TaxTMI Updates e-Newsletter
Aug 28,2021

Writ of mandamus - attachment in course of search under Central Goods and Services Tax - post-decisional hearing / opportunity of hearing - reasoned and speaking order - representation / objection pending consideration

Attachment in course of search under Central Goods and Services Tax - jurisdiction to issue attachment contemporaneously with search - Validity of the attachment order dated 14.1.2021 issued at the time of search - HELD THAT: - The Court examined the challenge to the attachment of the petitioner's bank account effected by an order dated 14.1.2021, which was passed on the same day as a search under the Central Goods and Services Tax, 2017. The Court recorded that issuance of an attachment on the date of search did not demonstrate an inherent lack of jurisdiction to make the attachment. The petitioner's contention that the attachment order was without jurisdiction was therefore rejected for want of substance.

The challenge to the jurisdictional validity of the attachment order is rejected; no inherent lack of jurisdiction found in issuing the attachment on the date of the search.

Post-decisional hearing / opportunity of hearing - representation / objection pending consideration - reasoned and speaking order - Requirement for adjudicatory authority to consider the petitioner's written objection and representation and to afford hearing before final disposal - HELD THAT: - The Court noted that the petitioner had filed a written objection dated 25.3.2021 against the attachment, which was received by the concerned authority on 1.4.2021, and that a representation for refund of cash seized was also pending. Observing that post-decisional hearing was to be afforded, the Court found it unnecessary to keep the writ petition pending or call for counter-affidavits. The Court directed respondent no.3 to afford due opportunity of hearing to the petitioner and to pass a reasoned and speaking order on the objection and pending representation expeditiously.

Matter remitted to respondent no.3 to decide the petitioner's objection dated 25.3.2021 and the pending representation after affording hearing and to pass a reasoned and speaking order preferably within two weeks.

Representation / objection pending consideration - production/supply of documents relied on in panchnama - Prayer for supply of documents mentioned in Annexure-A of the Panchnama - HELD THAT: - The Court observed that the petitioner's request for supply of documents (Annexure-A to the Panchnama) is the subject of a representation already pending before respondent no.3. In view of the pendency of that representation, the Court considered there to be no utility in further entertaining the writ petition on that ground at present and left the matter to the adjudicatory authority as part of the pending consideration.

Prayer for supply of documents is not separately adjudicated by this Court as the representation is pending before respondent no.3.

Final Conclusion: Writ petition disposed of: the attachment order's issuance on the date of the search was not found to be jurisdictionally infirm; however, the petitioner's written objection and pending representation are remitted to respondent no.3 for a reasoned and speaking decision after affording hearing, preferably within two weeks; the request for supply of documents is to be considered in the pending representation. The petitioner is permitted to implead the Assistant Engineer, Central GST, Meerut as respondent no.3.

Bail in economic offences - Fake invoices and fraudulent input tax credit - Likelihood of hampering investigation

Bail in economic offences - Fraudulent input tax credit - Ongoing investigation - Bail was refused in a prosecution alleging issuance of fake invoices and fraudulent availment and passing on of input tax credit under the CGST Act during the pendency of investigation. - HELD THAT: - The Court found from the materials placed on record that the complaint alleged an economic offence of large magnitude involving manipulation of invoices, issuance of e-way bills without actual movement of goods, and illegal availment of input tax credit. On examining the record, including the material relied on by the department regarding vehicle movement vis-a-vis e-way bills, the Court held that the accusation was supported by material requiring thorough and detailed investigation. Having regard to the large-scale alleged tax evasion, the number of documents to be examined at different levels and places, and the nature of the offence as a grave economic offence, the Court concluded that release on bail at that stage was likely to hamper investigation and lead to tampering with evidence. [Paras 9, 12, 13, 14]

The prayer for bail was rejected at that stage.

Final Conclusion: Treating the allegations as a grave economic offence supported by material on record and finding that investigation was still in progress, the Court declined bail. The petition was accordingly disposed of.

Transitional input tax credit - Form GST TRAN-1 filing - electronic credit ledger (Form GST PMT-2) - acknowledgment / ARN as proof of electronic filing - technical glitches on GSTN and IT grievance redressal - administrative duty to reflect transitioned credit - writ jurisdiction to direct operational remedy

Transitional input tax credit - Form GST TRAN-1 filing - electronic credit ledger (Form GST PMT-2) - acknowledgment / ARN as proof of electronic filing - technical glitches on GSTN and IT grievance redressal - administrative duty to reflect transitioned credit - Transitional credit declared by the petitioner in Form GST TRAN-1 filed electronically on 27.12.2017 must be transitioned into the petitioner's electronic credit ledger and cannot be denied at the initial stage merely on the ground that no technical glitches are shown in GSTN logs. - HELD THAT: - The court found that the petitioner successfully filed Form GST TRAN-1 on 27.12.2017 and received an ARN and an acknowledgement e-mail from the respondents' system, yet the claimed transitional credit was not reflected in the petitioner's electronic credit ledger maintained on the portal. The respondents' counter-affidavit neither disputed the ARN nor the acknowledgment and was self-contradictory in asserting both seamless functioning of GSTN and existence of an IT grievance mechanism for glitches. Judicial notice was taken of widespread implementation difficulties at the relevant time and of the CBIC circular addressing GSTN glitches. The court held that where the TRAN-1 filing is admittedly successful, denial of transitioning at the initial stage on the sole basis that no technical error appears in GSTN logs is unfair; the administrative system must reflect the taxpayer's submission and only thereafter the claim's eligibility can be examined. Applying these principles, and following the view expressed by the Bombay High Court in a parallel matter concerning a successful TRAN-1 filing whose credit was not transitioned, the writ was allowed directing operational rectification by the respondents within a stipulated time. [Paras 27, 29, 32, 34, 35]

Writ allowed; respondents directed to transition the amount claimed in TRAN-1 into the petitioner's electronic credit ledger (Form GST PMT-2) within four weeks.

