected.

Distinction between adjudication and prosecution proceedings - Whether discharge in criminal/prosecution proceedings precludes adjudication liability under FERA - HELD THAT: - Relying on precedents, the Tribunal reaffirmed that adjudication for civil liability under FERA and criminal prosecution are distinct and independent processes. The standard of proof in adjudication is preponderance of probabilities, different from proof beyond reasonable doubt in prosecution. Consequently, the earlier discharge by the criminal court does not bind the adjudicating authority nor require annulment of adjudication findings. [Paras 13]

Outcome of prosecution proceedings does not preclude separate adjudication under FERA; the discharge in prosecution is not binding on adjudication.

Nature of foreign remittance as investment or temporary loan - Contravention of Section 9(1)(c) of FERA - Characterisation of US $5 lakh remittance from J. L. Kothari and imposition of contravention under Section 9(1)(c) of FERA - HELD THAT: - The Tribunal examined the MoU, the letter of instruction effecting transfer to another company within ten days, and the absence of a formal agreement or continued funding under the MoU. The claimed issuance of shares by M/s Neptune Estate Pvt. Ltd. did not, on the record, substitute for issuance of shares by the appellant company and was not supported by contemporaneous disclosure. The rapid onward transfer on the remitter's instruction and lack of any RBI permission or proper share-issuance evidence indicated the receipt was only a temporary placement of funds (a loan) controlled by the remitter, not bona fide foreign investment. On that basis the receipt was held to contravene Section 9(1)(c). [Paras 14, 15, 16]

The US $5 lakh remittance was a temporary loan/parking of funds and the appellant company contravened Section 9(1)(c) of FERA.

Liability of directors under Section 68(1) - Contravention of Section 9(1)(c) of FERA - Liability of the individual appellants (directors) for contraventions in respect of the US $5 lakh remittance - HELD THAT: - The Tribunal found from the record and statements that the two individual appellants had knowledge of and were involved in the receipt and onward transfer of the US $5 lakh. R. C. Jain, as a director who signed the MoU, and Vikram Singh, who knew the remitter and facilitated the transactions, could not deny their roles. Consequently, the contraventions under Section 9(1)(c) read with Section 68(1) as against the individual appellants were held proved. [Paras 17]

Contraventions of Section 9(1)(c) read with Section 68(1) are established against the individual appellants.

Contravention of Section 8(1) of FERA and confiscation under Section 63 - Characterisation of US $1 lakh remittance from Rakesh Saxena and liability of Shri Vikram Singh under Section 8(1) with confiscation under Section 63 - HELD THAT: - Overseas enquiries failed to establish the existence of the purported remitter or the Hong Kong company and indicated that the named remitter did not appear to exist at the stated premises. On that basis the adjudicating authority reasonably inferred that the remittance was arranged by the appellant himself and was unexplained. The Tribunal found no material on record to rebut the overseas enquiry findings and upheld the adjudicator's conclusion that the receipt contravened Section 8(1). Because the amount remained unexplained and tainted, confiscation under Section 63 was also sustained. [Paras 18]

The US $1 lakh receipt contravened Section 8(1) by Shri Vikram Singh and the amount was rightly confiscated under Section 63.

Final Conclusion: The Tribunal dismissed the appeals. The use of documents seized under Income Tax proceedings was held admissible under Section 72 of FERA; adjudication proceedings were held independent of criminal prosecution; the receipt of US $5 lakhs was characterised as a temporary loan leading to contravention of Section 9(1)(c) by the company and corresponding liability of the directors under Section 68(1); and the US $1 lakh remittance was held to contravene Section 8(1) with confiscation under Section 63. Appeals are dismissed.

Prohibition on drawal of foreign exchange without prior RBI permission - contravention of Foreign Exchange Management provisions by possession of excess foreign exchange - vicarious liability of employees for corporate contraventions under FEMA - ignorance of law not a defence to statutory FEMA obligations - requirement to remit through banking channels rather than personal carriage for certain foreign exchange drawals - judicial reduction of penalty in view of minor role and mitigation

Prohibition on drawal of foreign exchange without prior RBI permission - contravention of Foreign Exchange Management provisions by possession of excess foreign exchange - Liability of the appellants for drawal/possession of US$50,000 (in traveller's cheques) without prior RBI permission in contravention of FEMA and the Current Account Transactions Rules. - HELD THAT: - The Tribunal found as an admitted fact that traveller's cheques totalling US$50,000 were drawn from two authorised dealers in two separate applications on the company's pad in favour of the employee-appellant and were issued to him in his name. The bench held that absence of an RBI permit at the time of travel made the possession and carriage of the additional US$25,000 (over the US$25,000 threshold) a contravention of the statutory prohibition on drawal/possession without prior RBI permission. The Tribunal rejected the contention that non-involvement in the application process absolved the appellants: the employee-appellant was not carrying any RBI permission and therefore could not claim immunity; similarly the Finance Manager, by virtue of his role, could not be presumed unaware and is vicariously liable. Ignorance of the factual or legal position did not relieve them of statutory liability for carrying excess foreign exchange without permission. [Paras 5]

Both appellants held liable for contravention of the FEMA/Current Account Transactions rules in respect of carrying the excess foreign exchange without RBI permission.

