TaxTMI Updates e-Newsletter
Aug 24,2020

Construction of affordable residential apartments by a promoter in a Residential Real Estate Project intended for sale - works contract - composite supply of works contract - single residential unit otherwise than as a part of a residential complex - definition of promoter, apartment and real estate project under RERA - concessional GST rate 1.5% for affordable housing - applicability of GST rate 12% for works contract

Construction of affordable residential apartments by a promoter in a Residential Real Estate Project intended for sale - definition of promoter, apartment and real estate project under RERA - concessional GST rate 1.5% for affordable housing - Whether the services rendered by the applicant fall within the scope of Sl. No. 3(i) of Notification No.11/2017 (as amended) attracting concessional GST applicable to construction of affordable residential apartments by a promoter in a RREP intended for sale - HELD THAT: - On a conjoint reading of the entry and the definitions in the notification and the corresponding RERA definitions, the entry at Sl. No.3(i) applies only to construction of affordable residential apartments by a promoter in a Residential Real Estate Project intended for sale to buyers (with the related conditions regarding carpet area and gross amount charged). The agreement between the applicant and the charitable trust contemplates construction of individual houses on lands belonging to identified beneficiaries and handing over on a turnkey basis; it is not construction of apartments in an RREP by a promoter for sale. The applicant's activity therefore does not meet the essential characteristics of the entry at Sl. No.3(i), including the promoter/RREP/sale-intent elements required for the concessional 1.5% rate. [Paras 8, 9, 10, 11]

The activity does not fall within Sl. No.3(i) and the concessional rate of 1.5% is not applicable.

Works contract - composite supply of works contract - single residential unit otherwise than as a part of a residential complex - applicability of GST rate 12% for works contract - Whether the services rendered by the applicant are classifiable as composite supply of works contract for construction of single residential units (otherwise than as part of a residential complex) attracting GST at 12% - HELD THAT: - The agreement contemplates designing, obtaining permits and constructing 45 individual residential houses on lands belonging to the respective beneficiaries and handing them over. This activity falls within the statutory definition of "works contract" (contract for building/construction of immovable property involving transfer of property in goods) and corresponds to the entry at Sl. No.3(v) of the notification which covers composite supply of works contract for construction of a single residential unit otherwise than as part of a residential complex. Accordingly, the activity is taxable as a composite works contract for single residential units and the rate specified in that entry applies. [Paras 11, 12, 14, 15]

The services are classifiable under Sl. No.3(v) as composite supply of works contract for single residential units and are taxable at 12% (6% CGST + 6% SGST).

Exemption under Notification No.12/2017 (as amended) - Whether the services by the applicant are exempt in whole or in part under Notification No.12/2017 (as amended) - HELD THAT: - The Authority examined the nature of the services and the relevant entries. Having held that the supplies qualify as composite works contracts for construction of single residential units taxable under Sl. No.3(v) of Notification No.11/2017 (as amended), the services do not attract exemption under Notification No.12/2017 as contended by the applicant. [Paras 15]

The services are not exempt under Notification No.12/2017 (as amended).

Final Conclusion: The Authority rules that the applicant's contract for construction of 45 individual residential houses on lands of identified flood-affected beneficiaries does not qualify as construction of affordable residential apartments by a promoter in an RREP (and thus is not eligible for the 1.5% concessional rate under Sl. No.3(i)), but is a composite supply of works contract for single residential units taxable at 12% (6% CGST + 6% SGST); the services are not exempt under Notification No.12/2017 (as amended).

Renting of immovable property - storage or warehousing of agricultural produce - exemption for loading, unloading, packing, storage or warehousing of agricultural produce under Rate Notification - rental or leasing services involving non-residential property - advance ruling - entitlement of applicant - condonation of delay under proviso to Section 100(2)

Advance ruling - entitlement of applicant - Application for advance ruling by a recipient of services - HELD THAT: - The Authority noted that an advance ruling is a decision to be given to an applicant in relation to supplies being undertaken or proposed to be undertaken by the applicant. The Court observed that the present applicant was the recipient of services supplied by Central Warehousing Corporation (CWC) and not a supplier of services. Consequently, the application for an advance ruling by the recipient ought not to have been admitted by the lower Authority. Nevertheless, since a ruling was already given and the matter reached the Appellate Authority, the appeal was examined on merits despite the procedural infirmity. [Paras 8]

The application as filed by the recipient was not properly maintainable for an advance ruling, but the Appellate Authority proceeded to decide the appeal on merits.

Condonation of delay under proviso to Section 100(2) - Condonation of delay in filing the appeal - HELD THAT: - The impugned advance ruling was communicated on 11.10.2019 and the appeal was due within 30 days. The appellant filed the appeal after a delay of 19 days beyond the due date and sought condonation, explaining management deliberations as the cause of delay. Exercising the proviso to the statutory time-limit, the Authority found the explanation adequate and condoned the delay. [Paras 9]

Delay in filing the appeal was condoned under the proviso to Section 100(2).

Renting of immovable property - storage or warehousing of agricultural produce - exemption for loading, unloading, packing, storage or warehousing of agricultural produce under Rate Notification - rental or leasing services involving non-residential property - Characterisation of services supplied by CWC - whether renting of space (taxable) or storage/warehousing of agricultural produce (exempt) - HELD THAT: - The Appellants had an authorisation agreement under which CWC provided a defined area of 488 sq. metres on a dedicated warehousing basis with terms specifying that the appellant would arrange insurance, security, stock accounting and utilities and could deploy its own personnel; CWC's obligation was to provide the space. The Authority distinguished between a full storage/warehousing service (which includes loading, unloading, stacking, inventory, security and insurance) and mere renting of premises where such ancillary services are not provided by the lessor. Applying this distinction to the agreement terms, the Authority concluded that CWC was supplying rental of space and not a storage/warehousing service. Consequently, the exemption entries claimed by the appellant for agricultural storage under the Rate Notification did not apply to the supply made by CWC. The amount charged by CWC therefore falls within the category of rental or leasing services involving non-residential property (Service Accounting Code 997212) and is taxable. [Paras 11, 12, 14]

Services rendered by CWC are renting of immovable property (taxable) and not storage/warehousing of agricultural produce (not exempt). The advance ruling upholding taxability is affirmed.

Final Conclusion: The Appellate Authority condoned the delay in filing the appeal, held that the applicant (a recipient) was not the proper class of person to seek an advance ruling though the appeal was decided on merits, and affirmed the advance ruling that the services supplied by CWC constitute renting of immovable property (taxable) rather than exempt storage/warehousing of agricultural produce; the appeal is dismissed.

Renting of residential dwelling for use as residence - exempt supply - renting/leasing of non-residential property - taxable supply - classification under SAC 997212 - transfer of title under Schedule II clause 1(c) - supply of goods - classification of security services under SAC 998529 - condonation of delay under proviso to Section 100(2)

Renting/leasing of non-residential property - taxable supply - classification under SAC 997212 - Classification of the service provided by the building owner to the appellant - HELD THAT: - The agreement between the owner and the appellant did not identify the premises as a residential dwelling, did not describe dwelling units or rooms, and the land was allotted by KIADB for industrial purposes. These factors justify the conclusion that the premises are non-residential. The transaction between the owner and the appellant is therefore renting of a non-residential building and not renting of a residential dwelling for use as residence. Consequently the supply falls under Heading/SAC 997212 and is taxable under the notified rate applicable to such rental/leasing services. [Paras 13]

The supply by the owner to the appellant is renting of non-residential property, taxable under SAC 997212.

Renting/leasing of non-residential property - taxable supply - classification under SAC 997212 - Classification of the service provided by the appellant to M/s Sodexo Food Solutions India Pvt Ltd - HELD THAT: - The appellant sub leased the same non-residential premises to Sodexo under a licence/sub lease agreement. The nature of the supply is determined by the nature of the property supplied and the character of the transaction by the service provider; it remains a supply of a non residential premise even if Sodexo's employees use it for residential purposes. Therefore the activity is renting/leasing of a non residential property and is taxable under Heading/SAC 997212. [Paras 14]

The supply by the appellant to Sodexo is renting/leasing of non-residential property and is taxable under SAC 997212.

Renting of residential dwelling for use as residence - exempt supply - Applicability of the exemption for 'services by way of renting of residential dwelling for use as residence' to the transactions in question - HELD THAT: - The exemption in the notification for renting of residential dwelling applies only where the premises are residential dwellings. Given the findings that the premises were non residential (land allotted for industrial purposes and absence of dwelling/unit particulars in the agreements), the exemption is not applicable to either the owner appellant transaction or the appellant Sodexo transaction. [Paras 13, 14]

The exemption for renting of residential dwelling for use as residence does not apply to the transactions in this case.

Transfer of title under Schedule II clause 1(c) - supply of goods - Taxability of the EMI/charges collected by the appellant for additional facilities provided to Sodexo - HELD THAT: - The appellant charged a separate amount described as EMI for items/facilities (washrooms, lockers, water purifier, furniture, water sump, OHT, television, etc.). The Authority agreed with the lower authority that such charges represent transfer of goods under an agreement envisaging transfer of property in goods at a future date and fall within clause 1(c) of Schedule II, constituting supply of goods. Those supplies are taxable at the rate applicable to the respective goods at the time delivery is given. [Paras 15]

The EMI/charges for additional facilities constitute supply of goods under Schedule II(1)(c) and are taxable at the rates applicable to those goods.

Classification of security services under SAC 998529 - Taxability of security services provided by the appellant - HELD THAT: - The agreement includes security services among the facilities provided. Such services are classifiable under SAC 998529 and, as observed by the Authority, are taxable at the applicable rate (18% combined) under the relevant entry in the notification. [Paras 15]

The security services supplied by the appellant are taxable as services under SAC 998529.

Final Conclusion: The Appellate Authority condoned the delay and on merits upheld the AAR. It held both the owner appellant and appellant Sodexo transactions to be renting of non residential property (taxable under SAC 997212), refused the residential rent exemption, held the EMI/charges for items to be supply of goods under Schedule II(1)(c) (taxable at goods' rates), and held security services taxable under SAC 998529; the appeal is dismissed on all counts.

Composite supply of works contract - Application of entry 3(vi)(a) of GST Rate Notification to supplies to Government Entities - Meaning of "State" under Article 12 of the Constitution - Predominant use test (use other than for commerce, industry or any other business or profession)

Meaning of "State" under Article 12 of the Constitution - Distinction between Government Entity and State - Whether the electricity distribution companies (BESCOM, MESCOM, HESCOM) qualify as "State" within the meaning of Article 12 of the Constitution - HELD THAT: - The Authority examined the constitutional definition of "State" in Article 12 and the established tests and jurisprudence concerning "other authorities" and instrumentalities of the State. It noted the background of corporatisation of the Karnataka electricity sector and that the distribution companies were incorporated under the Companies Act to carry out distribution of electricity as principally commercial enterprises. The Authority emphasised that entities which do not share sovereign power (the power to make and enforce binding rules on citizens) and which are not subject to deep and pervasive governmental control over financial, administrative and functional activities do not fall within Article 12. Mere government ownership, regulatory oversight or the performance of public functions is not sufficient; there must be evidence of sovereign character or pervasive state control. Applying these principles to the facts, the Authority found that although the distribution companies are "Government Entities" for the purposes of the Rate Notification, they are not the "State" under Article 12 because they are commercial companies incorporated under the Companies Act and do not possess sovereign powers or the requisite deep and pervasive governmental control to be treated as the State. [Paras 12, 13, 14, 15]

BESCOM, MESCOM and HESCOM do not qualify as "State" under Article 12; they remain Government Entities but not the State for the purposes of Part III or the Explanation to the Rate Notification.

Composite supply of works contract - Application of entry 3(vi)(a) of GST Rate Notification to supplies to Government Entities - Predominant use test (use other than for commerce, industry or any other business or profession) - Whether the Appellant's works contracts supplied to the electricity distribution companies are eligible for the 12% GST rate under entry 3(vi)(a) of Notification No. 08/2017-IT(Rate) - HELD THAT: - The Authority accepted that the services rendered by the Appellant amount to composite supplies of works contracts and that the recipients fall within the definition of "Government Entity" in the Rate Notification. However, the pre-condition for concessional 12% rate under entry 3(vi)(a) is that the original works must be meant predominantly for use other than for commerce, industry or any other business or profession. The Authority examined the objects, incorporation and activities of the distribution companies and found their primary purpose and operations to be commercial in nature-supplying electricity to consumers for consideration and managing electric power commercially. The Explanation to the entry benefits only when services are provided to Central/State/local governments acting as public authorities; it does not extend to Government Entities whose use is predominantly commercial. Consequently, the Appellant's works, being predominantly for commercial use by the distribution companies, do not satisfy the predominant-use test and are not eligible for the 12% rate. [Paras 11, 16]

The Appellant is not eligible for the concessional 12% GST under entry 3(vi)(a); the works supplied to BESCOM, MESCOM and HESCOM are liable to tax at the higher rate as held by the lower Authority.

Final Conclusion: The Appellate Authority affirms the Advance Ruling and dismisses the appeal: the electricity distribution companies are Government Entities but not "State" under Article 12, and the Appellant's works contracts for these entities do not qualify for the 12% concessional rate under entry 3(vi)(a) because the works are predominantly for commercial use.