Eligibility of transitional credit - adjudication by concerned authority after notice - Merits of the petitioner's claim to the transitional VAT credit were not adjudicated by the court and are to be examined by the appropriate authority after giving the petitioner an opportunity to be heard. - HELD THAT: - While directing the respondents to effect the operational step of reflecting the claimed transitional credit in the electronic ledger, the court expressly declined to decide the substantive question whether the petitioner is in law entitled to the VAT credit claimed. The court recorded that the question of eligibility is a matter for the concerned authority to examine on merits by calling for relevant information and putting the petitioner on notice before determining entitlement. [Paras 29, 36]

Substantive eligibility of the claimed transitional credit left open for determination by the competent authority after due adjudication.

Final Conclusion: The writ petition is allowed: respondents are directed to transition the transitional credit claimed by the petitioner into its electronic credit ledger (Form GST PMT-2) within four weeks. The substantive entitlement to the claimed VAT credit is not decided and must be examined by the appropriate authority after providing the petitioner an opportunity of hearing.

Provisional attachment under Section 83 of the CGST Act - objections under Rule 159(5) of the CGST Rules - requirement of a reasoned order by the authority disposing objections - attachment of bank account and interference with Article 19(1)(g) - prematurity of judicial challenge prior to disposal of statutory objections - balance between protection of Revenue's interest and not strangulating assessee's business

Provisional attachment under Section 83 of the CGST Act - attachment of bank account and interference with Article 19(1)(g) - prematurity of judicial challenge prior to disposal of statutory objections - Validity of the writ court's direction vacating attachment and ordering deposit without disposal of objections filed under Rule 159(5). - HELD THAT: - The High Court held that the challenge to the provisional attachment was premature because the statutory mechanism under Rule 159(5) for filing objections had not been concluded by the revenue authority by passing a reasoned order. The Court relied on the requirement that objections to attachment must be dealt with by the Commissioner by a speaking, reasoned order before the matter is amenable to such final judicial relief. In these circumstances, the writ court erred in concluding that attachment of the bank account had no meaning and in directing deposit and vacation of attachment without awaiting disposal of the statutory representation. [Paras 5, 6, 7, 8]

The writ court's order vacating the attachment and directing deposit was set aside as premature for want of disposal of objections under Rule 159(5).

Objections under Rule 159(5) of the CGST Rules - requirement of a reasoned order by the authority disposing objections - balance between protection of Revenue's interest and not strangulating assessee's business - Procedure to be followed after setting aside the writ court's order and the manner in which the authority must dispose objections. - HELD THAT: - The Court directed that the respondent shall file fresh objections under Rule 159(5) within three days and the appropriate authority shall consider those objections and pass a speaking, reasoned order within seven days of filing. The judgment emphasises that disposal must be objective and reasoned, protecting the Revenue's interest while ensuring the assessee is not unduly deprived of the ability to carry on business; the authority must indicate reasons if objections are rejected so that the decision remains amenable to judicial scrutiny. [Paras 9, 10]

Respondent to file objections within three days; authority to pass a reasoned speaking order within seven days; thereafter remedies remain open to the respondent.

Final Conclusion: Writ appeal allowed; the High Court's order vacating attachment and directing deposit set aside as premature; respondent directed to file objections under Rule 159(5) within three days and the authority to pass a reasoned speaking order within seven days, balancing revenue protection and not unduly strangulating the assessee's business.

Section 68 - cash credits - Requirement of show cause notice under Section 68 - Onus to prove identity, creditworthiness and genuineness of investors - Justiciability of factual controversies in writ jurisdiction - Availability of alternate statutory remedy - appeal under Section 246A - Effect of administrative approvals (FIPB/RBI) on tax assessment of foreign investment

Section 68 - cash credits - Requirement of show cause notice under Section 68 - Whether invocation of Section 68 required issuance of a separate show cause notice and whether the assessee was put on notice before addition under Section 68 - HELD THAT: - The Court construed Section 68 as a provision under which where a sum is found credited in the books and the assessee offers no explanation or an explanation is, in the opinion of the Assessing Officer, unsatisfactory, the sum may be charged to tax. The provision does not mandatorily prescribe a separate show cause notice format; what is required is that the assessee be put on notice and afforded opportunity to explain the nature and source of the credit. The record shows the assessee was called upon to explain the source of substantial share application money, participated in proceedings through an authorised representative and made submissions; the Assessing Officer recorded detailed factual findings after considering balance sheets and related documents before treating the receipts as unexplained and invoking Section 68. The Court therefore held that absence of a formal separate show cause notice in terminology did not vitiate the assessment where the assessee had been put on notice and given opportunity to explain. [Paras 17, 18, 19, 20, 21]

No requirement of a distinct show cause notice in formality beyond putting the assessee on notice; on the facts the assessee was given opportunity and invocation of Section 68 was not procedurally vitiated.