Vicarious liability of employees for corporate contraventions under FEMA - ignorance of law not a defence to statutory FEMA obligations - Whether the appellants, as employees (Export Executive and Finance Manager), could be absolved of personal liability on the basis that they did not sign applications or effect payment for the traveller's cheques. - HELD THAT: - The Tribunal analysed the roles of the appellants and concluded that non-signature of the application or non-payment did not immunize them. The Export Executive was in possession of the traveller's cheques without RBI permission and thus bore liability despite assertions of lack of knowledge; the Finance Manager, given his office, could not be presumed unaware of the additional drawal and is vicariously liable for the contravention. The Tribunal applied the principle that ignorance (of law or of the precise factual irregularity) does not excuse non-compliance with statutory restrictions under FEMA. [Paras 5]

Appellants are not absolved by their asserted lack of involvement in applying for or paying for the traveller's cheques; they remain personally liable under FEMA.

Judicial reduction of penalty in view of minor role and mitigation - Appropriate quantum of penalty to be imposed on the appellants given their roles and comparative reduction made to the Managing Director's penalty. - HELD THAT: - While upholding liability, the Tribunal exercised its discretionary power to moderate the monetary sanction in light of the appellants' subordinate roles in the company and by reference to the reduction already made to the Managing Director's penalty. Observing that the appellants had minor roles relative to the principal directors, the Tribunal reduced each appellant's penalty from Rs.1,00,000 to Rs.50,000 as a measure of equitable mitigation. It further adjusted the already pre-deposited amounts against the reduced penalties. [Paras 5, 6]

Penalty on each appellant reduced to Rs.50,000 and adjusted with the pre-deposit; nothing further payable.

Final Conclusion: Appeals partly allowed: liability under FEMA for possessing excess traveller's cheques without RBI permission affirmed against both appellants; penalties reduced to Rs.50,000 each (adjusted against pre-deposits) and otherwise the appeals dismissed.

Liability of directors for company contraventions - being "in charge of, and responsible to, the company for the conduct of the business" - role and conduct versus mere designation - evidentiary burden to prove responsibility - defence of lack of knowledge or due diligence

Liability of directors for company contraventions - being "in charge of, and responsible to, the company for the conduct of the business" - role and conduct versus mere designation - evidentiary burden to prove responsibility - Whether the four respondent directors were liable under Section 42(1) of FEMA for the contraventions of the company - HELD THAT: - The Tribunal applied the legal principle that liability under the provision depends on the role actually played in the affairs of the company and not on mere designation. Reliance was placed on the Supreme Court ratio that a director must be shown to have been "in charge of, and responsible to, the company for the conduct of the business" at the time of contravention. The record showed no statements or other evidence demonstrating that the four respondent directors were actively involved in policy, decision-making, or day-to-day conduct; by contrast, documentary material and admissions established that the chairman handled the company affairs and a retired director managed foreign accounts. The Revisionist failed to produce evidence to establish how the respondents were responsible for the conduct of the business, and no material was available to displace the adjudicating authority's finding that the respondents were not actively involved. [Paras 6, 10, 11]

The four respondent directors were not liable under Section 42(1) of FEMA and no interference with the adjudicating authority's order as regards them.

Liability of directors for company contraventions - being "in charge of, and responsible to, the company for the conduct of the business" - evidentiary burden to prove responsibility - Whether the Chairman (Shri S.R. Subba) and the retired Director (Shri M.K. Subba) were properly held responsible for the company's contraventions - HELD THAT: - The adjudicating authority had found on material before it that the Chairman was the main person in charge of and responsible for the conduct of the company's business, including day-to-day affairs, and that the retired Director was directly involved in opening and maintaining foreign bank accounts. Those findings are supported by admissions and documentary material in the record. Applying the governing principle that liability attaches to those in actual charge and responsible for the company's conduct, the Tribunal accepted that the Chairman and the retired Director were liable and that penalty could be imposed on them and on the company. [Paras 7, 8, 9]

Findings of responsibility and liability as to the Chairman and the retired Director are sustained and the adjudicating authority's imposition of penalty on them (and on the company) is not interfered with.

Final Conclusion: The Revision Petition challenging the adjudicating authority's order is dismissed; the finding of no liability as to the four respondent directors is upheld, while the findings of responsibility and penalty as to the Chairman and the retired Director (and the company) are sustained.