Recipient of supply - intermediary - value of supply under Section 15 of the CGST Act - actionable claim - voucher

Recipient of supply - intermediary - The legal characterisation of the appellant's activity of arranging bus passes - whether the appellant acted merely as an intermediary/facilitator between BMTC and commuters or supplied transport-related services on its own account. - HELD THAT: - The agreement between the appellant and BMTC establishes two distinct transactions: (a) BMTC supplies buses and bus passes to the appellant and operates the buses; and (b) the appellant issues monthly bus passes to commuters and fixes schedules. The contract shows that the appellant is the contractual recipient obliged to pay BMTC for bus operations and passes; the commuters are only users/beneficiaries. Accordingly, the recipient of BMTC's service is the appellant and not the commuters. The appellant's role was examined against the statutory definition of "intermediary" and the exclusion therein for persons who supply the main service on their own account. The agreement does not evidence appointment of the appellant as broker/agent; instead the appellant provides the main service on its own account by issuing passes in its name and charging clients. The Education Guide and precedents recognising that dealing with customers of a client does not by itself create an intermediary relationship reinforce this conclusion. Therefore the appellant is not an intermediary and the service is rendered on a principal-to-principal basis on the appellant's own account. [Paras 11, 12, 13, 14]

The appellant is not an intermediary or mere facilitator; it supplies transport-related services on its own account and BMTC's service is supplied to the appellant as recipient.

Value of supply under Section 15 of the CGST Act - actionable claim - voucher - Whether the cost/value of bus passes distributed by the appellant must be included in the value of the appellant's facilitation/transport service under Section 15 of the CGST Act and whether bus passes qualify as actionable claims not liable to GST. - HELD THAT: - Section 2(52) of the CGST Act adopts the Transfer of Property Act meaning of "actionable claim," but Schedule III excludes actionable claims (other than lottery, betting and gambling) from supply; moreover, the statute separately defines "voucher" as an instrument accepted as consideration entitling the bearer to specified goods/services. A careful analysis shows that bus passes operate as contracts of carriage or vouchers granting the right to travel for a specified period; they are not claims to a debt or a beneficial interest in movable property as required for an "actionable claim" under the Transfer of Property Act. The bus pass gives a right to obtain carriage and, if unused or lost, yields no debt or beneficial interest. Consequently the bus passes do not qualify as actionable claims outside GST. As the appellant procures passes and issues them in its own name as part of the service rendered to commuters, the consideration for the passes falls within the value of the supply and must be included in the transaction value under Section 15. [Paras 15, 16, 17]

The value of the bus passes is includible in the value of the appellant's supply under Section 15; bus passes are not actionable claims excluded from GST.

Final Conclusion: The advance ruling under challenge is upheld: the appellant supplies transport-related services on its own account (not as an intermediary) and the value of bus passes distributed to commuters forms part of the value of the appellant's taxable supply under Section 15; the appeal is dismissed.

Supply of online educational journals or periodicals - Exemption under Notification No.12/2017 as amended by Notification No.2/2018 - Ruling beyond questions specified in the application - Condonation of delay in filing appeal

Supply of online educational journals or periodicals - Exemption under Notification No.12/2017 as amended by Notification No.2/2018 - Eligibility of subscriptions to the J-Gate portal supplied to educational institutions for exemption under sub-item (v) of item (b) of serial no.66 of Notification No.12/2017 as amended by Notification No.2/2018. - HELD THAT: - The Authority examined the nature of J-Gate subscriptions, the content-licensing agreements with publishers and the distinction between open access and restricted access journals. Open access journals on J-Gate are made available to subscribers solely on payment of the appellant's subscription and remain accessible via the appellant's platform; restricted access journals are likewise supplied through the J-Gate portal subject to additional publisher conditions, and even where additional payment to publishers is required the journal is delivered through the appellant's platform. Metadata (summaries) is a machine-readable facilitation used to enable search and access and does not convert the supply into a mere database gateway. The exemption entry requires only that the supply be of online journals or periodicals to specified educational institutions; it does not require ownership or that the supplier be the original publisher. Consequently, the appellant's provision of subscription access to journals via J-Gate falls within the exemption for supply of online educational journals and periodicals to eligible educational institutions. [Paras 21, 22, 23, 24, 26]

Subscriptions to J-Gate by educational institutions are eligible for exemption under sub-item (v) of item (b) of serial no.66 of Notification No.12/2017 as amended by Notification No.2/2018.

Ruling beyond questions specified in the application - Whether the Authority for Advance Ruling lawfully proceeded to classify the appellant's service and fix the rate when those questions were not posed in the application. - HELD THAT: - The advance ruling sought concerned eligibility for exemption under the notification entry. The lower Authority nevertheless proceeded to classify the service under a distinct heading and impose a rate of tax, which was not the question before it. The appellate authority holds that the lower Authority exceeded the scope of the reference by deciding classification and rate of tax not sought in the application and that that portion of the advance ruling is not sustainable; accordingly the finding on classification and rate is set aside. [Paras 25, 26]

The AAR went beyond the question specified in the application by ruling on classification and rate; that finding is set aside.

Condonation of delay in filing appeal - Whether the delay of 10 days in filing the appeal against the AAR order should be condoned. - HELD THAT: - The appeal was filed ten days after the thirty-day statutory period. The proviso to the relevant appellate provision permits condonation of delay up to a further thirty days if sufficient cause is shown. The appellant explained the delay on grounds of unfamiliarity with the advance-ruling appeal procedure. The Authority found the explanation satisfactory and, in the interest of justice and within its condoning power, allowed the delay to be condoned and proceeded to decide the appeal on merits. [Paras 16, 17]

Delay in filing the appeal is condoned and the appeal is admitted for adjudication on merits.

Final Conclusion: The appeal is allowed: the Advance Ruling dated 23.09.2019 is set aside in toto; subscriptions to the J-Gate portal by eligible educational institutions are held exempt under sub-item (v) of item (b) of serial no.66 of Notification No.12/2017 as amended by Notification No.2/2018; the AAR's classification and rate finding is set aside as beyond the scope of the application; delay in filing the appeal is condoned.

Composite supply - mixed supply - naturally bundled - principal supply - taxability of mixed supply determined by highest rate

Composite supply - mixed supply - naturally bundled - principal supply - Classification of the appellant's Relocation Management Services as composite supply or mixed supply - HELD THAT: - The Court examined the RSA and SOW to determine whether the various listed and packaged relocation services amounted to a composite supply (two or more supplies naturally bundled with one principal supply) or a mixed supply (two or more individual supplies supplied for a single price not constituting a composite supply). The Court held that where services are supplied by third parties such that the appellant is only a payment agent or is facilitating a single service, the question of composite or mixed supply does not arise because there is either no supply by the appellant or only one taxable supply. For services actually supplied by the appellant on his own account, the determinative test is whether constituent services are "naturally bundled" - i.e., so integrated that one is not supplied in the ordinary course of business without the other. The a la carte services are not naturally bundled because clients select services based on varying needs (employee title, family composition, locations etc.), and the removal of elements does not alter an inherent integrated supply; thus such a la carte supplies are neither composite nor mixed supplies. By contrast, the appellant's packaged bundles, offered for a single price as per its business model, constitute combinations of individual taxable services supplied for a single price and therefore fall within the definition of mixed supply under Section 2(74); their taxability is to be determined under Section 8(b) as the supply attracting the highest rate among the component supplies. The Court rejected the appellant's dominant intent and "synthesis" argument because commercial bundling by the appellant does not establish "natural bundling" in the statutory sense. [Paras 21, 22, 23, 24, 27]

The appellant's a la carte relocation services are neither composite nor mixed supplies; the appellant's packaged bundled services supplied for a single price are mixed supplies and taxed as per Section 8(b).

Intermediary - Whether the AAR exceeded the scope of the application by treating the appellant as an intermediary - HELD THAT: - The lower authority's observation that the appellant was an "intermediary" because it facilitated supplies was not a question raised in the advance ruling application. The appellate authority reviewed the lower order and found that concluding the appellant was an intermediary went beyond the scope of the question referred to AAR. Consequently, that part of the advance ruling was set aside and expunged as being beyond the mandate of the Authority in this matter. [Paras 26, 27]

The AAR's observation classifying the appellant as an "intermediary" is expunged as beyond the scope of the question before it.

Final Conclusion: The appeal is allowed in part: packaged bundled services supplied by the appellant for a single price are held to be mixed supplies and taxed under Section 8(b); a la carte relocation services supplied by the appellant are neither composite nor mixed supplies; and the AAR's finding that the appellant is an "intermediary" is expunged as beyond its mandate. The ruling is limited to activities under the RSA and SOW considered in the order.

Composite supply - principal supply - recipient of supply - consideration - export of services - place of supply - jurisdictional limitation on advance ruling as to place of supply / export

Recipient of supply - consideration - composite supply - principal supply - Whether the warranty repairs and replacement activities performed by the appellant are a supply to Volvo Sweden and the nature of that supply. - HELD THAT: - The appellant admitted that repair and replacement activities during the warranty period constitute a supply of services. The determinative question was who is the recipient of that supply. The Distribution Agreement and warranty procedure establish that the appellant acts as Distributor undertaking warranty work at the behest of the manufacturer and pursuant to VIPL/Volvo Sweden's instructions, submits Technical Failure Analysis Reports to Volvo Sweden and invoices Volvo Sweden for reimbursement of parts and service costs. Under the statutory definition of recipient, the person who is liable to pay the consideration is the recipient. The manufacturer (Volvo Sweden/VIPL) is contractually obliged under the international warranty to bear the cost of such repairs and to reimburse the Distributor. Therefore the reimbursements from Volvo Sweden constitute consideration paid by the manufacturer to the appellant for carrying out obligations of the manufacturer. Consequently, the Appellants' warranty activities are a composite supply of goods and services to Volvo Sweden, with the principal supply being a supply of service, and Volvo Sweden is the recipient of that supply. [Paras 16, 17, 18, 19, 20]

The warranty repair and replacement activities are a composite supply made to Volvo Sweden, the principal element being a service, and Volvo Sweden is the recipient of the supply.

Export of services - place of supply - jurisdictional limitation on advance ruling as to place of supply / export - Whether the supply of services to Volvo Sweden qualifies as export of services / zero-rated supply. - HELD THAT: - One of the statutory conditions for export of services is that the place of supply must be outside India. Determination of place of supply is not among the categories of questions on which an advance ruling can be sought under the governing provisions. The Authority and Appellate Authority are creatures of statute and must act within the jurisdictional boundaries conferred. As the question of place of supply (and therefore whether the transaction is an export of services) does not fall within the matters on which an advance ruling may be given, the Appellate Authority refrained from answering whether the supply is an export of services for zero-rating purposes. [Paras 21, 22, 23]

The Appellate Authority refrains from answering whether the supply to Volvo Sweden is an export of services (zero-rated), for want of jurisdiction to rule on place of supply.

Final Conclusion: The AAR order is set aside insofar as it held the recipient to be the customer; the Appellants' warranty work is held to be a composite supply to Volvo Sweden (principal supply: service) with Volvo Sweden as recipient. The question whether that supply qualifies as export of services / zero-rated is not answered by this Authority for lack of jurisdiction.

Classification of textile floor coverings - tufting - process-based classification under Chapter 57 - essential character / exposed surface test - HSN Heading 5703 - HSN Heading 5705 (residual) - GST classification and applicable rate

Tufting - process-based classification under Chapter 57 - HSN Heading 5703 - Whether the described manufacturing process of embedding coir yarn into uncured PVC compound and curing constitutes tufting or a process other than those in Headings 5701-5704. - HELD THAT: - The Authority examined the manufacturing steps: feeding and cutting coir yarn into short lengths, orienting them vertically, and mechanically embedding those cut fibres into a moving layer of uncured PVC which is subsequently cured to form a backing with the fibre pile fixed therein. The HSN Explanatory Notes describe tufting as insertion of yarn into a pre-existing backing by needles/hooks to produce loops or tufts, with the pile yarns normally fixed by a coating of rubber or plastics. Although the final fixation involves a plastic backing, the process used here - cutting and embedding fibres into a laid PVC layer without use of needles or hooks and without inserting yarn into a pre-existing woven/non woven backing - was analysed against the tufting description. The Authority concluded that the industrial process adopted amounts to a tufting process for classification purposes and thus falls within the scope of goods described under the tufted heading rather than being treated as a product manufactured by processes other than those specified in Headings 5701-5704.

The process is to be treated as tufting and not as a 'other than' process; the goods are classifiable under the tufted category (HSN 5703).

Essential character / exposed surface test - classification of textile floor coverings - Whether coir mats with PVC backing manufactured by this process are rightly covered under the description 'coir mats, mattings and floor covering'. - HELD THAT: - Chapter Note 1 defines 'carpets and other textile floor coverings' by reference to the textile material serving as the exposed surface in use. The Authority considered the market identity and exposed surface in use: the finished article presents coir as the exposed surface. However, having analysed the manufacturing process and the manner in which PVC is integrated, the Authority held that despite the exposed surface being coir, the manner of production and fixation (tufting into PVC) aligns the article with tufted products governed by the tufting description in Heading 5703 rather than with items classifiable under the headings for coir mats produced otherwise. Consequently, the product is not to be treated as a plain coir mat/matting under the broader description when the tufting process applies.

PVC tufted coir mats are not to be classified simply as 'coir mats/matting/floor covering' for the purposes of Heading 5702/5705 when produced by the tufting process described.