Onus to prove identity, creditworthiness and genuineness of investors - Effect of administrative approvals (FIPB/RBI) on tax assessment of foreign investment - Section 68 - cash credits - Whether the share capital received from foreign entities was satisfactorily proved in identity, creditworthiness and genuineness so as to preclude addition under Section 68 despite FIPB/RBI approvals - HELD THAT: - The Court recorded that the Assessing Officer made detailed factual findings after examining financial statements, consolidated accounts and related notes; the AO questioned the link between the Dubai company and the Mauritius entity, observed significant change in shareholder pattern of the Dubai company and noted absence of reflected transactions in the Dubai consolidated balance sheet which, in the AO's view, undermined the asserted source of funds. The Court emphasised that the legal onus to establish identity, creditworthiness and genuineness of the investor rests on the assessee and that statutory approvals such as FIPB/RBI do not automatically sanctify the transaction against enquiry under Section 68. Given the contested factual matrix and the AO's findings that the explanations were not acceptable, the Court held that the matter involved core factual disputes unsuitable for resolution in writ jurisdiction. [Paras 19, 20, 21, 22, 24]

Findings on identity, creditworthiness and genuineness were factual and, on the material before the AO, the addition under Section 68 could not be struck down in writ proceedings; FIPB/RBI approvals do not preclude factual scrutiny under Section 68.

Justiciability of factual controversies in writ jurisdiction - Availability of alternate statutory remedy - appeal under Section 246A - Whether the writ petition was maintainable or whether the assessee ought to be relegated to the statutory appellate remedy under Section 246A - HELD THAT: - The Court found the controversy to be essentially factual, involving examination of financial statements, shareholder changes and the source of remittances; such a deeper factual enquiry is not appropriate in writ jurisdiction. Although the writ petition had been pending for many years, the Court observed that the existence of disputed factual questions and the need to dislodge detailed findings recorded by the Assessing Officer required the statutory appellate route. The Single Bench's conclusion that the assessee should pursue the remedy of appeal under Section 246A was affirmed. The Court nevertheless directed that, if the assessee files the statutory appeal, the appellate authority should exclude from limitation the period from filing of the writ petition to receipt of the certified copy of this judgment. [Paras 22, 23, 24, 25]

Writ petition dismissed as the dispute is predominantly factual and the assessee must pursue the statutory appeal under Section 246A; appellate authority to exclude specified period for limitation.

Final Conclusion: The writ appeal is dismissed. The High Court held that the assessment involved disputed factual questions - including the source, identity and creditworthiness of foreign investors - and that the assessee had been put on notice and had participated in proceedings; absence of a separate formal show cause notice did not vitiate the assessment. The assessee is directed to file the statutory appeal under Section 246A, and the appellate authority is to exclude the period from filing of the writ petition until receipt of the certified copy of this judgment for the purposes of limitation.

Applicability of the first proviso to Section 3 of the DTVSV Act - recovery of interest awarded under Section 244A by adding it to disputed tax under the DTVSV Act - jurisdiction of the Designated Authority to determine disputed tax under the DTVSV Act

Applicability of the first proviso to Section 3 of the DTVSV Act - amount payable under the DTVSV Scheme - The first proviso to Section 3 of the DTVSV Act applies to the pending Revenue appeal and, accordingly, the amount payable by the petitioner is 50% of the disputed tax. - HELD THAT: - The Court applied the reasoning articulated in its earlier judgment dated 26th August, 2021 in Writ Petition No.1025 of 2021 to the facts of the present petition which involved a pending Income Tax Appeal. Relying on that decision, the Court held that where a Revenue appeal is pending the first proviso to Section 3 becomes applicable and the petitioner's liability under the DTVSV Scheme is thereby limited to fifty percent of the disputed tax. The Court adopted that determinative legal principle and directed calculation and issuance of Form-3 consistent with the proviso. [Paras 5, 6]

Amount payable by the petitioner under the DTVSV Act to be 50% of the disputed tax; Form-3 to be reissued accordingly.

Recovery of interest awarded under Section 244A by adding it to disputed tax under the DTVSV Act - jurisdiction of the Designated Authority under the DTVSV Act - The DTVSV Act contains no provision authorising the Designated Authority to recover interest earlier paid by the Department under Section 244A of the IT Act by adding that interest to the disputed tax; the inclusion of such interest in Form-3 is without jurisdiction and bad in law. - HELD THAT: - Respondents had disclosed that the amount of interest sought to be recovered in Form-3 related to interest awarded under Section 244A pursuant to an order giving effect to the CIT(A)'s direction. The Court examined the statutory scheme of the DTVSV Act and held there is no power therein to add interest paid by the Department under Section 244A to the disputed tax demanded under the Scheme. Consequently, the addition of the interest amount to disputed tax in Form-3 was held to be ultravires the Designated Authority's powers under the Act and therefore legally invalid. [Paras 5, 6]

Addition of the interest (sought to be recovered as disputed tax) to disputed tax in Form-3 is quashed as beyond the Designated Authority's jurisdiction.

Final Conclusion: Form-3 dated 31st March, 2021 for Assessment Year 2010-11 is quashed insofar as it included interest awarded under Section 244A and the amount demanded; Respondent No.1 is directed to issue a fresh Form-3 within three weeks determining disputed tax in accordance with the first proviso to Section 3 (50% of disputed tax) and the petitioner to pay the determined amount within two weeks of the revised Form-3.

Violation of principles of natural justice - opportunity of hearing and adjournments - jurisdictional error - self-contained code and availability of statutory alternative remedy - interference in assessment under writ jurisdiction

Violation of principles of natural justice - opportunity of hearing and adjournments - Whether principles of natural justice were violated in the impugned assessment proceeding - HELD THAT: - The Court examined the assessment record and notices/documents filed by the petitioner and found that the petitioner was repeatedly granted opportunities and adjournments and had filed a detailed reply and supporting documents in response to the show-cause notice. The assessing officer's order is a 17-page reasoned order considering material evidence and the documents placed on record. The petitioner's reliance on other High Court decisions was held distinguishable on facts because, unlike those cases, here multiple opportunities were given and the petitioner did not consistently comply with the notices. On the material before the Court, there was no established case of denial of hearing or any patent breach of natural justice that would render the assessment void for want of jurisdiction.