Proceeds of crime - property equivalent in value - tainted property and alternative attachable property - prima facie satisfaction for attachment

Proceeds of crime - property equivalent in value - tainted property and alternative attachable property - Whether the properties attached in exercise of powers under the PMLA are rightly held to be "proceeds of crime" or property equivalent in value and therefore liable to attachment. - HELD THAT: - The Tribunal applied the statutory definition of "proceeds of crime" which embraces (a) property directly or indirectly derived from scheduled offences, (b) the value of such property, and (c) property equivalent in value where tainted property is not available. The Tribunal accepted the Adjudicating Authority's finding that the appellant received Rs. 1,33,92,000/- from funds meant as compensation and that those funds were used for withdrawals, transfers to proprietary/partnership concerns and acquisition/ construction activity. The Tribunal relied on the legal principle (as explained in Axis Bank, Prakash Industries and Vijay Madanlal Choudhary discussions quoted in the order) that where tainted property cannot be located or has been dissipated, untainted property may be attached to the extent of the illicit gain subject to an assessment (even if tentative) of wrongful gain. The Adjudicating Authority had also identified that some attached properties were for equivalent value; the Tribunal found that the Authority had considered income declared by the appellant and other material and had rightly formed a prima facie satisfaction regarding proceeds and their dispersal into various assets. The appellant's assertions of legitimate transactions with a third party were not substantiated by corroborative particulars, and contradictions in statements (including denial by the alleged intermediary) undermined the claim that the receipts were bona fide loans or genuine repayments. On these grounds the Tribunal held the attachment to be maintainable as proceeds of crime or property equivalent in value.

Attachment confirmed: properties are liable to be treated as proceeds of crime or property equivalent in value and the Adjudicating Authority's confirmation of attachment is upheld.

Prima facie satisfaction for attachment - cryptic order - Whether the impugned order of the Adjudicating Authority is cryptic for failing to specify which property is attached as equivalent in value and thereby infirm. - HELD THAT: - The appellant contended that the Adjudicating Authority's order failed to specify which particular property was attached for equivalent value to the proceeds. The Tribunal examined the impugned order and observed that the Adjudicating Authority had discussed the appellant's role, traced receipt and deployment of funds, referred to income tax returns and recorded findings that some of the attached properties were of equivalent value. On this basis the Tribunal found that the order was not cryptic and contained detailed discussion and reasons sufficient to demonstrate the basis for attachment and equivalence assessment. The Tribunal therefore rejected the contention that the order was non-speaking or cryptic.

The challenge that the Adjudicating Authority's order is cryptic is rejected and the order is held to be reasoned and sufficient.

Final Conclusion: The appeal is dismissed. The Tribunal finds no merit in the appellant's challenge to the confirmation of attachment: the Adjudicating Authority had a sufficient prima facie basis to treat the assets as proceeds of crime or property equivalent in value and its order is not cryptic.

Lapse of seizure under Section 8(3) - continuance of attachment during investigation not exceeding 365 days - pendency of proceedings before a court - dual limbs of Section 8(3)(a) - investigation period and court proceedings

Lapse of seizure under Section 8(3) - continuance of attachment during investigation not exceeding 365 days - Seizure/attachment continuing under the Adjudicating Authority's order dated 25.05.2022 has lapsed as investigation was not completed within 365 days and no prosecution complaint was filed. - HELD THAT: - The Court examined Section 8(3)(a) and held that it contains two distinct limbs: (i) continuation during investigation for a period not exceeding 365 days and (ii) continuation during the pendency of proceedings relating to the offence before a court. Proceedings before a court commence upon filing of the prosecution complaint/charge-sheet and cognizance; they do not include an ongoing investigation prior to filing. As the investigation in the present matter was not completed within 365 days and no prosecution complaint was filed, the first limb governs and the authority's order of attachment/retention could not continue beyond the statutory period. Consequently, the seizure/attachment ordered by the Adjudicating Authority stands lapsed. The Court did not decide the merits of the underlying allegations and limited its decision to the temporal effect of Section 8(3). [Paras 6, 8, 9]

The impugned seizure/attachment is declared lapsed and the orders of the Adjudicating Authority set aside.

Final Conclusion: Appeal allowed; seizure/attachment ordered by the Adjudicating Authority on 25.05.2022 lapses and is set aside because the investigation was not completed within 365 days and no prosecution complaint was filed; merits of the case left undecided.

Works contract service - Commercial or Industrial Construction Service (CICS) - turnkey/EPC contracts - exclusion for works in respect of dams, canals, irrigation and allied water supply works - classification by essential character / Section 65A(2) - mistake of law and refund under Section 11B - unjust enrichment

Works contract service - Commercial or Industrial Construction Service (CICS) - turnkey/EPC contracts - exclusion for works in respect of dams, canals, irrigation and allied water supply works - classification by essential character / Section 65A(2) - Laying of pipelines for water supply for a Government authority is not exigible to service tax as a works contract service. - HELD THAT: - The Tribunal applied the Larger Bench decision in Lanco Infratech Ltd. which held that construction/laying of pipelines for irrigation, water supply or sewerage provided to Government/Government undertakings is for non-commercial, non-industrial purposes and falls within clause (b), Explanation (ii) of the definition of Works Contract Service, and is therefore excluded from levy. The Larger Bench further held that turnkey/EPC contracts must be classified by their essential character under Section 65A(2) and that even where executed as turnkey/EPC, such government water-supply pipeline works are classifiable under CICS prior to 01-06-2007 and under clause (b) thereafter, attracting the exclusion. The Tribunal, on the facts that the contract was awarded by Kerala Water Authority for water distribution, held the appellant not liable to service tax for the works in question and noted the supporting CBEC Circular which treats canal and related government water projects as not chargeable to service tax. [Paras 6, 7]

Answered in favour of the appellant; the pipeline construction for KWA is not exigible to service tax as WCS.