HSN Heading 5705 (residual) - HSN Heading 5703 - GST classification and applicable rate - Whether the PVC backed coir mats manufactured by the described process merit classification under Heading 5705 (specifically CTH 5705 00 49) or under HSN 5703 90 90, and the applicable GST rate. - HELD THAT: - The Authority contrasted the residual scope of Heading 5705 with the specific tufting description of Heading 5703. Given the finding that the manufacturing method constitutes tufting, the goods fall within the tufted category and not the residual Heading 5705. The ruling further applies the relevant entries of the GST notification: goods classifiable under HSN 5703 90 90 are accordingly subject to the GST rate applicable to tufted textile floor coverings as identified by the Authority. The Authority relied upon its prior examination of the issue in Advance Ruling No. KER/31/2019 and the alignment of tariff classification with the GST schedule in the notification to determine the applicable rate category.

The PVC tufted coir mats are classifiable under HSN 5703 90 90 (tufted) and are not classifiable under Heading 5705; they attract the GST rate applicable to goods under the tufted heading as identified by the Authority.

Final Conclusion: The Authority rules that the manufacture described constitutes tufting; PVC backed coir mats produced thereby are classifiable as tufted coir floor coverings under HSN 5703 90 90 rather than under Heading 5705 or as plain coir mats, and are to be taxed in the GST rate category applicable to tufted textile floor coverings as determined by the Authority.

Works contract - composite supply of works contract - concessional GST rate of 12% - supply to Central Government and State Government as public authorities - predominantly for use other than for commerce, industry or any other business or profession

Works contract - composite supply of works contract - The services rendered by the applicant fall within the definition of works contract under Section 2(119) of the CGST Act, 2017. - HELD THAT: - The Authority examined the work orders and agreements and applied the statutory definition of 'works contract' in Section 2(119) of the CGST Act, 2017, which covers contracts involving transfer of property in goods as part of building, construction, erection, installation, fitting out, improvement or similar activities. On perusal of the contracts for the construction works awarded to the applicant, the Authority found that the supplies involved transfer of materials along with execution of construction services and therefore constitute composite supplies falling within the definition of works contract under the Act. [Paras 5, 6]

Services rendered under the cited contracts are works contracts as defined in Section 2(119) of the CGST Act, 2017.

Supply to Central Government and State Government as public authorities - predominantly for use other than for commerce, industry or any other business or profession - concessional GST rate of 12% - The works contracts executed for VSSC (Department of Space, Government of India) and for the Department of Health and Family Welfare, Government of Kerala (through INKEL Ltd as special purpose vehicle) are eligible for the concessional GST rate of 12% under Sl. No. 3(vi)(a) of Notification No. 11/2017 - Central Tax (Rate) as amended. - HELD THAT: - The Authority determined from the work orders and agreements that the recipients of the services are the Department of Space, Government of India, and the Department of Health and Family Welfare, Government of Kerala (the latter through INKEL Ltd acting as a delegated special purpose vehicle). It then considered the Notification entry at Sl. No. 3(vi) which grants a concessional rate to composite supplies of works contract provided to Central/State Governments or governmental authorities where the works are civil structures or original works meant predominantly for use other than commerce, industry or other business. Applying that entry to the facts-works awarded to and for the use of government departments and consisting of civil structures-the Authority concluded that the contracts qualify for the concessional rate of 12% (6% CGST and 6% SGST). [Paras 3, 4, 7, 8, 9]

The contracts awarded by VSSC and by INKEL Ltd on behalf of the State Government qualify for the concessional GST rate of 12% under Sl. No. 3(vi)(a) of Notification No. 11/2017 - Central Tax (Rate) as amended.

Final Conclusion: The Authority rules that the applicant's supplies constitute works contracts and, being provided to Central and State government departments for civil structures meant predominantly for non commercial use, they are taxable at the concessional GST rate of 12% (6% CGST and 6% SGST) under the specified notification entry.

Advance ruling jurisdiction - Scope of Section 97(2) of the CGST/SGST Act - Admissibility of input tax credit - Passing on benefit of input tax credit

Advance ruling jurisdiction - Scope of Section 97(2) of the CGST/SGST Act - Passing on benefit of input tax credit - Whether the Authority for Advance Ruling can adjudicate the applicant's questions on passing on the benefit of input tax credit on goods lying in stock as on 01.07.2017 and on goods procured after 01.07.2017. - HELD THAT: - The application raised questions concerning the requirement to pass on the benefit of input tax credit in respect of inputs lying in stock on the appointed date (01.07.2017) and inputs procured after that date. Section 97(2) of the CGST/SGST Act enumerates the categories of questions on which an advance ruling may be sought. The questions propounded by the applicant about passing on ITC benefits do not fall within the matters listed in Section 97(2) as examined by the Authority. Consequently, the Authority is not empowered to render an advance ruling on those issues.

Application is not maintainable before this Authority because the questions fall outside the scope of matters on which an advance ruling may be given under Section 97(2).

Final Conclusion: The Authority declined to issue an advance ruling on the applicant's queries concerning passing on of input tax credit benefits, holding that those questions are outside the scope of Section 97(2) and therefore not amenable to advance ruling by this Authority.

Qualification as a financial institution under the Reserve Bank of India Act for GST purposes - option under Section 17(4) to avail fifty per cent of eligible input tax credit - restriction of input tax credit for supplies partly for taxable and partly for exempt supplies - concurrent satisfaction of supply based and entity based conditions to exercise Section 17(4) option

Qualification as a financial institution under the Reserve Bank of India Act for GST purposes - definition of "financial institution" and "non-banking institution" - Applicant qualifies as a "financial institution" for the purposes of Section 17(4) of the CGST Act. - HELD THAT: - The Explanation to the IGST Act adopts the meanings assigned in Section 45 I of the Reserve Bank of India Act. Section 45 I(c) defines "financial institution" as a non banking institution carrying on financing (including by making loans or advances) of activities other than its own, and Section 45 I(e) defines "non banking institution" to include a co operative society. The applicant is a co operative society registered with the Central Registrar carrying on financing by making loans and advances. On a conjoint reading of these provisions, the applicant falls within the definition of "financial institution" under the RBI Act and thus for the purposes of the CGST Act. The Authority records this conclusion and so answers the question in the affirmative. [Paras 6, 11, 12, 14]

Yes.

Option under Section 17(4) to avail fifty per cent of eligible input tax credit - restriction of input tax credit for supplies partly for taxable and partly for exempt supplies - concurrent satisfaction of supply based and entity based conditions to exercise Section 17(4) option - Applicant is eligible to exercise the option under Section 17(4) and avail fifty per cent of eligible input tax credit instead of applying Section 17(2). - HELD THAT: - Section 17(2) restricts input tax credit where supplies are partly for taxable and partly for exempt supplies. Section 17(4) provides an alternative monthly option for a banking company or financial institution (including NBFC) engaged in accepting deposits, extending loans or advances: to either follow Section 17(2) or avail fifty per cent of eligible input tax credit and let the balance lapse. Both conditions - (i) engagement in supplying services by way of accepting deposits, extending loans or advances, and (ii) being a banking company, financial institution or non banking financial company - must be simultaneously satisfied. The applicant admittedly accepts deposits and extends loans or advances, and has been held to be a financial institution. Consequently, the applicant satisfies both conditions and may avail the Section 17(4) option to claim fifty per cent of eligible input tax credit each month. [Paras 8, 9, 13, 14]

Yes.

Final Conclusion: The Authority rules that the co operative society qualifies as a "financial institution" under the RBI Act and, being engaged in accepting deposits and extending loans or advances, is eligible to exercise the option under Section 17(4) of the CGST Act to claim fifty per cent of eligible input tax credit each month.

Seizure of goods in transit - Section 129(5) of the CGST Act - payment of tax and penalty concludes proceedings - Section 67 of the CGST Act - action for fraudulent issuance of invoices and provisional seizure - requirement of authorization in GST INS-01 and seizure in GST INS-02 for exercise of Section 67 powers - release of perishable goods under Rule 141 of the CGST Rules - locus standi of transporter as bailee/common carrier - writ jurisdiction where alternative remedy is inadequate or action is arbitrary

Section 129(5) of the CGST Act - payment of tax and penalty concludes proceedings - seizure of goods in transit - Validity of subsequent detention/seizure of the same consignment after payment under the notice issued under Section 129(3). - HELD THAT: - The Court found that the vehicle and goods were first detained under Section 129, the tax and penalty demanded were paid and the vehicle and goods were released. Having regard to Section 129(5), proceedings in respect of that detention and consignment were concluded. A later detention of the same vehicle and goods could not be sustained as a continuation of the earlier Section 129 proceeding. The subsequent detention at Bijapur, though framed as a fresh interception, sought to place the same consignment under custody despite the earlier conclusion by payment; on the facts and in law that second detention of the consignment in transit was not justified. [Paras 24, 25, 32]

The second detention of the same lorry and consignment, coming after payment and release under Section 129, was not sustainable and the goods and vehicle were ordered released.

Section 67 of the CGST Act - action for fraudulent issuance of invoices and provisional seizure - requirement of authorization in GST INS-01 and seizure in GST INS-02 for exercise of Section 67 powers - Whether the authorities validly exercised powers under Section 67 to seize the goods and whether procedural formalities for seizure under Section 67 were complied with. - HELD THAT: - The Court examined the departmental correspondence and noted the initiation of investigation under Section 67 against the supplier. However, the Court held that seizure under Section 67 must be by a proper officer or by an officer authorized in GST INS-01 and effected by GST INS-02. The materials did not disclose authorization in GST INS-01 or seizure in GST INS-02, and therefore the subsequent custody asserted to be under Section 67 could not be treated as a valid Section 67 seizure of the goods in transit. [Paras 25, 26]

The impugned detention could not be sustained as a valid exercise of Section 67 powers because the required authorisation and prescribed forms were not made out.

Locus standi of transporter as bailee/common carrier - writ jurisdiction where alternative remedy is inadequate or action is arbitrary - Whether the petitioner-transporter had locus standi to challenge the detention and whether writ jurisdiction was maintainable despite availability of alternate remedies. - HELD THAT: - The Court held that a registered transporter acting as bailee/common carrier, who has custody of the vehicle and consignments and who suffers detention and attendant loss (including demurrage), has sufficient legal interest to invoke writ jurisdiction. The Court further observed that availability of an alternative statutory remedy does not automatically bar writ relief where authorities have acted arbitrarily, especially in respect of perishable goods and where the alternative remedy is not efficacious or practical; on the peculiar facts the Court exercised its constitutional jurisdiction. [Paras 19, 21, 23]

The petitioner-transporter had locus standi and the writ petition was maintainable.

Release of perishable goods under Rule 141 of the CGST Rules - provisional attachment under Section 83 of the CGST Act - Obligations of seizing authorities in respect of perishable goods and the permissible modes of release. - HELD THAT: - The Court noted the statutory scheme that permits provisional attachment and interim measures in investigations, but emphasised that seized perishable goods must be released forthwith in accordance with Rule 141 upon payment of market price or applicable tax, interest and penalty, or by obtaining bond/security under Rule 140. Given that the consignment was perishable, accompanied by lawful documents and had already suffered tax and penalty, the Court held the authorities were duty bound to follow the statutory mechanism for release rather than retain the goods. [Paras 29, 30, 31]

Seizing authorities were obliged to release the perishable consignment in accordance with the rules; retention in the circumstances was unwarranted.

Final Conclusion: The writ petition was allowed: the lorry and perishable consignment (covered by the stated e-way bill) were directed to be released forthwith. Liberty was reserved to continue investigation under Section 67 or other provisions against the supplier or recipients and to determine or recover any tax or initiate penal action, but the respondent's second detention of the in-transit consignment after payment under Section 129 was set aside.

Intermediary - Other professional, technical and business services (Service Code 9983.11) - place of supply - export of services - zero-rated supply - registration under CGST - time of supply - value of supply - tax rate

Intermediary - Other professional, technical and business services (Service Code 9983.11) - Classification of the services rendered by the appellant and whether those services amount to an "intermediary" service under the IGST Act - HELD THAT: - The Authority for Advance Ruling classified the appellant's activity as management/sales presentation services under Service Code 9983.11 and held it to be an "intermediary" under Section 2(13) of the IGST Act. The Appellant contended that his activity was market research or marketing on principal to principal basis and not intermediary services. The appellate authority examined the appellant's factual role: independent regional sales manager making product presentations, reporting to the company's European sales manager, not concluding contracts on behalf of the company, and customers contracting directly with the company. The definition of "intermediary" requires arranging or facilitating a supply between two or more persons and excludes a person who supplies the goods or services on his own account. The activity of sales presentations here facilitates the company's sales - it does not constitute supply of the products on the appellant's own account. The authority rejected reliance on the GoDaddy AAR as factually distinguishable. Applying the meaning of "arrange" and "facilitate" and the statutory exclusion, the appellate authority concluded that the appellant's services facilitate supply by the principal and therefore fall within the definition of an "intermediary" and are classifiable under Service Code 9983.11 as "Other professional, technical and business services."

The services are classifiable under Service Code 9983.11 as "Other professional, technical and business services" and are rendered as an "intermediary" within the meaning of Section 2(13) of the IGST Act.

Registration under CGST - Whether the appellant is required to be registered under the CGST Act, 2017 - HELD THAT: - The lower Authority had held that the appellant is required to be registered. The appellate authority, having upheld the AAR's classification of the activity as a supply of intermediary/other professional, technical and business services, also upheld the consequential finding on the appellant's liability to register under the CGST Act.

The appellant is required to obtain registration under the Central Goods and Services Tax Act, 2017.

Tax rate - Rate of tax applicable to the services supplied by the appellant - HELD THAT: - The AAR had specified the applicable tax rates for intra state and inter state supplies. The appellate authority upheld the AAR's conclusion regarding the tax rates applicable to the classified service, as part of upholding the AAR's broader findings on classification and attendant liabilities.