No violation of principles of natural justice; sufficient opportunities were afforded to the petitioner.

Self-contained code and availability of statutory alternative remedy - jurisdictional error - interference in assessment under writ jurisdiction - Whether the High Court should entertain the writ petition to re-appraise the merits of the assessment instead of the statutory appellate remedy - HELD THAT: - The Court held that the Income Tax Act constitutes a self-contained code providing specific appellate remedies (appeal to the Commissioner (Appeals), ITAT and further remedies), each forum being competent to decide questions of fact and law. Absent a jurisdictional error such as a patent breach of natural justice, the High Court in writ jurisdiction under Article 226 should not substitute its own findings for those of the assessing officer. Having found no jurisdictional defect, the Court declined to re-examine the merits of the assessment in writ proceedings and emphasized the availability and adequacy of statutory remedies.

Writ jurisdiction not invoked to substitute findings of the assessing officer; statutory appellate remedies are available and adequate.

Final Conclusion: Writ petition dismissed; the assessment order for Assessment Year 2018-19 is not interfered with as no violation of natural justice or jurisdictional error was shown and statutory appellate remedies remain available.

Disallowance under section 40A(2)(b) for excessive remuneration to related parties - commercial expediency in fixation of directors' remuneration - estimation of disallowance based on surmises and conjecture - consistency in treatment across assessment years

Disallowance under section 40A(2)(b) for excessive remuneration to related parties - commercial expediency in fixation of directors' remuneration - estimation of disallowance based on surmises and conjecture - consistency in treatment across assessment years - Whether the disallowance made under section 40A(2)(b) in respect of directors' remuneration (estimated at 15% of gross salary) was justified - HELD THAT: - The Tribunal accepted the assessee's submissions and the factual material on record that the directors were paid remuneration for similar work and with similar qualifications in earlier and subsequent years, and that the board had approved the increase in remuneration in accordance with the Companies Act. The Tribunal held that payment of higher salary to directors is a business decision taken for commercial expediency of the company and is not for revenue authorities to re-evaluate. The disallowance was made on an estimated basis (15%) without cogent reasons and rested on surmises and conjecture. Consequently, the invocation of the disallowance provision was held to be incorrect and the confirmation of the adjustment by the CIT(A) was unsustainable.

The disallowance under section 40A(2)(b) (estimated at 15% of gross salary) is not justified and the appeal is allowed.

Final Conclusion: The Tribunal allowed the assessee's appeal against the disallowance under section 40A(2)(b) for assessment year 2013-14, holding that the payment of higher remuneration to directors was a business decision taken for commercial expediency and that the estimation-based disallowance was unsustainable.

Recognition of liability under Accounting Standard-4 - timing of deduction - expense attributable to the year of payment/crystallisation - allowability of compensation paid pursuant to court decree

Recognition of liability under Accounting Standard-4 - timing of deduction - expense attributable to the year of payment/crystallisation - allowability of compensation paid pursuant to court decree - Allowability of compensation expense of Rs. 8,80,09,000/- claimed in Assessment Year 2014-15 and whether part of it should be allowed in subsequent year. - HELD THAT: - The amount claimed represented compensation awarded by the Delhi High Court by judgment dated 30.05.2014. It is undisputed that the genuineness of the liability and the incurring of expenditure are not in dispute. The assessee deposited part of the decreetal amount with the Registrar during the year (24.02.2014) and deposited the balance on 26.08.2014, after the year end. Applying the principles of liability recognition and timing of deduction, the Tribunal held that the portion actually paid/deposited during the year under consideration is allowable as an expense in that year, while the portion deposited after the close of the year must be allowed in the succeeding assessment year. Accordingly, the amount deposited during the year (rounded off) was allowed in AY 2014-15 and the balance deposited on 26.08.2014 was directed to be allowed in AY 2015-16. [Paras 9, 10]

Claim allowed to the extent of the payment made during the year; remaining amount allowed in A.Y. 2015-16.

Final Conclusion: The assessee's appeal is allowed: the compensation amount paid/deposited during the year is deductible in A.Y. 2014-15 and the balance deposited after the year end is deductible in A.Y. 2015-16.

Addition under section 68 of the Income-tax Act - reconciliation with Form No. 26AS - treatment of service tax in accounting - accrual system of accounting - duty of assessing officer to verify reconciliations before making additions

Addition under section 68 of the Income-tax Act - reconciliation with Form No. 26AS - treatment of service tax in accounting - duty of assessing officer to verify reconciliations before making additions - Validity of the addition made by the Assessing Officer by treating differences between amounts shown in Form No. 26AS and the assessee's books as income under section 68. - HELD THAT: - The Tribunal upheld the Commissioner (Appeals)'s deletion of the addition after examining the detailed reconciliations and documentary explanations produced by the assessee. The Tribunal accepted that amounts shown in Form No. 26AS included components such as service tax which do not constitute the assessee's income and therefore would not be reflected in the profit and loss account; that some receipts shown in Form No. 26AS related to invoices accounted in an earlier assessment year under the assessee's accrual system; and that receipts recorded against related entities of the same group required interchangeability reconciliation. The Tribunal found that the Assessing Officer made the addition merely by comparing a segment of the assessee's income with Form No. 26AS without appreciating the accounting treatment and without carrying out further verification despite the assessee's furnished reconciliation. The Tribunal noted that a mismatch in Form No. 26AS may raise a doubt but does not, without further examination and verification of books, justify making an addition; issuing notices under section 133(6) and not receiving complete replies cannot, by itself, support a substantial addition. On these grounds the Tribunal found no infirmity in the Commissioner (Appeals)'s conclusion and confirmed deletion of the addition. [Paras 7, 8, 9, 10]

The addition made by the Assessing Officer was rightly deleted by the Commissioner (Appeals); the appeal by the Revenue is dismissed.