Mistake of law and refund under Section 11B - Refund claims for service tax paid under a mistake of law are not barred by Section 11B of the Central Excise Act, 1944. - HELD THAT: - The Tribunal examined precedents and distinguished authorities relied upon by the Revenue. Noting the decision of the Telangana High Court in Credible Engineering, the Tribunal accepted that where service tax was paid under a bona fide mistake of law, the statutory time limit under Section 11B does not operate to bar the refund claim. The Tribunal observed that the facts and limitation issues in the Madhya Pradesh High Court decision cited by the Revenue were different and not apposite to the present case. Applying the principle that payment under mistake of law permits refund despite Section 11B, the Tribunal held the appellant's refund claims are not hit by that provision. [Paras 8, 11]

Answered in favour of the appellant; Section 11B does not bar refund where tax was paid under mistake of law.

Unjust enrichment - The refund claims are not barred by the doctrine of unjust enrichment. - HELD THAT: - The Tribunal relied on the documentary evidence produced by the appellant, specifically the letter from the consultant to the service recipient stating that the service rendered was not taxable and that the recipient refused to pay service tax. On these facts the Tribunal concluded that the appellant had borne the service tax themselves and had not obtained reimbursement from the service recipient, thereby discharging the requirement to negate unjust enrichment. [Paras 12]

Answered in favour of the appellant; the bar of unjust enrichment does not apply.

Final Conclusion: All issues decided in favour of the appellant; the refund claims for the specified periods are allowed and the adjudicating authority is directed to sanction the refunds within one month from receipt of this order.

CENVAT credit reversal under Rule 6(3) of the CENVAT Credit Rules, 2004 - full credit entitlement for specified input services under Rule 6(5) of the CENVAT Credit Rules, 2004 - 20% cap on utilisation of CENVAT credit against output service tax under Rule 6(3)(c) - separate accounts and segregated premises for taxable services and manufacture of exempted goods - sustainability of show cause notice and demand where statutory conditions for reversal are met

Full credit entitlement for specified input services under Rule 6(5) of the CENVAT Credit Rules, 2004 - Entitlement to 100% CENVAT credit on certain common input services - HELD THAT: - The Tribunal found that services such as security services, bank charges and AMC for fax/intercom systems fall within the category covered by Rule 6(5) and are therefore fully eligible for CENVAT credit even though they were used for both taxable services and manufacture of exempted goods. On this basis no reversal was required in respect of these services. [Paras 9]

Appellant entitled to 100% CENVAT credit on the specified input services; no reversal required.

20% cap on utilisation of CENVAT credit against output service tax under Rule 6(3)(c) - Validity of credits utilised within the 20% limit for 2006-07 and 2007-08 - HELD THAT: - The Tribunal accepted the appellant's submission and records that the common input service credit utilised during 2006-07 and 2007-08 was within the 20% threshold prescribed by Rule 6(3)(c). Consequently, such CENVAT credit could not be denied on account of mixing of taxable and exempted activities for those years. [Paras 9]

CENVAT credit utilised within 20% limit for 2006-07 and 2007-08 is sustainable and cannot be denied.

CENVAT credit reversal under Rule 6(3) of the CENVAT Credit Rules, 2004 - Effect of proportionate reversal for 2008-09 and 2009-10 - HELD THAT: - The Tribunal took note that the appellant identified excess common input service credit for 2008-09 and 2009-10 and carried out proportionate reversal along with interest, supported by a chartered accountant's certificate. Having made the necessary reversals and interest payment, the appellant satisfied the statutory requirement for those years. [Paras 9]

Proportionate reversal (with interest) for 2008-09 and 2009-10 was carried out and is accepted.

Separate accounts and segregated premises for taxable services and manufacture of exempted goods - sustainability of show cause notice and demand where statutory conditions for reversal are met - Sustainability of the show cause notice and demand under Rule 6 given appellant's compliance - HELD THAT: - On the facts found by the Tribunal the appellant maintained separate premises and accounts for taxable services and manufacture of exempted goods, did not take credit on inputs used exclusively for exempted manufacture, correctly availed credit on services covered by Rule 6(5), complied with the 20% limit for the earlier years and made proportionate reversals with interest for later years. In these circumstances the Tribunal held the show cause proceedings and the demand confirmed by the adjudicating authority unsustainable. [Paras 8, 10, 11]

Impugned order confirming demand set aside and appeal allowed.

Final Conclusion: The Tribunal allowed the appeal, holding that the appellant was entitled to full credit on services covered by Rule 6(5), that credits utilised in 2006-07 and 2007-08 were within the 20% limit under Rule 6(3)(c), that proportionate reversal with interest had been carried out for 2008-09 and 2009-10, and therefore the show cause proceedings and confirmed demand were not sustainable; the impugned order is set aside with consequential relief.