The AAR's findings on the applicable rates of tax are upheld.

Time of supply - value of supply - place of supply - export of services - zero-rated supply - Determination of time and value of supply and related place of supply/export characterisation - HELD THAT: - The AAR had held that the time of supply would be determined as per the relevant provisions of the CGST/IGST law and that the value includes amounts received and reimbursed expenses. The appellant argued that the services constituted market research and export of services (zero rated). The appellate authority, after upholding that the activity is an intermediary service, affirmed the AAR's conclusions on time and value and rejected the appellant's contention that the service should be treated differently for place of supply/export characterisation, noting that the intermediary classification controls the place of supply analysis under the statutory scheme.

The AAR's determinations on time of supply, value of supply and attendant place of supply/export characterisation (and the consequences for zero rating) are upheld.

Final Conclusion: The appeal is dismissed; the Advance Ruling No. KAR/ADRG 64/2019 dated 20 09 2019 is upheld in all respects, including classification under Service Code 9983.11 as an "intermediary" service, the appellant's liability to register, and the AAR's findings on applicable tax rate, time and value of supply.

Penalty under section 271(1)(c) - furnishing inaccurate particulars of income - concealment of income - recording of satisfaction by assessing officer - show cause notice under section 274 read with section 271(1)(c)

Penalty under section 271(1)(c) - furnishing inaccurate particulars of income - concealment of income - recording of satisfaction by assessing officer - show cause notice under section 274 read with section 271(1)(c) - Validity of levy of penalty under section 271(1)(c) where the Assessing Officer recorded inconsistent satisfaction (both concealment and furnishing of inaccurate particulars) and the show cause notice did not specify the correct limb. - HELD THAT: - The Tribunal examined whether the statutory preconditions for imposing penalty under section 271(1)(c) were satisfied. The assessment order recorded satisfaction that the assessee had furnished inaccurate particulars of income in relation to alleged bogus purchases. The penalty order, however, variously described the default as both "concealment of particulars of income" and "furnishing inaccurate particulars of income", thereby treating both limbs interchangeably. The Tribunal reiterated the settled requirement that the AO must record a clear satisfaction and proceed under the specific limb of section 271(1)(c); the show cause notice under section 274 read with section 271(1)(c) must therefore be founded on that satisfaction. Relying on the reasoning in the decision of the Hon'ble Bombay High Court in Samson Perinchery, the Tribunal held that initiation of penalty proceedings on one limb and levy on another, or issuing a notice without specifying the correct limb in conformity with the AO's recorded satisfaction, vitiates the penalty. Applying that principle to the facts, the Tribunal concluded that the basic condition for levy of penalty was not fulfilled because of the AO's inconsistent findings and the resultant defect in the penalty proceedings.

Penalty under section 271(1)(c) set aside; appeal allowed.

Final Conclusion: The penalty of Rs. 5,71,000 levied under section 271(1)(c) for AY 2011-12 was set aside because the Assessing Officer did not record and pursue a clear and consistent satisfaction under a single specified limb and the penalty proceedings were therefore vitiated.

Deemed dividend - deeming provision of section 2(22)(e) - remand for fresh consideration - natural justice and opportunity to be heard - non compliance with appellate hearing notices / failure to prosecute appeal

Deemed dividend - deeming provision of section 2(22)(e) - remand for fresh consideration - natural justice and opportunity to be heard - Whether the addition of Rs. 30,00,000 as deemed dividend under section 2(22)(e) ought to be sustained or required fresh adjudication by the first appellate authority - HELD THAT: - The Tribunal examined the record and noted that the CIT(A) passed the appellate order without any personal or representative appearance by the assessee and that the assessee's written submissions were filed one day after the CIT(A)'s order. The assessee's authorised representative before the Tribunal relied on judicial decisions not placed before the CIT(A). In these circumstances the Tribunal found that the question whether the impugned advance to the partnership firm attracts section 2(22)(e) requires adjudication on merits in the light of the case law relied upon by the assessee and the factual matrix of the case. In the interest of justice and to secure compliance with principles of natural justice, the Tribunal declined to decide the substantive question on the record before it and directed that the matter be restored to the file of the CIT(A) for fresh consideration of the applicability of section 2(22)(e) and the judicial precedents relied upon by the assessee, permitting the assessee to appear personally or by authorised representative and to file detailed written submissions and relevant documents. [Paras 5, 6, 7, 8]

Set aside the order of the CIT(A) and remit the issue to the CIT(A) for fresh adjudication on merits in accordance with the directions to afford the assessee an opportunity to be heard.

Final Conclusion: The Tribunal partly allowed the appeal for statistical purposes by setting aside the CIT(A)'s order confirming the addition under section 2(22)(e) and remitting the matter to the CIT(A) for fresh adjudication on merits while directing the assessee to avail the opportunity to appear or file submissions and documents.

Forfeiture of security deposit as business loss - allowability under section 37(1) - disallowance of interest under section 36(1)(iii) - presumption that advances are from own funds - capital loss on transfer between blocks of assets - allowance of depreciation for block of assets subject to verification

Forfeiture of security deposit as business loss - allowability under section 37(1) - Forfeited security deposits paid for leased premises were business losses and allowable in computing taxable income. - HELD THAT: - The assessee paid security deposits for leased premises which were forfeited when the assessee did not continue with the leases. Documentary evidence and lease agreements were on record and were not rebutted by the Assessing Officer. The CIT(A) found that the forfeitures arose in the course of the assessee's business activities and were debited to the books as revenue items. Reliance was placed on authorities treating forfeiture of earnest/security deposits as revenue/business loss. The Tribunal found no infirmity in the CIT(A)'s conclusion that the forfeiture constituted a business loss allowable under section 37(1) of the Income-tax Act, 1961, since the AO had not rebutted the factual material establishing the revenue character of the loss. [Paras 4]

Addition disallowing the forfeited security deposit was deleted; Revenue's ground dismissed.

Disallowance of interest under section 36(1)(iii) - presumption that advances are from own funds - Disallowance of interest under section 36(1)(iii) in respect of interest-free loans/advances was not justified as the advances were made from the assessee's own funds and AO failed to show use of borrowed funds. - HELD THAT: - The assessee furnished details showing that substantial advances related to the preceding year and that advances in the year under appeal were largely out of the assessee's own funds; supporting ledger/balance-sheet and earlier assessment records were placed on file. The AO made a blanket disallowance without adducing evidence that borrowed funds were used for the advances or that the advances were for non business purposes. In absence of such contrary material, the presumption that advances were made from own funds holds, and the CIT(A) rightly deleted the disallowance under section 36(1)(iii). [Paras 5]

Addition disallowing interest was deleted; Revenue's ground dismissed.

Capital loss on transfer between blocks of assets - allowance of depreciation for block of assets subject to verification - The AO's disallowance of the claimed capital loss was sustained by the CIT(A); alternatively the CIT(A) directed verification and allowance of depreciation on the block of assets if appropriate. - HELD THAT: - The Tribunal records that the CIT(A) affirmed the AO's disallowance of the capital loss claimed on transfer into a new block where ownership remained unchanged. The assessee had advanced an alternative contention seeking depreciation if capital loss were not allowable; the CIT(A), following precedent, directed the AO to verify evidence and, if warranted, allow depreciation on the block of assets. The Revenue's ground challenging the CIT(A) is misconceived because the CIT(A) did not allow the capital loss but sustained the disallowance and only allowed an alternative claim for depreciation subject to AO's verification. [Paras 6]

Ground dismissed as irrelevant; capital loss disallowance sustained and alternative claim for depreciation remitted to AO for verification.

Final Conclusion: The Revenue's appeal is dismissed in entirety: the forfeited security deposits and disallowed interest were correctly deleted by the CIT(A), and the challenge to the CIT(A)'s treatment of the capital loss/depreciation is unsustainable, with the alternative claim for depreciation left to AO's verification.

MAT credit carry forward - automatic entitlement to set-off of MAT credit - appellate authority power to admit claim not made in return - entitlement versus quantification of MAT credit

MAT credit carry forward - automatic entitlement to set-off of MAT credit - entitlement versus quantification of MAT credit - Whether the carry forward and set-off of MAT credit is a debatable issue or an automatic entitlement that ought to be granted notwithstanding absence of a claim in the return. - HELD THAT: - The Tribunal accepted the assessee's contention that entitlement to set off MAT credit arises as a matter of course once conditions for set-off are satisfied and that the grant of such credit is not dependent upon a prior determination by the Assessing Officer; only the quantum may depend on final assessment. Reliance was placed on the reasoning in Tulsyan NEC Ltd. (Supreme Court) and the Tribunal's decision in Fiserv India Pvt. Ltd., holding that the statutory scheme contemplates automatic set-off rather than a discretionary option for the assessee or AO. Applying those precedents, the Tribunal found that the issue is not debatable and that the CIT(A) erred in treating it as such. [Paras 7]

Carry forward and set-off of MAT credit is an automatic entitlement; the CIT(A)'s view that the issue was debatable was erroneous and the assessee's claim is admissible.

Appellate authority power to admit claim not made in return - MAT credit carry forward - Whether the claim for carry forward of MAT credit, not made in the return, can be entertained at the appellate stage and what consequential direction should follow. - HELD THAT: - While the Supreme Court in Goetz (India) Ltd. limited the Assessing Officer's power to entertain claims not made in the return, the Tribunal noted that the embargo does not apply to appellate authorities. Having found entitlement to MAT credit on the merits, the Tribunal admitted the assessee's claim and directed that the matter be restored to the file of the Assessing Officer for verification and consequential action. The AO is to verify the claim, allow the carry forward if found correct, and provide the assessee an opportunity of being heard; the question remanded concerns verification and quantification rather than entitlement. [Paras 7]

Assessee's claim for carry forward of MAT credit is admitted at the appellate stage; the issue is remitted to the Assessing Officer for verification, quantification and grant of credit in accordance with law, after affording the assessee an opportunity of hearing.

Final Conclusion: The Tribunal allowed the appeal for statistical purposes, holding that carry forward and set-off of MAT credit is an automatic entitlement and admitting the assessee's claim; the matter is remanded to the Assessing Officer for verification, quantification and consequential grant of the MAT credit if found correct, after giving the assessee an opportunity of hearing.

Treatment of difference between consideration and stamp duty value under Section 56(2)(vii)(b) - applicability of proviso to clause (b) of Section 56(2)(vii) where agreement predates registration and part payment is made by non-cash mode - date for determining stamp duty value - date of earlier agreement/booking versus date of registration - booking of flat coupled with part payment constituting an agreement for the purposes of proviso to clause (b) of Section 56(2)(vii)

Booking of flat coupled with part payment constituting an agreement for the purposes of proviso to clause (b) of Section 56(2)(vii) - date for determining stamp duty value - date of earlier agreement/booking versus date of registration - Whether the stamp duty value for applying clause (b) of Section 56(2)(vii) must be taken as on the date of booking/earlier agreement (with part payment by non-cash) or on the date of final registration. - HELD THAT: - The assessee produced undisputed evidence of part payments by cheque on 10/10/2010 and 14/10/2010 and a letter from the builder confirming booking and receipt of those payments. The registered sale agreement dated 16/09/2014 contains a payment schedule and records terms agreed at booking. These facts establish that an agreement fixing the amount of consideration existed at the time of booking and that part of the consideration was paid by non-cash mode before registration. Consequently, the proviso to clause (b) of Section 56(2)(vii) is attracted and the stamp duty value must be taken as on the date of the earlier agreement/booking (10/10/2010) rather than on the date of registration. The tribunal set aside the orders below on this basis and remanded the matter to the Assessing Officer to apply the stamp duty valuation as on 10/10/2010 and compute any addition under Section 56(2)(vii)(b) accordingly. [Paras 7, 8]

Found that booking combined with part non-cash payments constituted an earlier agreement; proviso to clause (b) of Section 56(2)(vii) applies and stamp duty value is to be taken as on 10/10/2010; matter remanded to AO for computation.

Final Conclusion: Assessee's appeal allowed for statistical purposes; tribunal held proviso to clause (b) of Section 56(2)(vii) applicable on facts, directed AO to take stamp duty value as on 10/10/2010 (date of booking/part payment) and compute any addition under Section 56(2)(vii)(b) accordingly.

Late fee under section 234E - processing of TDS statements under section 200A - adjustment while issuing intimation under section 200A - mandatory and consequential levy - no discretion to delete on grounds of reasonable cause

Late fee under section 234E - processing of TDS statements under section 200A - mandatory and consequential levy - Validity of levy and adjustment of late fee under Section 234E by the AO while processing a belated quarterly TDS statement under Section 200A, and whether such levy can be deleted on grounds of reasonable cause. - HELD THAT: - The Tribunal held that with effect from the amendment to Section 200A, clause (c) of Section 200A(1) requires the fee, if any, to be computed in accordance with Section 234E while processing TDS statements. Consequently, where a quarterly TDS statement is filed late, the levy under Section 234E is attracted and the Assessing Officer is obliged to compute and make adjustment of the late fee in the intimation issued under Section 200A. The levy under Section 234E is mandatory and consequential in nature; therefore the AO has no discretion to delete the fee on the basis of the assessee's explanation of reasonable or bonafide cause. An intimation under Section 200A can be challenged only on the ground that the AO has not complied with the mandatory provisions of Sections 200A or 234E; absent any allegation of such non-compliance, the adjustment cannot be set aside. [Paras 6, 7]

Levy and adjustment of late fee under Section 234E while processing the belated 24Q for F.Y. 2017-18 is upheld; deletion on grounds of reasonable cause not permissible.