Final Conclusion: The Tribunal confirms deletion of the addition of Rs. 7,41,78,940 made by the Assessing Officer for AY 2013-14, holding that differences between Form No. 26AS and the assessee's books-attributable to service tax inclusion, timing differences under accrual accounting and group-company entries-required verification and reconciliation which were furnished and correctly accepted by the Commissioner (Appeals); Revenue's appeal is dismissed.

Set-off of business loss against income declared during survey - treatment of surrendered income as business income - allowability of unabsorbed depreciation against surrendered income - interpretation of amendment to section 115BBE(2) as non-retrospective (w.e.f. 01.04.2017) - CBDT Circular No.11/2019 clarifying pre-2017 set-off entitlement

Set-off of business loss against income declared during survey - treatment of surrendered income as business income - allowability of unabsorbed depreciation against surrendered income - CBDT Circular No.11/2019 clarifying pre-2017 set-off entitlement - Assessee entitled to set off business loss and unabsorbed depreciation of scooter business against income of Rs. 25,00,000/- declared during survey where such income was disclosed as business income in the return for AY 2013-14. - HELD THAT: - The Tribunal examined whether income declared during survey and disclosed in the return as business income could be subject to set-off of current year business loss and unabsorbed depreciation. Having considered precedent orders of the Tribunal which allowed such set-off and the clarification issued by the CBDT in Circular No.11/2019 that the insertion of the words 'or set off of any loss' in section 115BBE(2) applies w.e.f. 01.04.2017, the Tribunal held that the amendment is not retrospective and therefore does not affect assessment years prior to 2017-18. On that basis, and in view of the consistent Tribunal decisions cited, the claim for set-off and allowance of unabsorbed depreciation against the surrendered income for AY 2013-14 was held to be allowable. The Assessing Officer was directed to permit the set-off in computation of income. [Paras 8, 9, 10, 13]

Claim for set-off of business loss and unabsorbed depreciation against the business income disclosed during survey is allowed and Assessing Officer is directed to give effect to the set-off.

Final Conclusion: The appeal is allowed; the Assessing Officer is directed to permit set-off of the claimed business loss and unabsorbed depreciation against the surrendered income disclosed as business income for AY 2013-14.

Deducibility of expenditure wholly and exclusively for business under section 37(1) - Prohibition on ad hoc disallowance without specific voucher or particulars - Disallowance under section 14A when no exempt income is earned or receivable - Application of judicial precedent in assessing applicability of section 14A - Capitalisation of interest and non allowability under the proviso to section 36(1)(iii) - Allocation of interest to pre operative expenses and subsequent capitalisation to fixed assets

Deducibility of expenditure wholly and exclusively for business under section 37(1) - Prohibition on ad hoc disallowance without specific voucher or particulars - Deletion of ad hoc 10% disallowance from telephone, travelling and staff welfare expenses under section 37(1) was upheld. - HELD THAT: - The Assessing Officer made an ad hoc 10% disallowance across several expense heads for alleged personal use without pointing to specific defective vouchers or items. The CIT(A) followed the earlier decision in the assessee's preceding year and the Tribunal's upholding of that order, which examined the detailed submissions and found no contrary material to justify interference. The Tribunal held that making an arbitrary ad hoc disallowance is not justified where no specific deficiency in documentation or particular erroneous claims are shown, and accordingly sustained deletion of the disallowance. [Paras 4]

Ground No.1 dismissed; deletion of the ad hoc disallowance under section 37(1) upheld.

Disallowance under section 14A when no exempt income is earned or receivable - Application of judicial precedent in assessing applicability of section 14A - Deletion of disallowance under section 14A in respect of costs related to investments was upheld where the assessee had not earned or received any exempt income in the relevant year. - HELD THAT: - The Assessing Officer invoked section 14A to disallow expenditure relating to investments, although the assessee did not claim any exempt income nor receive dividends in the year. The CIT(A) relied on the jurisdictional High Court decision (Cheminvest Ltd) and the predecessor's order holding that section 14A is not attracted where no exempt income is received or receivable in the relevant previous year. The Tribunal found no error in this approach and concurred with deletion of the section 14A disallowance. [Paras 5]

Grounds No.2 and 3 dismissed; deletion of the section 14A disallowance upheld.

Capitalisation of interest and non allowability under the proviso to section 36(1)(iii) - Allocation of interest to pre operative expenses and subsequent capitalisation to fixed assets - Deletion of disallowance under the proviso to section 36(1)(iii) in respect of interest that had been transferred to pre operative expenses and thereafter allocated to fixed assets was upheld. - HELD THAT: - The Assessing Officer disallowed interest as being required to be capitalised under the proviso to section 36(1)(iii). The assessee had, however, already capitalised a substantial portion of interest into pre operative expenses and allocated those pre operative expenses to fixed assets on first use, following applicable accounting standards and the accounting policy invoked. The CIT(A) and the Tribunal in the preceding year found that a further disallowance would amount to double disallowance and that the accounting treatment adopted by the assessee was acceptable. The Tribunal, following the earlier decision in the assessee's case for the preceding year where identical facts prevailed, upheld deletion of the interest disallowance. [Paras 6]

Grounds No.4-6 dismissed; deletion of the interest disallowance under section 36(1)(iii) upheld.

Final Conclusion: The Revenue's appeal is dismissed in entirety; the Tribunal upheld the CIT(A)'s deletions of disallowances under section 37(1), section 14A and section 36(1)(iii), following the assessee's preceding year findings and applicable judicial precedent.