Construction of residential complex services - works contract service - self-service doctrine - prospective operation of statutory explanation - appellate authority cannot travel beyond show cause notice - Board Circular No.108/02/2009-ST

Construction of residential complex services - works contract service - self-service doctrine - prospective operation of statutory explanation - Board Circular No.108/02/2009-ST - Liability to pay service tax for the period June 2007 to May 2008 under Construction of Residential Complex Services and Works Contract Service - HELD THAT: - The Tribunal examined whether the assessee, acting as builder/promoter/developer, was liable to service tax for the disputed period. It applied the settled position that composite works contracts fall within the scope of Works Contract Service only from 1-6-2007 and that the explanation to the clause covering construction of complex (bringing builders within charge) was inserted w.e.f. 1-7-2010 and operates prospectively. Prior to the explanation, services rendered by a builder to prospective buyers in the course of construction were regarded as self-service and not taxable as a service provided to a buyer. The Bench relied on the Board Circular No.108/02/2009-ST and the Tribunal decisions following Krishna Homes and Larsen & Toubro to hold that no service tax could be levied on construction of residential complexes prior to 1-7-2010, whether characterized as service simpliciter or as composite works contracts. The Commissioner (Appeals) was also found to have erred in re-characterising and confirming demands under Works Contract Service beyond the scope of the show cause notice, which is impermissible. Applying these principles to the facts, the Tribunal concluded that the confirmed demands and interest for the period June 2007 to May 2008 could not be sustained. [Paras 10, 11, 15, 16]

Demand of service tax and interest for June 2007 to May 2008 set aside; assessee's appeal allowed.

Appellate authority cannot travel beyond show cause notice - Board Circular No.108/02/2009-ST - Validity of Commissioner (Appeals) confirming tax under a category not proposed in the show cause notice - HELD THAT: - The Tribunal held that the foundation of adjudicatory proceedings is the show cause notice which specifies the basis and statutory category of demand. The Commissioner (Appeals) exceeded that mandate by holding all demands ought to be under Works Contract Service despite the original demand being made under the categories set out in the show cause notice. Such re-characterisation beyond the notice is erroneous and cannot sustain. [Paras 10]

Order of Commissioner (Appeals) insofar as it travels beyond the show cause notice is set aside.

Penalty under Section 78 - invocation of Section 80 - Survival of the department's appeal against setting aside of penalty - HELD THAT: - Having set aside the primary demand of service tax and interest for the disputed period, the Tribunal observed that the department's appeal against the order setting aside penalty under Section 78 did not survive. In line with precedents and the Tribunal's findings, penalties were not sustained and the consequential departmental appeal was dismissed. [Paras 16]

Department's appeal against imposition of penalty dismissed; penalties not sustained.

Final Conclusion: The impugned order confirming service tax and interest for June 2007 to May 2008 is set aside and the assessee's appeal is allowed; the Commissioner (Appeals)'s re-characterisation beyond the show cause notice is disapproved and the department's appeal against penalties fails and is dismissed.

Job work - manufacturer as per section 2(f) of the Central Excise Act, 1944 - principal-to-principal job work - time bar / limitation for issuance of Show Cause Notice - penalty under Rule 26

Job work - manufacturer as per section 2(f) of the Central Excise Act, 1944 - principal-to-principal job work - Liability for payment of excise duty where goods are manufactured by third party job workers but sold by the appellant as if manufactured by it. - HELD THAT: - The Tribunal found that the appellant did not possess manufacturing facilities for the electrical items supplied to Electricity Boards and that manufacture was taking place at the premises of independent job workers. In such circumstances, and applying the principle that where manufacture takes place at the job worker's premises the job worker steps into the shoes of the manufacturer, the liability to pay excise duty rests with the job worker/manufacturer. The Bench relied on earlier decisions of this Tribunal and of the High Court to hold that independent job workers are the manufacturers and that a principal who merely procures goods by making outright purchases or by getting them made on job work cannot be saddled with duty liability for those job worked goods on a principal to principal basis. The department had not issued notices to the job workers nor proved active control/supervision establishing the appellant as manufacturer; hence the confirmed demand against the appellant was unsustainable. [Paras 7, 8, 9]

Confirmed demand set aside as the job workers, not the appellant, are the manufacturers for the goods made on job work and the appellant cannot be held liable for duty on such job worked goods.

Time bar / limitation for issuance of Show Cause Notice - Whether the Show Cause Notice issued on 07-07-2008 for the period December 2003 to June 2006 was barred by limitation. - HELD THAT: - Although the Show Cause Notice related to supplies up to June 2006, the Tribunal observed that the Revenue had undertaken investigations in the intervening period, including issuing summons and recording statements, and only after gathering information between 2006 and 2008 issued the Show Cause Notice. On these facts the Tribunal concluded that the issuance of the Show Cause Notice in 2008 could not be treated as time barred. [Paras 10]

Show Cause Notice held not to be barred by limitation.