Final Conclusion: The appeal is dismissed and the imposition/adjustment of the late filing fee under Section 234E in the intimation issued under Section 200A for the first quarter of F.Y. 2017-18 is upheld.

Arm's length price - comparable uncontrolled price (CUP) method - aggregation of comparable uncontrolled transactions versus individual international transactions - benefit of percentage variation under proviso to rule 10CA(7) - uncontrolled transaction under rule 10A(ab) - associated enterprises as deemed under section 92A(2)

Comparable uncontrolled price (CUP) method - aggregation of comparable uncontrolled transactions versus individual international transactions - The correctness of the TPO's approach in comparing the average price of comparables with each individual invoice raised by the assessee for determining the arm's length price. - HELD THAT: - Rule 10B(1)(a)(i) permits identification and aggregation of comparable uncontrolled transactions to arrive at a benchmark price, but rule 10B(1)(a)(iii) applies that benchmark to each international transaction. The Tribunal relied on precedent to hold that while averaging is permissible for the uncontrolled transactions, each international transaction must be examined on a standalone basis. Consequently, the TPO was justified in comparing the ALP of comparables with individual invoices rather than permitting the assessee to compare an average of its own international transactions with the average of comparables. [Paras 8]

TPO's method of comparing comparable prices with each individual invoice stands affirmed.

Benefit of percentage variation under proviso to rule 10CA(7) - Whether the percentage variation (5% as argued) is to be calculated with reference to the ALP determined from comparables or with reference to the price actually charged by the assessee. - HELD THAT: - The proviso to sub-rule (7) of rule 10CA directs that the difference between the ALP so determined and the price at which the international transaction was actually undertaken is to be seen in relation to the actual price charged by the assessee. The Tribunal illustrated that the difference (ALP minus actual price) must be compared to the actual price to compute the percentage variation. The Tribunal further observed that even under the assessee's contention the margin exceeded the variation threshold in the present facts. [Paras 8]

The percentage variation is to be computed with reference to the actual price charged by the assessee; no benefit accrues to the assessee on the facts before the Tribunal.

Uncontrolled transaction under rule 10A(ab) - associated enterprises as deemed under section 92A(2) - Whether transactions with an entity that became an associated enterprise during the previous year (Dyestar Group) can be treated as comparables for CUP; and consequent direction on re-computation of adjustments. - HELD THAT: - Section 92A(2) deems enterprises associated if they satisfy the statutory criteria at any time during the previous year; rule 10A(ab) defines 'uncontrolled transaction' as transactions between enterprises other than associated enterprises. Therefore a transaction with an entity that became an AE during the year cannot be treated as an uncontrolled comparable. The Tribunal held that although the assessee had mistakenly used Dyestar as a comparable in its study, the tax authorities were duty bound to correct that error. On excluding Dyestar from comparables, the ALP for the specified products was recomputed and the Tribunal directed the AO/TPO to compare the ALP with each invoice and make adjustments wherever the difference exceeded the permissible percentage. [Paras 8]

Dyestar Group cannot be used as a comparable; matter is directed back to AO/TPO to recompute ALP excluding Dyestar and to make invoice wise adjustments where differences exceed the prescribed percentage.

Final Conclusion: Appeal partly allowed: the Tribunal upheld the TPO's invoice wise application of the CUP method and held that percentage variation is to be computed with reference to the actual price charged; however, the Tribunal ruled that an entity which became an associated enterprise during the year (Dyestar) cannot be treated as an uncontrolled comparable and directed the AO/TPO to recompute ALP excluding such entity and to make necessary invoice wise adjustments where the difference exceeds the permissible variation.

Exemption under section 10(38) and its application to losses - Income includes loss (negative income) - Carry forward and set-off of long-term capital loss - Distinction between exclusion of a source and exclusion of income under Chapter III - Precedential value and hierarchical judicial followership

Exemption under section 10(38) and its application to losses - Income includes loss (negative income) - Carry forward and set-off of long-term capital loss - Long-term capital loss on sale of equity shares/ equity-oriented mutual funds chargeable to STT (covered by section 10(38)) is not allowable for set-off or carry forward. - HELD THAT: - The Tribunal held that clause (38) of section 10 excludes from total income "any income arising from the transfer" of specified long-term capital assets where the transaction is chargeable to STT. Construing the word 'income' in section 10(38) in the light of binding Supreme Court authority that 'income' includes losses, the bench concluded that both positive gains and negative results (losses) from the transactions covered by section 10(38) are to be ignored at the computation stage. The Tribunal examined coordinate decisions on both sides, authoritative commentary and higher-court precedents, and found the ratio in favour of excluding losses where the income stream itself is excluded by section 10(38). On this basis the assessing officer's and CIT(A)'s disallowance of the claimed long-term capital loss on STT-paid shares was upheld and the claim for carry forward was dismissed. [Paras 26, 39]

The claim for carry forward and set-off of the long-term capital loss on STT-paid shares is rejected; the loss does not enter the computation of total income under section 10(38).

Distinction between exclusion of a source and exclusion of income under Chapter III - Income includes loss (negative income) - Whether section 10(38) excludes only a stream of income within a source or the income (including losses) arising from the specified transactions. - HELD THAT: - The Tribunal analysed the text of section 10(38), the scheme of charging and computation provisions, and precedent. While some tribunal decisions treated only the particular stream as exempt (leaving the source within capital gains), the bench preferred the view-supported by Gujarat High Court authority and Supreme Court pronouncements-that where section 10(38) applies the income (and correspondingly the loss) arising from the specified class of transactions is excluded from computation of total income. The Tribunal emphasised the settled principle that the word 'income' in the statute includes losses and, therefore, once an income is excluded under section 10(38), the negative result from that same excluded class is also excluded. [Paras 28, 36]

Section 10(38) excludes the income arising from the specified STT-paid transactions and, by parity, excludes the corresponding losses from computation.

Precedential value and hierarchical judicial followership - Choice of precedent where coordinate tribunal decisions conflict with a High Court decision relied upon by the revenue. - HELD THAT: - The Tribunal addressed divergent coordinate-bench decisions and conflicting High Court authority. Emphasising judicial hierarchy and binding value of superior court decisions, the bench declined to follow coordinate-bench decisions adverse to the Gujarat High Court and Supreme Court authorities. The Tribunal concluded that it must follow the higher-court pronouncements (and the Gujarat High Court decision) rather than conflicting coordinate-bench orders. [Paras 35, 37]

Tribunal follows the view consistent with higher-court authority (Gujarat High Court and Supreme Court decisions) rather than conflicting coordinate-bench decisions.

Condonation of delay - Whether the 18-day delay in filing the appeal to the Tribunal should be condoned. - HELD THAT: - On facts the Tribunal found the delay small, explained by bona fide circumstances (late receipt/miscommunication about date of receipt), and relied on the principle that unintentional, bona fide delay should be liberally condoned so appeals are decided on merits. The Tribunal therefore admitted the belated appeal and exercised discretion to condone the delay. [Paras 7]

Delay of 18 days in filing the appeal is condoned and the appeal is admitted for adjudication on merits.

Final Conclusion: Delay in filing the appeal was condoned; on merits the Tribunal dismissed the appeal, holding that losses arising from transfers of long-term capital assets covered by section 10(38) (i.e., STT-paid equity shares/units) do not enter computation of total income and therefore cannot be set off or carried forward.

Disallowance of unverifiable purchases - revision of assessment under exercise of revisional jurisdiction - notice to third party under section 133(6) - condonation of delay in filing appeal on grounds of substantial justice - maintainability of appeal where remedy lies against revisional order

Disallowance of unverifiable purchases - notice to third party under section 133(6) - revision of assessment under exercise of revisional jurisdiction - maintainability of appeal where remedy lies against revisional order - Whether the order of the Commissioner (Appeals) upholding disallowance of purchases of Rs. 9,78,420/- was justified and whether the appeal before the Tribunal was maintainable. - HELD THAT: - The Tribunal examined the material on record and the sequence of orders. It recorded that the Assessing Officer, while giving effect to the revisional directions of the administrative Commissioner under revisional jurisdiction, issued a notice to the alleged supplier under the statutory provision for third party inquiry, and in absence of a response disallowed the purchases. The Tribunal found on the documentary record that the purchases from the supplier were not shown to be bogus and that identity of the supplier was supported by documentary evidence and by a response in a related proceeding, thus establishing genuineness of the transactions. However, the administrative Commissioner's revisional order had directed the Assessing Officer to disallow the claim and thereby constrained the Assessing Officer's exercise of discretion. The Tribunal held that the proper remedy for challenging the revisional order was an appeal against that revisional order, which the assessee did not prefer. Because the disallowance challenged before the Tribunal was made pursuant to and in compliance with the revisional direction, the Tribunal concluded that the assessee's appeal before it was not maintainable on merits to question the Assessing Officer's compliance with the revisional order. [Paras 2, 3]

The Tribunal dismissed the grounds raised by the assessee as the disallowance was made in implementation of the revisional order and the appeal before the Tribunal was not maintainable.

Final Conclusion: Delay in filing the appeal was condoned on grounds of substantial justice and the appeal was admitted for adjudication; on merits the Tribunal held the purchases to be prima facie genuine but dismissed the appeal as not maintainable because the disallowance was effected in compliance with a revisional order which the assessee had not challenged.

Genuineness of purchases - evidentiary value of books of account - corroborative documentary evidence (transit challan and VAT records) - effect of non-service of notice issued under section 133(6) - addition in assessment upheld without rejection of books

Genuineness of purchases - corroborative documentary evidence (transit challan and VAT records) - effect of non-service of notice issued under section 133(6) - evidentiary value of books of account - Whether the addition made by the Assessing Officer treating purchases from a supplier as bogus can be sustained where the assessee produced books of account and corroborative documents and the notice under section 133(6) to the supplier remained unserved - HELD THAT: - The Assessing Officer disallowed purchases from the supplier solely because the notice issued under section 133(6) to the supplier remained unserved and observed that supporting evidence of purchases was not furnished. The assessee, however, had placed on record before the AO and during appellate proceedings: purchase and sale invoices, ledger/accounts, bank evidence of payment by account-payee cheques, transit challan issued by the VAT Department and the VAT assessment order, stock summaries and item-wise registers showing receipt and utilization of raw material. The CIT(A) drew adverse inferences from month-wise variations in purchase and sale figures and differences in rates between purchases from the supplier and other vendors, and held the documents not reliable. The Tribunal reviewed the material and noted that the books of account and trading account were not rejected, the VAT/transit challan and invoices corroborated delivery and acceptance by revenue authorities, and quantities in the books corresponded with manufacturing and sales. Given that the purchases were recorded in the books, payments were through banking channels, the VAT records corroborated receipt, and the trading account and stock statements were verifiable, the mere non-service of a belated section 133(6) notice (issued many years after the transactions) was not a conclusive basis to treat the purchases as bogus. Consequently, an addition based solely on non-service of the 133(6) notice and month-wise variations-when corroborative documentary evidence and books of account stand unrejected-could not be sustained.

The addition disallowing the purchases was deleted and the assessee's appeal allowed.

Final Conclusion: On the facts and evidence the Tribunal held that purchases recorded in books of account and corroborated by transit challan, VAT records and bank payments could not be treated as bogus merely because a belated notice under section 133(6) to the supplier remained unserved; the addition was therefore deleted and the appeal allowed.

Interest under section 201(1A) for delay in deduction of tax at source - effect of quashing/revival of TDS exemption certificate on liability to deduct TDS - validity of Nil rate/TDS exemption certificate and its temporal scope - late deduction and liability to interest

Interest under section 201(1A) for delay in deduction of tax at source - effect of quashing/revival of TDS exemption certificate on liability to deduct TDS - late deduction and liability to interest - Whether interest under section 201(1A) is payable for alleged delay in deduction of TDS where the Nil rate/TDS exemption certificate was held to have been valid for the period in question. - HELD THAT: - The Assessing Officer had levied interest under section 201(1A) for delay in remittance of TDS in respect of payments made to the payee in November and December 2017. The Hon'ble Bombay High Court quashed the order withdrawing the Nil rate certificate, thereby reviving the certificate dated 04.05.2017 and a fresh certificate applicable for the period 28.04.2017 to 31.03.2018. By virtue of the High Court's order and the fresh certificate, the position prior to cancellation was restored and the Nil rate/TDS exemption was valid throughout the relevant period. Where no deduction of tax at source was required because a valid Nil rate certificate existed for the period, there was no "late deduction" and consequently no liability to pay interest under section 201(1A). The Tribunal accordingly directed deletion of the interest levied. [Paras 6]

Interest levied under section 201(1A) deleted as the Nil rate/TDS exemption certificate was held to be valid for the period, negating any delay in deduction.

Final Conclusion: Appeal allowed; interest under section 201(1A) deleted because the Nil rate/TDS exemption certificate was revived and held valid for the relevant period, so no delay in deduction arose.

Valuation by rent capitalisation method - guideline value versus fair market value - valuation officer's report inadmissibility where subject demolished before inspection - determination of cost of acquisition for capital gains computation

Valuation by rent capitalisation method - guideline value versus fair market value - determination of cost of acquisition for capital gains computation - Admissibility and appropriateness of adopting rent capitalisation method to determine the cost of acquisition of the land and building as on 01.04.1981 for computing long term capital gains. - HELD THAT: - The Tribunal found that the registration authority's guideline values reflected agricultural land rates and did not represent the correct market value for the subject property, and that the Valuation Officer's report was unreliable because the building had been demolished prior to his inspection. The existence of an admitted rental agreement, receipt of rent and receipt of rental advance supported use of the rent capitalisation method. On these facts the Tribunal concluded that the value of the site and superstructure ought to be determined by capitalising the rental income rather than by adopting the guideline values or the Valuation Officer's post-demolition valuation. The Tribunal accepted the assessee's quantified valuation (subject to rounding) and directed the Assessing Officer to adopt Rs. 10,00,000 as the cost of acquisition as on 01.04.1981 and to compute indexation and capital gains accordingly.