Unexplained cash credit under section 68 of the Income tax Act - proof of source of cash by capital contribution of partners - relevance of shortfall in claimed capital contribution to taxable income

Unexplained cash credit under section 68 of the Income tax Act - proof of source of cash by capital contribution of partners - Whether the addition of Rs. 2,69,013 as unexplained cash credit can be sustained where the assessee produced cash book entries showing capital introduced by partners and thereby explained the cash in hand reflected in the balance sheet as on 31.03.2015. - HELD THAT: - The Tribunal examined the material on record and found that the assessee had produced the cash book evidencing introduction of capital by the partners amounting to Rs. 28,30,987 which, together with other material, satisfactorily explained the cash in hand of Rs. 29,87,730 as reflected in the balance sheet as on 31.03.2015. The assessment addition rested on a shortfall between the capital contribution actually evidenced and a higher figure of Rs. 31,00,000 claimed by the assessee. The Tribunal held that this discrepancy in the total claimed capital figure was not material to the core question of the source of the cash in hand once the cash book established substantial partner contributions. Consequently, treating the numeric shortfall alone as an unexplained cash credit and thereby including it in income under section 68 was not justified. Applying these findings, the Tribunal concluded that the addition of Rs. 2,69,013 could not be sustained. [Paras 4]

Addition of Rs. 2,69,013 confirmed by the authorities as unexplained cash credit is deleted and the appeal is allowed.

Final Conclusion: The Tribunal allowed the assessee's appeal, holding that the cash in hand at 31.03.2015 was satisfactorily explained by partner capital introductions as evidenced in the cash book, and deleted the addition of Rs. 2,69,013 treated as unexplained cash credit.

Functional comparability - related party transactions threshold for exclusion of comparables - mutual agreement procedure (MAP) and arm's length price - deduction under section 10A of the Income-tax Act - reduction of expenditure from total turnover for computing deduction under section 10A

Functional comparability - Exclusion of E Zest Solutions Limited from the final set of comparables for transfer pricing purposes. - HELD THAT: - The Tribunal accepted the assessee's contention that the assessee is engaged in software development services while E Zest Solutions Limited provides consultancy/technical and KPO-type services and therefore is not functionally comparable. Reliance was placed on a coordinate bench decision (GXS India Technology Centre (P.) Ltd.) which examined the nature of services and held that KPO services are not comparable to software development services; on that basis the AO/TPO was directed to exclude E Zest Solutions Limited from the set of comparables. [Paras 4]

E Zest Solutions Limited is to be excluded from the final list of comparables.

Related party transactions threshold for exclusion of comparables - Exclusion of Softsol India Limited from the final list of comparables on account of related party transactions exceeding the recognized threshold. - HELD THAT: - On the facts, Softsol India Limited had related party transactions in excess of 15% for the assessment year in question. The Tribunal followed its earlier decision in GXS India Technology Centre (P.) Ltd. (on identical facts and same assessment year) and directed the AO/TPO to exclude Softsol India Limited from the comparable set. [Paras 5]

Softsol India Limited is to be excluded from the final list of comparables.

Mutual agreement procedure (MAP) and arm's length price - deduction under section 10A of the Income-tax Act - reduction of expenditure from total turnover for computing deduction under section 10A - Entitlement to deduction under section 10A in respect of income additions arising from MAP; and whether expenditure reduced from export turnover must be reduced from total turnover while computing deduction under section 10A. - HELD THAT: - The Tribunal held that additions agreed under MAP are eligible for deduction under section 10A. It distinguished adjustments made by an Assessing Officer under section 92CA(4) from amounts resolved under MAP/APA, observing that the proviso to section 92CA(4) applies to transfer pricing adjustments made by the AO and not to adjustments effected pursuant to MAP where the resolution envisages invoicing/realisation and an inflow of foreign exchange. The Tribunal followed its earlier decision in the assessee's own case (AY 2007 08) and other coordinate bench authority (Dar Al Handasah in APA context) to conclude MAP additions qualify for section 10A. Separately, on Revenue's ground, the Tribunal applied the Supreme Court's dictum in CIT v. HCL Technologies Ltd. and held that where expenditure is reduced from export turnover, the same must be reduced from total turnover for computing deduction under section 10A; accordingly the Revenue's contention was rejected. [Paras 6, 7]

Additions agreed under MAP are eligible for deduction under section 10A; Revenue's appeal on reduction of expenditure from total turnover is rejected and the practice of reducing such expenditure from total turnover is to be followed.

Final Conclusion: The Tribunal recalled its earlier order for limited adjudication and directed exclusion of E Zest Solutions Limited and Softsol India Limited from the final set of comparables; held that income additions pursuant to MAP are eligible for deduction under section 10A; and rejected the Revenue's challenge on the computation method, confirming that expenditure reduced from export turnover must also be reduced from total turnover when computing the section 10A deduction. The cross appeals are partly allowed accordingly.

Valuation of unquoted equity shares by Discounted Cash Flow (DCF) method - assessing officer's power to scrutinize but not change assessee's chosen valuation method - requirement to consider facts and data available on valuation date - onus on assessee to prove correctness of projections and discounting inputs - remand for fresh adjudication by Assessing Officer

Valuation of unquoted equity shares by Discounted Cash Flow (DCF) method - assessing officer's power to scrutinize but not change assessee's chosen valuation method - Validity of AO rejecting DCF valuation and adopting NAV method instead of scrutinizing the DCF report. - HELD THAT: - The Tribunal followed earlier coordinate-bench and High Court guidance holding that where an assessee opts for DCF under the prescribed rules, the Assessing Officer may scrutinize the valuation report and, if not satisfied, determine a fresh valuation himself or obtain an independent valuer's report to confront the assessee, but he cannot substitute a different valuation method. The Tribunal found the facts in this appeal identical to those in the cited coordinate-bench decisions where the AO had adopted NAV without first examining the DCF workings. Applying that precedent, the Tribunal set aside the appellate order and directed that the AO re-examine the valuation on the basis of DCF methodology as opted by the assessee. [Paras 5, 6]

AO cannot change the method of valuation chosen by the assessee; the matter is remitted for fresh examination of the DCF valuation.