Penalty under Rule 26 - Sustenance of penalty imposed under Rule 26 on the director for the challenged transactions. - HELD THAT: - Having held that the appellant was not the manufacturer of the job worked goods and that the confirmed duty demand against the appellant was not sustainable, the Tribunal also found no basis to uphold the penalty imposed on the director under Rule 26. The penalty was therefore set aside as consequential to the reversal of duty liability. [Paras 11, 12]

Penalty under Rule 26 on the director set aside.

Final Conclusion: Appeal allowed on merits: the confirmed excise demand against the appellant set aside because goods manufactured by independent job workers were not attributable to the appellant as manufacturer; the Show Cause Notice was not time barred; consequential relief granted and penalty under Rule 26 on the director quashed.

Input service - in relation to manufacture - activities relating to business - inclusive definition / ejusdem generis of "includes" - Cenvat credit admissibility for services used indirectly in manufacture - limitation - demand under statute barred by limitation where disclosure made - suppression not established where returns and records disclosed credit availed

Input service - in relation to manufacture - activities relating to business - Cenvat credit admissibility for services used indirectly in manufacture - Admissibility of Cenvat credit in respect of construction services for residential quarters, hostels and barracks used for employees and security personnel - HELD THAT: - The Tribunal held that the definition of input service in Rule 2(l) is to be read broadly, giving the word "includes" an expansive, illustrative effect so as to cover services that are used directly or indirectly in relation to manufacture and to activities relating to business. Applying that principle to the undisputed facts - a factory situated in a remote location running 24x7 where residential accommodation and security barracks/hostels were essential for availability of competent staff and uninterrupted manufacture - the construction services were found to have the requisite nexus with the manufacturing activity. The Tribunal relied on and followed the line of authorities treating services for staff colonies and related maintenance as eligible input services, and distinguished the limited precedents disallowing credit where no such operational necessity was shown. On these grounds the Tribunal allowed Cenvat credit in respect of construction of employees' residential complex and barracks/hostel for security personnel as services used in relation to manufacture and clearance of final products. [Paras 15, 16]

Cenvat credit in respect of construction of residential quarters and barracks/hostels was held admissible as input service used in relation to manufacture.

Limitation - demand under statute barred by limitation - suppression not established where returns and records disclosed credit availed - Whether the demand confirmed by the Commissioner was barred by limitation and whether suppression was established - HELD THAT: - The Tribunal found that the appellant had filed returns regularly and had annexed copies of input credit registers and related records showing the credit availed on a monthly basis, thereby disclosing the particulars required by law. In view of the disclosure and the authorities applying the principle that choice of a plausible interpretation does not amount to suppression, the Tribunal concluded that the demand was time-barred and that the condition of suppression necessary to invoke extended limitation was not made out. [Paras 17]

The demand was held barred by limitation and suppression was not established; therefore the demand could not be sustained.

Final Conclusion: The impugned order confirming duty, interest and penalty was set aside: the appellant was allowed Cenvat credit for construction of employees' residential quarters and barracks/hostels as input services used in relation to manufacture, and the demand was held barred by limitation with no suppression established.

Area-based exemption - CENVAT Credit utilization - refund of excise duty - recovery under Section 153 of the Finance Act, 2003 - retrospective application of restrictive condition - revenue neutrality - purpose of the notification

CENVAT Credit utilization - refund of excise duty - revenue neutrality - Whether recovery of alleged excess refund for November, 2002 is sustainable where the CENVAT credit availed in that month was utilized in a subsequent month - HELD THAT: - The Tribunal applied its earlier precedent in Commissioner of C.Ex., Jammu v. M/s. New India Wires & Cables and held that where the identical amount of CENVAT credit, which remained unutilized in the month for which refund was granted, is subsequently utilized, there is no loss to revenue. Confirming a demand in such circumstances would defeat the purpose of the area-based exemption notification. The adjudicatory conclusion was that delayed utilization in the succeeding month rendered the recovery unsustainable, as the overall refund entitlement over the relevant period remained unchanged and revenue neutrality was maintained. [Paras 7, 9]

No excess refund was allowed and the recovery proceedings are not sustainable

Retrospective application of restrictive condition - recovery under Section 153 of the Finance Act, 2003 - area-based exemption - Whether the restrictive condition requiring utilization of entire CENVAT credit could be applied to deny exemption for the impugned period prior to the amendment becoming effective - HELD THAT: - The Tribunal noted that the amendment (Notification No. 61/2002-CE) introducing the condition of full monthly utilization was made effective retrospectively by Section 153 of the Finance Act, 2003. However, the Tribunal held that during the impugned period there was no provision compelling utilization within the same month, and in the factual matrix before it the unutilized CENVAT credit in November, 2002 could not be debarred. In consequence, the Department's recovery action under Section 153 could not be sustained against the appellant in respect of the impugned month. [Paras 8]

The restrictive condition could not be enforced to deny exemption for the impugned period and recovery under Section 153 is not maintainable

Final Conclusion: The impugned recovery order is set aside and the appeal is allowed: no excess refund was sanctioned to the appellant and the recovery proceedings pursuant to Section 153 of the Finance Act, 2003 are unsustainable in respect of the impugned period.