Assessees' grounds allowed to the extent that the AO is directed to adopt Rs. 10,00,000 as the cost of acquisition of the land and building as on 01.04.1981 and to rework indexation and long term capital gains accordingly.

Final Conclusion: Each appeal is partly allowed; the Assessing Officer is directed to adopt Rs. 10,00,000 as the cost of acquisition of the land and building as on 01.04.1981 and to recompute indexed cost and long term capital gains in the respective assessee's hands.

Additions to income based on audit/information records - unexplained cash credits under section 68 - reliance on Form 26AS and AIR data for establishing receipts - preponderance of probabilities and circumstantial evidence as basis for acceptance of source - allowability of business expenditure and requirement of supporting evidence for travel claims

Additions to income based on audit/information records - reliance on Form 26AS and AIR data for establishing receipts - Addition of Rs. 9,000 towards chit dividend and the addition (shortfall) on account of difference in declared receipts from commission/profession - HELD THAT: - The Tribunal upheld the finding that the assessee failed to substantiate his assertion that dividend for the year was a lesser sum than shown in the AO's computation, noting absence of documentary evidence before the Tribunal; consequently the Ground challenging confirmation of the Rs. 9,000 addition was rejected. As to the alleged understatement of receipts shown by AIR, the assessee pointed out a computational error in the AO's aggregate. The CIT(A) corrected the figure and restricted the addition; the Tribunal found no reason to interfere with that adjustment, observing that Form 26AS supported the corrected total on which TDS had been deducted and therefore dismissed the assessee's ground insofar as it sought further interference.

Ground relating to chit dividend addition dismissed; addition arising from difference in commission receipts restricted by CIT(A) and the restriction confirmed.

Unexplained cash credits under section 68 - preponderance of probabilities and circumstantial evidence as basis for acceptance of source - Addition of Rs. 10,00,000 as unexplained cash credit on account of bank deposits alleged to be from brother - HELD THAT: - The assessee produced registered settlement deeds and a confirmation letter from his brother stating that a cash payment of Rs.15 lakhs was made to the assessee arising from a family property settlement; the registered deeds pre-dated the bank deposits. The Tribunal, applying the test of preponderance of probabilities and having regard to circumstantial evidence and absence of contrary material from the Revenue, found the contention that the receipts were on account of family settlement credible and accepted the source of the deposits. On that basis the addition under section 68 was deleted.

Addition of Rs.10,00,000 deleted.

Allowability of business expenditure and requirement of supporting evidence for travel claims - Disallowance of foreign tour expenses of Rs. 1,52,596 claimed as business expenditure - HELD THAT: - The assessee failed to produce documentation such as invitations, brochures or other details to establish that the foreign travel by the assessee and his wife was for business purposes. In the absence of such supporting evidence the CIT(A)'s disallowance was held to be well-reasoned and the Tribunal declined to interfere.

Disallowance of foreign tour expenses upheld.

Final Conclusion: Appeal partly allowed: additions in respect of unexplained bank deposits (Rs.10,00,000) deleted; other additions and disallowance challenged by the assessee were upheld or the CIT(A)'s adjustments were confirmed, resulting in a partly allowed appeal.

Exemption under section 11 - charitable purpose - proviso to section 2(15) excluding activities in nature of trade, commerce or business - service in relation to trade, commerce or business exclusion - incidental business rule under section 11(4A) - commerciality / profit motive test - advancement of any other object of general public utility - precedential effect of coordinate bench decision

Exemption under section 11 - charitable purpose - proviso to section 2(15) excluding activities in nature of trade, commerce or business - incidental business rule under section 11(4A) - commerciality / profit motive test - Whether the assessee's micro finance activities qualify as charitable for the purpose of exemption under section 11 of the Income-tax Act for the assessment years 2010-2011 and 2011-2012. - HELD THAT: - The Tribunal affirmed the view taken by the lower authorities that the assessee's micro finance operations do not qualify as charitable activity and therefore are not eligible for exemption under section 11. The decision applies the proviso to the statutory definition of "advancement of any other object of general public utility" in section 2(15), holding that where an institution carries on activities in the nature of trade, commerce or business, or renders services in relation to the trade, commerce or business of recipients for consideration, such activities are excluded from charitable purpose. The Tribunal further analysed section 11(4A) and held that even though separate accounts were maintained, the micro finance business could not be regarded as incidental to the trust's charitable objects; rather it was the main business activity. Applying the commerciality/profit-motive test to the facts (noting high interest margins and penal interest), the Tribunal concluded the activities were commercial in nature with profit motive and therefore assessable as business income, not entitled to section 11 exemption. The Tribunal also treated its earlier co-ordinate bench decision in the assessee's own case (for earlier years) as determinative for identical facts and followed that precedent in dismissing the appeals. [Paras 7, 8, 10]

The claim of exemption under section 11 was rejected and the income from micro finance activities treated as business income for the assessment years 2010-2011 and 2011-2012; appeals dismissed.

Final Conclusion: For identical facts and following the Tribunal's earlier decision in the assessee's own case, the appeals are dismissed and the stay applications are rendered infructuous; the income from the micro finance activities is not entitled to exemption under section 11 for AY 2010-2011 and AY 2011-2012.

Rectification under Section 154 - deduction under Section 80P(2) - assessing officer's inquiry into activities of a society - binding effect of a subsequent Larger Bench High Court decision - each assessment year is a separate unit - interest income as part of banking business

Rectification under Section 154 - binding effect of a subsequent Larger Bench High Court decision - deduction under Section 80P(2) - Validity of the CIT(A)'s rectification of its earlier appellate order under Section 154 read with Section 250 by recalling allowance of deduction under Section 80P(2) in light of a subsequent Larger Bench decision of the jurisdictional High Court. - HELD THAT: - The Tribunal held that where an appellate order was founded on a Division Bench decision of the High Court which is subsequently reversed by a Larger Bench, the subsequent Larger Bench decision can furnish a rectifiable mistake within the scope of Section 154. The Tribunal relied on the principle that a later authoritative pronouncement by the High Court (Larger Bench) that the Assessing Officer must inquire into the factual activities of the society to determine eligibility under Section 80P(2) effectively reversed the earlier basis of the CIT(A)'s order. In that factual and legal matrix the CIT(A) was justified in recalling its earlier appellate order so as to give effect to the subsequently declared law. Consequently the grounds contesting the rectification were dismissed to the extent that rectification was sought on the footing of the changed judicial view. [Paras 7]

The CIT(A)'s rectification under Section 154 was held permissible because the earlier appellate order rested on a High Court Division Bench decision which was subsequently overruled by a Larger Bench; accordingly the challenge to rectification is dismissed.

Assessing officer's inquiry into activities of a society - each assessment year is a separate unit - deduction under Section 80P(2) - interest income as part of banking business - Whether the claim for deduction under Section 80P(2), including on interest income from banks and treasuries, should be remitted for fresh examination and on what basis. - HELD THAT: - Although the Tribunal accepted that rectification was permissible, it found that the CIT(A) ought not to have denied the deduction outright without directing an inquiry into the assessee-society's activities. Following the Larger Bench's holding that the Assessing Officer must examine the factual activities of the society and that each assessment year stands separate, the Tribunal restored the matter to the file of the Assessing Officer for fresh verification of eligibility for deduction under Section 80P(2). As to interest on investments with treasuries and banks, the Tribunal noted a coordinate Bench view that such interest may form part of banking business, but directed that the Assessing Officer apply the Larger Bench's test of examining the activities of the society before deciding entitlement to deduction under Section 80P. [Paras 7]

Issue of entitlement to deduction under Section 80P(2), including in respect of interest income, is remitted to the Assessing Officer for factual enquiry and determination in accordance with the Larger Bench precedent; the Assessing Officer to verify activities for the relevant assessment year.

Final Conclusion: Appeal allowed for statistical purposes: the Tribunal upheld the CIT(A)'s power to rectify its earlier order in view of the subsequent Larger Bench High Court decision but directed restoration of the issue to the Assessing Officer to examine the assessee-society's activities and determine entitlement to deduction under Section 80P(2) for AY 2010-2011, including treatment of interest income, in accordance with the Larger Bench ruling.

Disqualification of director under Section 164(2) - proviso to Section 167(1) - retrospective or prospective effect - deactivation of DIN - interim injunction against disqualification

Disqualification of director under Section 164(2) - interim injunction against disqualification - deactivation of DIN - Interim relief sought by the petitioners against disqualification and deactivation of DIN was to be granted pending final adjudication. - HELD THAT: - The petitioners challenged orders of the Registrar of Companies disqualifying them as directors for non-submission of annual returns and balance-sheets for earlier financial years. The petitioners relied on the proviso to Section 167(1) (introduced by amendment w.e.f. 7.5.2018) and prior orders of this Court quashing disqualifications issued prior to that proviso coming into force. The respondents contended the proviso is clarificatory/curative and not prospective. Having regard to the amendment timeline, the pendency of inconsistent judicial orders on similar questions, and the absence of a final determination on the temporal operation of the proviso, the Court found the petitioners had made out an arguable case and that the balance of convenience favored grant of interim relief. Consequently the Court granted interim relief in terms of the petitioners' prayers (a) and (b), while permitting the respondent to file affidavit-in-opposition and the petitioners to file affidavit-in-reply within stipulated time-frames.

Interim order granted in terms of the petitioners' prayers (a) and (b); respondents may file affidavit-in-opposition within four weeks and petitioners may file affidavit-in-reply within two weeks; matter listed in the Combined Monthly List of September, 2020.

Proviso to Section 167(1) - retrospective or prospective effect - Whether the proviso to Section 167(1) operates retrospectively or prospectively was not finally decided and was directed to be considered on exchange of affidavits. - HELD THAT: - The Court observed competing contentions: petitioners contended that disqualifications effected before the proviso's commencement could not stand in view of the proviso; respondents maintained the proviso is clarificatory/curative and operates retrospectively. The Court declined to resolve the question at the interim stage and required detailed hearing on merits after factual and evidentiary material is placed before it. Respondents were granted liberty to file affidavit-in-opposition within four weeks and the petitioners to file affidavit-in-reply within two weeks, indicating the temporal-effect question is remitted for fresh consideration on affidavit evidence and fuller argument.

Question of retrospective or prospective effect of the proviso remanded for detailed hearing on exchange of affidavits; not finally decided in this order.

Final Conclusion: The High Court granted interim relief restraining the effects of the disqualification and DIN deactivation in terms of the petitioners' prayers, whilst remitting the substantive question of the temporal effect of the proviso to Section 167(1) for full consideration on affidavit and further hearing.

Moratorium under IBC - Right of set-off - Accounting conventions vis-a -vis statutory moratorium - Provisions of this Code to override other laws

Moratorium under IBC - Right of set-off - Whether a creditor can effect a set-off of mutual debts against amounts payable to a corporate debtor during the moratorium period of the Corporate Insolvency Resolution Process. - HELD THAT: - The Tribunal examined precedents of this Appellate Tribunal which hold that once an application under the I&B Code is admitted and moratorium is declared, no person, including financial creditors, may recover amounts from or appropriate funds of the corporate debtor during the moratorium. The respondents' contention that set-off is an established accounting right was considered, but the Tribunal held that such accounting conventions cannot be exercised so as to circumvent the moratorium imposed under Section 14 during the CIRP. The Tribunal further noted decisions of this Appellate Tribunal reiterating that amounts due prior to admission cannot be appropriated during the moratorium. Applying these principles, the Tribunal found that permitting set-off in the present circumstances amounted to recovery/appropriation contrary to the moratorium and therefore could not be sustained. [Paras 10, 11, 13, 15]

Set-off could not be effected during the moratorium; the NCLT order permitting set-off was set aside and the respondents were directed to pay the amounts that had been set off to the corporate debtors.

Provisions of this Code to override other laws - Accounting conventions vis-a -vis statutory moratorium - Whether the I&B Code, by virtue of its overriding provision, permits accounting conventions such as set-off to prevail over the moratorium and other inconsistent laws. - HELD THAT: - The Tribunal relied on Section 238 of the I&B Code which provides that the Code's provisions shall have effect notwithstanding anything inconsistent in any other law. The court observed that where the I&B Code expressly provides for moratorium and its effects during CIRP, accounting conventions or other laws inconsistent with the moratorium cannot supersede the Code. Consequently, any claim to set-off founded solely on accounting practice had to yield to the statutory moratorium and the overriding effect of the Code. [Paras 12, 14]

The I&B Code overrides inconsistent accounting conventions and other laws; accounting-based set-off cannot be permitted where it conflicts with the moratorium under the Code.

Final Conclusion: The appeal is allowed: the NCLT order permitting set-off is set aside and the amounts set off are directed to be paid to the corporate debtors; interim orders, if any, are vacated.