Requirement to consider facts and data available on valuation date - onus on assessee to prove correctness of projections and discounting inputs - remand for fresh adjudication by Assessing Officer - Standards and scope of re-examination when DCF method is disputed and the manner in which AO should conduct fresh valuation. - HELD THAT: - The Tribunal endorsed the principle that scrutiny of a DCF valuation must be confined to facts and data available on the valuation date and that actual subsequent results cannot be used to discredit projections. The primary onus to demonstrate the reliability of cash flow projections, discounting factor and terminal value rests on the assessee, who must support those inputs by empirical data, industry norms or other objective bases. In view of deficiencies alleged by the AO, the Tribunal restored the issue to the AO with directions to scrutinize the DCF report, and if necessary, conduct a fresh valuation himself or obtain an independent valuer's determination and confront the assessee, ensuring the basis remains DCF and providing due opportunity of hearing. [Paras 5, 6]

Issue remitted to AO to re-examine the DCF valuation on the record as of valuation date, with the assessee bearing primary responsibility to justify projections and inputs.

Final Conclusion: The Tribunal set aside the CIT(A) order and allowed the appeal for statistical purposes by restoring the valuation issue to the Assessing Officer for fresh adjudication in accordance with the principles governing DCF valuation: AO may scrutinize or obtain a fresh DCF-based valuation but cannot substitute another valuation method; facts as of the valuation date must be considered and the assessee must substantiate projections and discounting inputs.

Admission of additional evidence under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963 - Unexplained cash credit and burden of proof under section 68 of the Income Tax Act, 1961 - Remand for fresh examination to assess identity, capacity and genuineness of creditors - Right to opportunity of being heard / principles of natural justice in assessment proceedings

Admission of additional evidence under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963 - Interest of justice test for permitting additional evidence - Admission of the bank statements, affidavits and related documents filed as additional evidence before the Tribunal. - HELD THAT: - The Tribunal considered whether the additional documents (bank statements of creditors, affidavits, income tax returns and related extracts) should be admitted under Rule 29. Having regard to the nature of the documents - which prima facie demonstrate banking channels for the impugned receipts and bear directly on the genuineness of the transactions - and the need to enable the Tribunal to decide the appeal on merits, the Tribunal exercised its discretion to admit the evidence in the interest of justice. The Tribunal found that the evidence was necessary to resolve factual obscurities and that admission would enable a more satisfactory adjudication rather than being a mere afterthought. The Tribunal therefore admitted the additional evidence for consideration. [Paras 9]

Additional evidence admitted.

Unexplained cash credit and burden of proof under section 68 of the Income Tax Act, 1961 - Remand for fresh examination to assess identity, capacity and genuineness of creditors - Right to opportunity of being heard / principles of natural justice in assessment proceedings - Whether the addition of Rs. 33,00,000 as unexplained cash credit under section 68 could be sustained on the record before the authorities. - HELD THAT: - The Tribunal examined the material and the newly admitted documents and observed that the additional evidence prima facie shows funds routed through banking channels and points to identifiable sources. However, the Tribunal did not adjudicate the correctness of the addition on merits. Instead, it concluded that the issue requires further factual and verificatory exercise by the Assessing Officer - including satisfaction on identity, capacity of the creditors and genuineness of the transactions - and that the assessee must be afforded an opportunity of being heard in light of the admitted evidence. Consequently, the Tribunal set aside the CIT(A)'s order and remanded the matter to the AO for fresh examination and decision in accordance with law, after granting the assessee appropriate opportunity. [Paras 12]

Impugned addition set aside and remitted to the Assessing Officer for fresh examination and decision after affording opportunity to the assessee.

Final Conclusion: Admission of additional evidence allowed; the Tribunal set aside the appellate order and remanded the issue of addition under section 68 to the Assessing Officer for fresh examination of identity, capacity and genuineness of creditors and for decision in accordance with law after affording the assessee an opportunity of being heard. Appeal treated as allowed for statistical purposes.

Rectification of mistake under section 154 - credit for tax deducted at source (TDS) where credit reflected subsequently in Form 26AS - application of CBDT instruction on mismatch of TDS - entitlement to TDS credit notwithstanding non claim in original return when deductor later remits

Rectification of mistake under section 154 - credit for tax deducted at source (TDS) where credit reflected subsequently in Form 26AS - entitlement to TDS credit notwithstanding non claim in original return when deductor later remits - application of CBDT instruction on mismatch of TDS - Whether the order rejecting the assessee's application for rectification under section 154 was sustainable where TDS, not reflected in Form 26AS at the time of filing the original return, was subsequently remitted by the deductor and shown in Form 26AS and supported by TDS certificates and books of account. - HELD THAT: - The Tribunal found on the material on record that at the time of filing the original return the deducted tax did not appear in Form 26AS because the deductor had not then remitted the tax, but the deductor subsequently remitted the TDS which became reflected in Form 26AS. The Tribunal relied on the proposition that revenue should not retain tax deducted at source where credit is demonstrably available and noted the CBDT instruction directing credit in cases of mismatch when the assessee furnishes TDS evidence. The AO's summary rejection of the section 154 application on the ground that the assessee had not claimed the credit in the original return was therefore held to be unsustainable. The matter was set aside and remanded to the Assessing Officer to examine the Form 26AS and the supporting documents produced by the assessee, and if it is found that the deductor had remitted the TDS to Government account, to allow the benefit of such TDS to the assessee. [Paras 11, 12, 13, 14, 15]

The Tribunal allowed the appeal, set aside the rejection under section 154 and remanded the matter to the Assessing Officer to verify Form 26AS and the submitted evidence and, if satisfied that the deductor remitted the TDS, to grant the credit to the assessee.