Admissibility of Cenvat credit on provisionally assessed Bill of Entry - payment of duty under protest - provisional assessment under the Customs Act, 1962 - admissibility of credit under Rule 9(1) of the Cenvat Credit Rules, 2004 - invocation of extended period of limitation for recovery

Admissibility of Cenvat credit on provisionally assessed Bill of Entry - payment of duty under protest - admissibility of credit under Rule 9(1) of the Cenvat Credit Rules, 2004 - provisional assessment under the Customs Act, 1962 - Appellant is eligible to avail Cenvat credit in respect of duties paid during provisional assessment under protest. - HELD THAT: - The Tribunal held that Rule 9(1) of the Cenvat Credit Rules, 2004 prescribes the Bill of Entry as the document on the basis of which credit can be availed and does not distinguish between provisionally assessed and finally assessed Bills of Entry. Provisional assessment is an assessment under the Customs Act, 1962 and a Bill of Entry assessed provisionally is a valid document for claiming credit. The Court relied on earlier Tribunal decisions which held that duty paid under provisional assessment or under protest is authority backed payment and, where duty has been paid, denial of Cenvat credit merely because assessment was provisional or payment was under protest is not warranted. Applying that reasoning to the facts, the Tribunal found no merit in the Department's contention and allowed credit. [Paras 6, 10]

Credit allowed; issue on merits decided in favour of the appellant.

Invocation of extended period of limitation for recovery - suppression of facts - Extended period of limitation could not be invoked; claim for recovery was time barred in absence of established suppression of facts. - HELD THAT: - The show cause notice invoked the extended period but did not allege suppression with intent to evade duty; the Department was aware of payment under protest in 2016 and no concealment was shown. The credit was availed on 30.09.2016 while the SCN was issued on 30.07.2019. The Tribunal found that the Revenue failed to establish grounds for invoking the extended period and accordingly answered the limitation issue in favour of the appellant. [Paras 11, 12]

Invocation of extended period rejected; matter decided for the appellant on limitation ground.

Final Conclusion: Impugned order set aside; appeal allowed. Cenvat credit claimed on Bills of Entry provisionally assessed and duties paid under protest is admissible, and the Department's invocation of the extended period was unwarranted in the absence of suppression.

Date for conversion of foreign currency award - enforceability of foreign arbitral award - conversion of deposit made during pendency - application of Forasol principle under Arbitration and Conciliation Act, 1996 - lex fori as governing law for rate of exchange

Date for conversion of foreign currency award - enforceability of foreign arbitral award - application of Forasol principle under Arbitration and Conciliation Act, 1996 - The proper date for determining the foreign exchange rate to convert an arbitral award expressed in foreign currency to Indian rupees - HELD THAT: - The Court held that, following the principle in Forasol and as adapted to the Arbitration and Conciliation Act, 1996, the relevant date for fixing the rate of exchange is the date when the foreign award becomes enforceable under Indian law. Under the 1996 Act a foreign award becomes enforceable and is deemed to be a decree when objections under Section 48 are finally decided; consequently the date of such final decision is the date for conversion. The Court rejected the High Court's view that Forasol does not apply under the 1996 Act, explaining that the statutory scheme of Part II, Chapter I renders an award enforceable on final disposal of objections, and that Forasol's ratio-selecting the date when the award acquires enforceability-applies by parity under the 1996 Act (see paras 1, 10.1, 20). The Court also relied on Renusagar approving Forasol and on the lex fori principle for determining the applicable law on rate of exchange. [Paras 1, 10, 20]

The exchange rate for converting amounts expressed in foreign currency shall be the rate prevailing on the date when the award becomes enforceable, i.e., when objections under Section 48 are finally decided.

Conversion of deposit made during pendency - application of Forasol principle under Arbitration and Conciliation Act, 1996 - lex fori as governing law for rate of exchange - Whether and when amounts deposited in court by the award-debtor during pendency of objections stand converted for the purpose of adjusting the foreign-currency award - HELD THAT: - The Court held that a deposit made by the award-debtor during the pendency of objections must be converted at the exchange rate prevailing on the date of deposit to the extent the award-holder is permitted to withdraw and benefit from that deposit. The Court distinguished deposits that remain inaccessible to the award-holder until final adjudication: where withdrawal is not permitted, conversion for that deposit must await the date when the award becomes enforceable (or the date of actual withdrawal as appropriate). The reasoning drew on Renusagar and authorities on the consequences of deposits and cessation of interest under Order 21/Order 24 CPC and on precedents holding that once the decree-holder can access and utilise deposited funds, interest/compensation ceases and the depositor cannot be saddled with subsequent exchange movement. Applying these principles, the Court held the first deposit of Rs. 7.5 crores (made with the consent condition permitting withdrawal on furnishing bank guarantee) stood converted on 22.10.2010; the second deposit of Rs. 50 lakhs, which could not be withdrawn until conclusion of proceedings, must be converted on the date when objections attained finality (01.07.2014) (see paras 11.1-11.4, 13, 17-19, 21). [Paras 11, 13, 17, 18, 21]

Amounts deposited during pendency stand converted on the date of deposit insofar as the award-holder is permitted to withdraw and benefit; deposits not withdrawable before finality are to be converted on the date the award becomes enforceable.