Existence of pre-existing dispute - operational debt under Section 9 - adjudicating authority's duty to bifurcate real disputes - admission of debt - novation and discharge of liability

Existence of pre-existing dispute - adjudicating authority's duty to bifurcate real disputes - operational debt under Section 9 - admission of debt - Whether the Adjudicating Authority was right to reject the Section 9 application on the ground of a pre-existing dispute without considering the admitted liability and the merits of the claim. - HELD THAT: - The Tribunal found that the NCLT erred in rejecting the application by relying solely on email correspondence and failing to apply the test in Mobilox Innovations (that the adjudicating authority must bifurcate real disputes from sham or spurious contentions). The Appellant had produced documentary material and contemporaneous communications showing admission of liability by the Corporate Debtor and an arrangement with Hindalco concerning payment; the NCLT did not adequately consider those admissions and the claim that the respondent had sought to shift or novate liability to Hindalco to evade payment. The Tribunal held that the defence raised by the respondent appeared to be an after thought to deny payment and that the existence of a dispute had not been firmly established so as to justify rejection at the threshold without admitting the application under Section 9 for further adjudication. [Paras 29, 30, 31]

The NCLT's order rejecting the Section 9 petition on the basis of a pre-existing dispute was set aside and the matter remitted for admission and appropriate further proceedings.

Novation and discharge of liability - admission of debt - Whether there was a novation or effective discharge of the respondent's liability such that the Section 9 application should not be admitted. - HELD THAT: - The Tribunal observed that the record did not conclusively establish a novation discharging the respondent's liability. While there were minutes and communications discussing payment by Hindalco, the adjudicating authority had not examined the merits to determine if a valid novation occurred. Given these uncertainties and the need to assess admissions and the true character of the correspondence, the Tribunal directed remand for admission and appropriate orders rather than permitting a summary rejection on the ground of alleged novation. [Paras 32]

Remitted to the Adjudicating Authority to admit the application and pass appropriate orders after considering the merits; the question of novation was not finally accepted as a bar to admission.

Operational debt under Section 9 - Whether the respondent may settle the claim prior to admission of the Section 9 application and the consequences thereof. - HELD THAT: - The Tribunal allowed the respondent the opportunity to settle the claim before the application is admitted and recorded that the Appellant may withdraw the application if settlement occurs prior to admission. This procedural direction preserves the parties' autonomy to settle while directing the Adjudicating Authority to proceed to admission if no settlement is effected. [Paras 33]

Respondent may settle the claim before admission; if settled, the Appellant may withdraw the application; otherwise the Adjudicating Authority shall proceed to admit and deal with the application.

Final Conclusion: The impugned NCLT order dated 02.04.2019 is set aside and the matter is remitted to the Adjudicating Authority, Mumbai Bench, with a direction to admit the Section 9 application and pass appropriate orders after considering the parties' submissions; the respondent remains free to settle the claim before admission, in which event the Appellant may withdraw the petition.

Application under Section 7 of the Insolvency and Bankruptcy Code, 2016 and limitation - date of default / trigger point for limitation - application of Article 137 of the Limitation Act, 1963 to Section 7 proceedings - effect of prior pleadings and SARFAESI Section 13(2) notice on reckoning date of default - consequences of a time barred Section 7 application (invalidity of IRP appointment, moratorium and related orders)

Application under Section 7 of the Insolvency and Bankruptcy Code, 2016 and limitation - date of default / trigger point for limitation - application of Article 137 of the Limitation Act, 1963 to Section 7 proceedings - effect of prior pleadings and SARFAESI Section 13(2) notice on reckoning date of default - Whether the Section 7 application filed by the Bank was barred by limitation and therefore not maintainable - HELD THAT: - The Tribunal examined the material on record to determine the trigger date for limitation. Although the Bank in Form 1 stated the date of default as 28th October, 2015 (date of NPA), earlier pleadings filed by the Bank itself in O.A. No. 239 of 2016 before the Debt Recovery Tribunal pleaded issuance of a Section 13(2) SARFAESI notice on 3rd September, 2014 and averred that the cash credit facility had been declared NPA prior to that notice. The Appellate Tribunal treated the date of default as the fixed date from which limitation runs and applied the residuary rule (Article 137) for applications under Section 7, following authoritative precedent holding that the date of default is the trigger for limitation in insolvency proceedings. Even if the Bank's later assertion of a 2015 NPA date is taken into account, the Bank cannot derive advantage from a subsequent date when earlier pleadings and actions demonstrate that default/NPA had occurred before 3rd September, 2014. The Section 7 application filed on 19th October, 2018 was therefore beyond three years from the earlier date of default and time barred. Consequentially, the application was held not maintainable and liable to be dismissed. [Paras 16, 18, 19, 20, 21]

The Section 7 application was time barred as not filed within limitation from the date of default (pleaded by the Bank as prior to 3rd September, 2014) and is not maintainable; the impugned admission is set aside.

Consequences of a time barred Section 7 application (invalidity of IRP appointment, moratorium and related orders) - What are the consequences of holding the Section 7 application time barred on orders passed pursuant to admission - HELD THAT: - Having held the Section 7 petition to be barred by limitation and thus not maintainable, the Tribunal declared all consequential orders passed following the impugned admission - including appointment of the Interim Resolution Professional, declaration of moratorium, freezing of accounts and any actions taken by the Interim Resolution Professional (including advertisements) - to be illegal and set them aside. The Tribunal directed closure of the insolvency proceeding and the release of the Corporate Debtor to function through its Board. The Adjudicating Authority was directed to fix and the Bank ordered to pay the fees and CIRP costs as determined. [Paras 20, 21, 22]

All orders and actions pursuant to the impugned admission are set aside as illegal; the insolvency proceeding is closed and the Corporate Debtor is released to its Board, subject to payment of IRP fees and CIRP costs to be fixed by the Adjudicating Authority and borne by the Bank.

Final Conclusion: The appeal is allowed: the Section 7 application was barred by limitation as the date of default/earlier NPA predated 3rd September, 2014 as pleaded by the Bank; the NCLT admission and all consequential insolvency orders are quashed, the proceeding is closed, the Corporate Debtor is released, and the Bank is directed to bear fees and CIRP costs as fixed by the Adjudicating Authority; no order as to costs.

Admission of corporate insolvency resolution process under Section 9 of the I&B Code - pre-existence of commercial dispute - commercial wisdom of the Committee of Creditors - approval of resolution plan - remittal for passing order under Section 31 of the I&B Code

Admission of corporate insolvency resolution process under Section 9 of the I&B Code - commercial wisdom of the Committee of Creditors - Whether the admission order initiating the corporate insolvency resolution process should be set aside and whether this Tribunal should interfere with the commercial decisions of the Committee of Creditors. - HELD THAT: - The Tribunal declined to interfere with the Adjudicating Authority's admission order dated 25th March, 2018. Although the appellant sought to raise the contention of a pre-existing dispute, the Court observed that a lengthy period had elapsed and the appellant had repeatedly sought time to settle and to submit a Section 12A proposal; for these reasons the Tribunal was not inclined to determine the initial issue of a pre-existing dispute. The Tribunal also applied the settled principle that the Adjudicating Authority and this Tribunal cannot sit in appeal over the commercial wisdom of the Committee of Creditors, referring to the rule in Essar Steel (noted in the judgment) that commercial choices of the CoC are not to be reappraised. In view of the Committee of Creditors having approved a resolution plan by an overwhelming majority, the Tribunal refused to set aside the admission order and dismissed the appellant's challenge. [Paras 16, 17]

The appeals challenging the admission under Section 9 are dismissed; the Tribunal will not interfere with the CoC's commercial decision.

Approval of resolution plan - remittal for passing order under Section 31 of the I&B Code - Disposition of the proceedings relating to approval of the resolution plan and further action required by the Adjudicating Authority. - HELD THAT: - The Tribunal recorded that the Committee of Creditors approved a resolution plan (by APSEZL with 99.68% voting share as recorded by the CoC) and noted that the Adjudicating Authority's determination under Sections 30 and 31 is sub judice. Given the CoC's vote and the pendency before the Adjudicating Authority, the Tribunal declined to interfere and remitted the matter to the Adjudicating Authority to pass appropriate orders under Section 31 of the I&B Code in accordance with law. Consequentially, the appeals filed by one resolution applicant were declared infructuous to the extent they sought relief rendered academic by the subsequent proceedings before the NCLT. [Paras 12, 13, 14, 17]

The matter is remitted to the Adjudicating Authority to pass appropriate orders under Section 31; appeals by competing resolution applicants are declared infructuous.

Final Conclusion: The Tribunal dismissed the appeal challenging initiation of CIRP and declined to reassess the CoC's commercial judgments; the record is remitted to the Adjudicating Authority to decide on approval under Section 31 of the I&B Code, and certain appeals by competing resolution applicants were held to be infructuous.

Liquidation under Section 33 of the I&B Code - Expiry of the CIRP time-limit and consequences - Approval threshold of Committee of Creditors under Section 30 - Earnest Money Deposit and compliance with Plan submission requirements - Eligibility of resolution applicants and Section 29A / misuse of MSME registration - Power of the Adjudicating Authority to order liquidation only on statutorily enumerated grounds

Liquidation under Section 33 of the I&B Code - Expiry of the CIRP time-limit and consequences - Approval threshold of Committee of Creditors under Section 30 - Validity of the liquidation order passed by the Adjudicating Authority after expiry of the CIRP period where no resolution plan secured requisite approval of the Committee of Creditors. - HELD THAT: - The Tribunal held that where no resolution plan is approved by the Committee of Creditors and the time prescribed under Section 12 has lapsed, the Adjudicating Authority is bound to pass an order of liquidation under Section 33(1). The Code prescribes strict time limits to avoid indefinite CIRP; timely liquidation is a legitimate corollary where no plan meeting statutory requirements is available. The Appellant's plans failed to secure the minimum 66% voting share required under Section 30; consequently, and given the expiry of the CIRP period, the NCLT correctly allowed initiation of liquidation. The Tribunal also emphasised that the I&B Code does not contain a residual 'just and equitable' ground akin to the Companies Act to order winding up outside the statutory grounds for liquidation under the Code. [Paras 26, 29, 30, 31, 32]

The liquidation order is valid and the appeal insofar as it challenges initiation of liquidation after expiry of the CIRP is dismissed.

Earnest Money Deposit and compliance with Plan submission requirements - Reconsideration of Resolution Plan by the Committee of Creditors - Whether the Appellant's contention that the resolution plan ought not to have been rejected for failure to pay the earnest money deposit or because of late submission of title deeds warranted interference. - HELD THAT: - The Tribunal accepted the finding that the Appellant had failed to deposit the specified earnest money in the prescribed form (demand draft or bank guarantee) as required for submission of the resolution plan. The Appellant's subsequent actions (transfer of funds and offering of title deeds) and requests for reconsideration were considered by the Committee of Creditors but did not secure the requisite approval on the relevant meetings; the plan was rejected on 4.9.2019 and again on 28.9.2019. The Adjudicating Authority's orders dismissing the Appellant's applications for reconsideration and proceeding to liquidation were therefore held not to be vitiated by failure to consider late production of security. [Paras 2, 4, 13, 25, 26]

The Appellant's challenge based on alleged non-release of title deeds and late payment/alternate security is rejected; no interference with the rejection of the plan is warranted.

Eligibility of resolution applicants and Section 29A / misuse of MSME registration - Regulatory purpose of Section 240A and protection against back-door circumvention - Whether the Appellant's MSME registration made him eligible as a resolution applicant and whether the MSME status obtained after initiation of CIRP could be relied upon. - HELD THAT: - The Tribunal noted that promoters or ex-promoters obtaining MSME registration after initiation of CIRP - without the knowledge of the resolution professional and where management had vested with the RP - bore the indicia of an attempt to circumvent Section 29A. The Court observed that protections under Section 240A are intended for genuine MSME entrepreneurs and should not be used as a back-door to overcome statutory ineligibility. The Adjudicating Authority correctly treated the matter as a factor militating against approval and the Appellant did not secure requisite votes regardless of claimed MSME status. [Paras 8, 23, 31, 34]

The Appellant cannot rely on the post CIRP MSME registration to establish eligibility; the challenge on this ground fails.

Joinder of necessary parties and impleadment - Whether Phoenix ARC Private Limited should be impleaded as a necessary and proper party to the appeal. - HELD THAT: - The Tribunal allowed the application to implead Phoenix ARC Private Limited because it was the petitioner before the Adjudicating Authority in the insolvency petition and its participation was necessary for adjudication of issues in the appeal. The Appellant was directed to carry out corrections in the cause title and file an updated memo of parties. [Paras 22]

Application to implead Phoenix ARC Private Limited is allowed; parties to amend cause title and memo of parties accordingly.

Final Conclusion: The appeal is dismissed on merits. The Adjudicating Authority's liquidation order is upheld: the appellant's plans failed to meet the statutory deposit and approval requirements, the claimed MSME status obtained post CIRP does not cure ineligibility, and Phoenix ARC Pvt. Ltd. is impleaded as a necessary party.

Adverse judicial observations and disparaging remarks - Adjudicating Authority's power in admission proceedings under Section 7 IBC - Admission to Corporate Insolvency Resolution Process - Effect of interim judicial observations on parallel criminal and investigative proceedings - Necessity of evidence and opportunity to be heard before making adverse remarks

Adverse judicial observations and disparaging remarks - Adjudicating Authority's power in admission proceedings under Section 7 IBC - Necessity of evidence and opportunity to be heard before making adverse remarks - Validity and propriety of the Adjudicating Authority's observations in paragraphs 31-33 of the impugned order made while admitting the Section 7 application. - HELD THAT: - The Tribunal confined the challenge to whether the observations at paragraphs 31, 32 and 33 were germane to the limited task of deciding admission under Section 7. It noted that admission under Section 7 requires satisfaction on the existence of a financial debt and default as reflected in Form I and that the Adjudicating Authority's role in admission proceedings does not extend to adjudicating detailed allegations of fraud, valuation disputes or conduct of third party receivers. The Adjudicating Authority itself qualified its remarks as being "subject to correction on the final outcome of the investigation." The Tribunal held that while the Adjudicating Authority expressed legitimate concern over allegations in the Corporate Debtor's reply, the generalized observations about banking practices and the seized stock were avoidable because they went beyond what was necessary to decide the limited jurisdictional question of debt and default. The Tribunal therefore treated the observations as unnecessary in the context of admission, observing that the Adjudicating Authority could not decide contested valuation and misappropriation averments while admitting the Section 7 application. [Paras 19, 21]

The observations at paragraphs 31-33 were avoidable and not necessary to the admission decision; they should not have been made in the impugned order.