Final Conclusion: The appeal is partly allowed: Forasol's principle applies under the 1996 Act-conversion is to be at the exchange rate prevailing when the award becomes enforceable (date of final disposal of Section 48 objections). The deposit of Rs. 7.5 crores is to be converted as on 22.10.2010; the deposit of Rs. 50 lakhs and the remaining award amount are to be converted as on 01.07.2014. The matter is remitted to the Executing Court to compute payable sums accordingly.

Compound interest with monthly rests - appointed day - three times the bank rate notified by the Reserve Bank - non-obstante clause - enforcement of arbitral award under Section 36 - no estoppel against law

Compound interest with monthly rests - appointed day - three times the bank rate notified by the Reserve Bank - Rate of interest under Section 16 of the MSME Act is to be applied as variable at each monthly rest based on the RBI notified bank rate at that point, multiplied by three, and compounded monthly from the appointed day till payment. - HELD THAT: - Section 16 mandates payment of compound interest with monthly rests from the appointed day at three times the bank rate notified by the Reserve Bank. The Court reasoned that compound interest operates by applying interest at defined intervals (monthly rests) where the prevailing rate at each interval is the relevant rate for that period; thus the statute's use of "monthly rests" and the reference to the bank rate requires taking the RBI-notified rate prevailing at each monthly rest for the incidence of interest. The Court rejected the contention that the bank rate must be fixed as of the appointed day, observing that fixing the rate at inception would be inconsistent with the statutory choice of compound interest calculated at monthly intervals. The non-obstante clause in Section 16 makes it overriding as against the residual provision in Section 31(7) of the Arbitration and Conciliation Act, 1996, so Section 16's mode and rate prevail for enforcement purposes. [Paras 25, 30, 31, 39, 40]

Interest is to be calculated as compound interest with monthly rests, at three times the RBI bank rate prevailing at each monthly rest, from the appointed day until payment.

Enforcement of arbitral award under Section 36 - non-obstante clause - Executing court's role is to interpret the award to make it workable for enforcement and not to re-open or re-adjudicate the validity of the award. - HELD THAT: - The Court observed that while certain coordinate-bench judgments criticised Facilitation Council awards for not calculating interest, those decisions arose in proceedings under Section 34 where the court could examine the award's legality. In contrast, an enforcement application under Section 36 requires the executing court to interpret the award for implementation but does not permit going behind the award to re-assess its legality. Therefore, the Court interpreted the award's reference to Section 16 and applied the statutory method of calculation so the award could be enforced. [Paras 34, 35, 36, 41]

The award is to be interpreted in light of Section 16 for enforcement; the executing court shall not re-open the award's merits but may determine the mode of computation necessary to implement the award.

No estoppel against law - Past payments of interest by the award-debtor at a fixed rate pursuant to court orders or undertakings do not bind the award-debtor to that fixed rate where the statute prescribes a different method and rate. - HELD THAT: - The Court held that payments made by the award-debtor at a fixed rate pursuant to orders or undertakings cannot waive or displace the statutory entitlement under Section 16, noting the settled principle that there can be no estoppel against the law. Mere payment at a certain rate, without more, does not amount to a concession on the correct statutory method of calculating interest where the issue was never adjudicated earlier. [Paras 5, 37, 38]

Payments made earlier at a fixed rate do not preclude applying the statutory variable compounded rate under Section 16.

Compound interest with monthly rests - enforcement of arbitral award under Section 36 - Practical directions for enforcement: the award-debtor must compute and pay interest as per Section 16's method and file detailed calculations and an affidavit of compliance within the time directed. - HELD THAT: - Having determined the correct mode of computation, the Court directed the award-debtor to make full payment of interest calculated on the basis of compound interest with monthly rests at three times the RBI-notified bank rates prevailing at each monthly rest, from the appointed day until payment, after adjusting amounts already paid or deposited pursuant to earlier court orders. The award-debtor was ordered to file a copy of detailed calculations with the court upon payment and thereafter file an affidavit of compliance annexing the break-up of calculations within the timeline provided. [Paras 41, 42, 44, 45]

Award-debtor to pay the interest calculated in accordance with Section 16, file detailed calculations with the court at payment, and file an affidavit of compliance showing payment and annexing the interest break-up within the time directed.

Final Conclusion: The Court held that Section 16 of the MSME Act requires compound interest with monthly rests at three times the RBI bank rate, applied variably at each monthly rest from the appointed day until payment; the executing court must interpret the award to effect enforcement and the award-debtor was directed to compute and pay interest accordingly, file detailed calculations and an affidavit of compliance within the time ordered.