Effect of interim judicial observations on parallel criminal and investigative proceedings - Admission to Corporate Insolvency Resolution Process - Whether the Adjudicating Authority's observations would prejudice ongoing investigations or the Insolvency Resolution Process. - HELD THAT: - The Tribunal examined whether the Adjudicating Authority's adverse remarks could affect the independent investigations (for example by the Economic Offences Wing) or prejudice the IRP. Noting the Adjudicating Authority's clear qualification that the observations were subject to the final outcome of investigations, the Tribunal found that such observations, though avoidable, do not in fact impact the conduct or outcome of the investigations or the insolvency proceedings. The Tribunal relied on recognized principles that courts should have been careful when referring to alleged facts while investigations are pending, but concluded on the material before it that the remarks will not influence investigatory agencies or be used as a basis to hold the bank or its officials adversely in the CIRP. [Paras 19, 20, 21]

The observations, being expressly made subject to the outcome of investigations, will not affect the ongoing investigations or prejudice the Insolvency Resolution Process.

Final Conclusion: The Appeal is disposed of by holding that the adverse observations in paragraphs 31-33 of the impugned order were avoidable and unnecessary for admitting the Section 7 application, but, being expressly subject to the outcome of investigations, they will not prejudice the investigative agencies or the insolvency resolution process; no order as to costs.

Retention money as part of main operational debt - Definition of operational debt - Definition of operational creditor - Pre-existing dispute under Section 8(2)(a) of the IBC - Applicability of the Limitation Act to Applications under the IBC

Retention money as part of main operational debt - Definition of operational debt - Retention money retained under the contract qualifies as an operational debt payable to the contractor and is not a separate category of claim. - HELD THAT: - The Tribunal examined the contract terms, including the payment clause and the virtual completion certificate which recorded acceptance of completion subject to defect rectification and specified that 5% would be retained and released after the defect liability period. The retention amount was held to be part of the main bill and hence a debt due and payable within the meaning of the statutory definition of "debt" and "operational debt." The court relied on the contractual scheme where release of retention was conditional upon expiry of the defect liability period or submission of a performance guarantee, and on the correspondence showing completion and subsequent request for release of retention; on this basis the claim falls within the IBC definition of operational debt. [Paras 11, 12, 17, 23, 29]

Retention money is part of the main operational debt and falls within the definition of "operational debt."

Definition of operational creditor - The claimant qualifies as an operational creditor entitled to initiate proceedings under the IBC. - HELD THAT: - Applying the statutory definition of "operational creditor," the Tribunal found that the respondent, being the party to whom the operational debt (retention money) was owed, squarely falls within the definition. The court observed that the retention money constituted a payable obligation arising from the contract, thereby establishing the claimant's status as an operational creditor. [Paras 18, 19, 23, 29]

Respondent No. 2 is an operational creditor under the IBC.

Pre-existing dispute under Section 8(2)(a) of the IBC - Mobilox test for existence of plausible dispute - There was no pre-existing dispute prior to issuance of the demand notice; the reply did not disclose a dispute that would defeat the Section 9 application. - HELD THAT: - The Tribunal reviewed the correspondence and the timing of communications. It noted absence of any record or contemporaneous evidence of a dispute prior to the demand notice. The emails from the corporate debtor after completion acknowledged that concerns had been attended to and sought further assistance as a special request, which the Tribunal treated as maintenance or post-completion issues rather than a pre-existing contractual dispute. Applying the test that a dispute must be bona fide and pre-existing (and not a feeble or hypothetical contention), the Tribunal held that no such dispute existed before the demand notice and so the Section 9 petition was not barred on this ground. [Paras 16, 17, 22, 27, 29]

No pre-existing dispute existed prior to the demand notice; the Section 9 application was not rejected on this basis.

Applicability of the Limitation Act to Applications under the IBC - The Section 9 application was held to be within the period of limitation on the facts of the case. - HELD THAT: - The Tribunal considered the Supreme Court authorities applying the Limitation Act to IBC applications and the rule that the cause of action accrues on default. It examined the dates pleaded and the parties' correspondence, including the email of 21.07.2015 acknowledging rectification of concerns and the operational creditor's communication after expiry of the defect liability period. The Tribunal accepted that the debt fell due effectively on 27.07.2015 (when the corporate debtor's mail acknowledged completion and rectification) and held that the Section 9 filing on 27.04.2018 lay within three years of that date; accordingly, the application was not time-barred. [Paras 12, 23, 25, 27, 29]

The petition under Section 9 was filed within the applicable limitation period and is not time-barred.

Final Conclusion: The Tribunal affirmed the Adjudicating Authority's admission of the Section 9 petition: the retention money constitutes an operational debt, the claimant is an operational creditor, there was no pre-existing dispute to defeat the petition, and the claim was within limitation; the appeal is dismissed.

Exclusion of gratuity, provident and pension funds from liquidation estate - Priority of workmen's sums vis-a -vis distribution under the waterfall mechanism - Liquidator's domain limited to assets forming part of the liquidation estate - Obligation under the Payment of Gratuity Act conditioned on entitlement and availability of funds

Exclusion of gratuity, provident and pension funds from liquidation estate - Priority of workmen's sums vis-a -vis distribution under the waterfall mechanism - Whether sums due to employees from provident fund, pension fund and gratuity fund form part of the liquidation estate and are subject to distribution under Section 53 of the I&B Code. - HELD THAT: - The Tribunal affirmed that sub section (4)(a)(iii) of Section 36 excludes all sums due to any workman or employee from the provident fund, pension fund and gratuity fund from the liquidation estate and therefore such sums cannot be included for distribution under Section 53. The decision relied on the coordinate bench precedent in State Bank of India v. Moser Baer Karamchari Union [2019 NCLAT], which held that once these funds are outside the liquidation estate the question of distributing them under the waterfall scheme does not arise, and that Section 53(1)(b)(i) (confined to dues for the 24 months preceding liquidation commencement) does not permit inclusion of those funds. The I&B Code gives the liquidator fiduciary duties only in respect of assets forming part of the liquidation estate; assets excluded by Section 36(4)(a)(iii) are beyond the liquidator's power to attach or distribute to satisfy other creditors.

Sums due from provident fund, pension fund and gratuity fund do not form part of the liquidation estate and are not distributable under Section 53.

Liquidator's domain limited to assets forming part of the liquidation estate - Obligation under the Payment of Gratuity Act conditioned on entitlement and availability of funds - Whether the Adjudicating Authority could direct the liquidator to make provision and pay gratuity to employees notwithstanding that no separate gratuity fund had been created by the corporate debtor. - HELD THAT: - The Tribunal held that the Adjudicating Authority erred in directing the liquidator to make provision for payment of gratuity where no separate fund existed. The liquidator has no jurisdiction to deal with property which is not part of the liquidation estate; consequently he cannot be compelled to create or appropriate corporate assets that do not fall within the liquidation estate to meet gratuity obligations. Payment of gratuity depends on the employees' entitlement under the Payment of Gratuity Act and the availability of funds to satisfy that entitlement. The corporate debtor's annual report showing an unfunded gratuity liability did not justify directing the liquidator to make payments in absence of a fund. Therefore the direction to the liquidator to provide for and pay gratuity without there being a separate fund was set aside.

Direction to the liquidator to make provision for payment of gratuity despite absence of a separate fund is invalid and is set aside.

Final Conclusion: The appeal is allowed: the Tribunal confirmed that provident, pension and gratuity sums are excluded from the liquidation estate and are not distributable under Section 53, and set aside the Adjudicating Authority's direction requiring the liquidator to make provision for and pay gratuity where no separate fund existed; the liquidator cannot be compelled to deal with assets outside the liquidation estate.

Power to compromise or make arrangements under Section 230 of the Companies Act, 2013 - Liquidation as a last resort and revival ethos of the Insolvency and Bankruptcy Code - Sale of the corporate debtor as a going concern - Duty of the liquidator to verify claims and take custody and control of assets under the IBC - Adjudicating Authority's power to sanction compromises and to balance stakeholders for maximisation of assets

Liquidation as a last resort and revival ethos of the Insolvency and Bankruptcy Code - Whether interference with the Adjudicating Authority's order of liquidation was called for - HELD THAT: - The Tribunal examined the appeal against the liquidation order and concluded that interference with the impugned order was not warranted. The Tribunal emphasised the statutory scheme and jurisprudence which treat liquidation as a last resort, with the primary objective being revival and continuation of the corporate debtor wherever feasible. On the facts and submissions before it, the Tribunal found no ground to set aside the Adjudicating Authority's liquidation order and therefore declined to interfere.

Appeal against the liquidation order dismissed insofar as interference with the impugned order is concerned.

Power to compromise or make arrangements under Section 230 of the Companies Act, 2013 - Sale of the corporate debtor as a going concern - Duty of the liquidator to verify claims and take custody and control of assets under the IBC - Adjudicating Authority's power to sanction compromises and to balance stakeholders for maximisation of assets - Directions to the Liquidator and the Adjudicating Authority regarding steps to be taken during liquidation to pursue revival through compromise or arrangement under Section 230 and related IBC procedures - HELD THAT: - Relying on the precedents cited and the text of Section 230, the Tribunal directed that before selling assets, the Liquidator must explore revival by initiating compromise or arrangement under Section 230 of the Companies Act, 2013. The Liquidator was directed to verify all claims, take custody and control of assets, access information and consolidate and admit/reject claims in accordance with the IBC provisions, and to take steps under Section 230 to call for and process proposals for compromise or arrangement. If the arrangement fails, the Liquidator is to attempt sale of the corporate debtor as a going concern and, only thereafter, proceed to sale of company assets in accordance with law. The Adjudicating Authority was empowered to entertain applications under Section 230, to constitute a committee of creditors for opinion where appropriate, to overrule irrelevant objections if the scheme promotes revival and asset maximisation, and to extend timelines if the liquidation process under Section 230 requires more time.

The Liquidator directed to proceed in accordance with law by taking steps under Section 230 and the relevant IBC provisions (including verification of claims and exploring sale as a going concern) before effecting liquidation sales; the Adjudicating Authority to pass appropriate orders as required.

Final Conclusion: The appeal is disposed of without disturbing the liquidation order, but with mandatory directions that the Liquidator and the Adjudicating Authority shall first pursue revival of the corporate debtor by invoking Section 230 of the Companies Act, 2013 and follow the verification and asset-realisation procedures under the IBC; only on failure of such measures may liquidation sales proceed in accordance with law.

Application under Section 7 of the Insolvency and Bankruptcy Code - date of default as date of classification as NPA - Article 137 of the Limitation Act, 1963 - acknowledgment and fresh period under Section 18 of the Limitation Act - distinction between insolvency resolution proceedings and recovery proceedings

Application under Section 7 of the Insolvency and Bankruptcy Code - date of default as date of classification as NPA - Article 137 of the Limitation Act, 1963 - acknowledgment and fresh period under Section 18 of the Limitation Act - distinction between insolvency resolution proceedings and recovery proceedings - Whether the Section 7 application filed by the Financial Creditor was barred by limitation where the admitted date of default was the date the account was classified as NPA and subsequent acknowledgments or recovery proceedings could shift or revive the date of default. - HELD THAT: - The Tribunal applied the settled principle that Article 137 of the Limitation Act, 1963 governs Section 7 applications and that the right to sue accrues when a default occurs. The account of the Corporate Debtor was admitted to have been classified as NPA on 1st May, 2000, which is the date of default for computing limitation. Subsequent filing of recovery proceedings, decree or execution does not shift the date of default forward for purposes of triggering an insolvency application; insolvency proceedings are not recovery proceedings and cannot be used to give renewed life to time-barred debt. Further, an acknowledgement capable of restarting limitation must be in writing and signed by the borrower and must be made before the prescribed period expires; any acknowledgment made after the period of limitation reckoned from the date of default cannot operate under Section 18 of the Limitation Act to commence a fresh period. Given that Section 7 was brought into force on 1st December, 2016, defaults occurring prior to 1st December, 2013 cannot be the subject of a valid Section 7 application under Article 137. Applying these principles to the admitted facts, the Tribunal concluded that the claim was time-barred notwithstanding letters of acknowledgment and subsequent recovery proceedings. [Paras 10, 11, 12, 13]

The Section 7 application was barred by limitation as the date of default was 1st May, 2000 (date of NPA); subsequent acknowledgments and recovery proceedings did not revive or shift the date of default, and the impugned admission is set aside.

Final Conclusion: The appeal is allowed; the NCLT order admitting the Section 7 petition is set aside, the Section 7 application is dismissed as time barred, all consequential orders (moratorium, appointment of IRP, advertisement, actions by the IRP) are declared illegal and set aside, and the Corporate Debtor is restored to its Board of Directors; the Adjudicating Authority is directed to fix and the Corporate Debtor to pay the IRP's fees for the period served.