Final Conclusion: Appeal allowed; order rejecting rectification under section 154 set aside and matter remanded to the Assessing Officer for verification of Form 26AS and supporting documents and, if satisfied that the deductor remitted the TDS, to grant the assessee the corresponding credit.

Rectification of mistake apparent from record - computation error in assessment order - rectification under statutory power of assessment officer - best judgment assessment

Rectification of mistake apparent from record - computation error in assessment order - rectification under statutory power of assessment officer - Validity of the Assessing Officer's rectification of the assessment order to correct the erroneously recorded total income in the computation form. - HELD THAT: - The Assessing Officer had determined the assessee's total income at Rs. 15,62,97,564/- in the assessment order but, due to an evident error, the income was recorded as Rs. 6,00,76,720/- in the Income-tax computation form attached to that order. The Assessing Officer invoked the statutory rectification power and passed an order to correct the tax computation to reflect the income actually determined in the assessment order. The Commissioner of Income Tax (Appeals) examined the submissions of the assessee and found that the mismatch was a mistake apparent from the record, thereby upholding the rectification. The Tribunal, hearing the matter ex parte, concurred that the discrepancy between the assessed income recorded in the assessment order and the figure in the computation form amounted to a clear, evident mistake apparent from the record, properly rectified by the Assessing Officer under his statutory power. Consequently no infirmity was found in the rectification upheld by the CIT(A). [Paras 3, 5, 6]

Rectification of the assessment order to correct the erroneously recorded total income was valid as a mistake apparent from the record and was rightly upheld by the CIT(A); the appeal is dismissed.

Final Conclusion: The Tribunal dismissed the assessee's appeal and upheld the Assessing Officer's rectification of the assessment computation as a valid correction of a mistake apparent from the record.

Pooling of interests method of amalgamation - purchase method of amalgamation - goodwill as an intangible asset - eligibility of depreciation on goodwill - rectification under section 254(2) of the Act - mistake apparent on the face of the record - effect of court-approved scheme of amalgamation and absence of revenue objection

Pooling of interests method of amalgamation - purchase method of amalgamation - effect of court-approved scheme of amalgamation and absence of revenue objection - goodwill as an intangible asset - Validity of ITAT's recognition of goodwill in assessee's books despite admissions regarding pooling of interests method of amalgamation. - HELD THAT: - The ITAT recognised goodwill after noting the scheme of amalgamation approved by the Hon'ble Gujarat High Court, disclosure of purchase consideration in the assessee's filings, a clause in the sanctioned scheme permitting adjustment of any difference between net assets and consideration to either capital reserve or goodwill, and the fact that acquisition was effected by issue of shares. The tribunal further recorded that no objection was raised by the Revenue when representations were invited during sanction of the scheme. The Revenue did not point to any specific error in these factual findings. Applying the standard for a "mistake apparent from record", the appellate bench held that the ITAT's conclusion as to the existence of goodwill was a tenable view based on the record and therefore not an apparent error requiring rectification under section 254(2). [Paras 6]

ITAT's recognition of goodwill was upheld; no mistake apparent from record in that respect.

Goodwill as an intangible asset - eligibility of depreciation on goodwill - rectification under section 254(2) of the Act - Whether reliance on the Supreme Court decision in CIT v. Smifs Securities to allow depreciation on recognised goodwill was misplaced. - HELD THAT: - The bench observed that once the ITAT had recognised goodwill in the assessee's books as an asset, the reference to the Supreme Court's decision in Smifs Securities was to the limited proposition that goodwill, being an intangible asset, is eligible for depreciation. The tribunal's citation was not employed to decide issues under accounting standards AS 14 or IND AS 103, but to support the legal consequence that recognised goodwill can attract depreciation. On that basis, the reliance on Smifs Securities was held not to be inappropriate. [Paras 6]

Reference to Smifs Securities for the proposition that recognised goodwill is depreciable was appropriate; no apparent error.

Rectification under section 254(2) of the Act - mistake apparent on the face of the record - Whether the ITAT order contained a mistake apparent from record warranting recall under section 254(2). - HELD THAT: - Applying the established test for "mistake apparent from the record"-that the error must be patent, manifest and not one of two possible views-the bench examined the ITAT's findings and the Revenue's contentions. The court found the tribunal had adopted a plausible view based on sanction of the scheme, disclosures, absence of revenue objection and the mode of consideration. As the Revenue's contentions raised alternative view(s) rather than a manifest, self evident error, the requirements for rectification under section 254(2) were not satisfied. Consequently, the miscellaneous application seeking recall was without merit. [Paras 6]

Miscellaneous application under section 254(2) dismissed; no mistake apparent from record.

Final Conclusion: The miscellaneous application filed by the Revenue under section 254(2) seeking recall of the ITAT order was dismissed; the ITAT's recognition of goodwill and allowance of depreciation thereon were upheld as tenable conclusions on the record and not manifest errors warranting rectification.

Extraordinary jurisdiction under Article 226 - judicial restraint from weighing conflicting expert/scientific reports - validity of seizure memo pending investigation - provisional release under Section 110 of the Customs Act, 1962 - interim seizure pending investigation and post-investigation confiscation process

Extraordinary jurisdiction under Article 226 - judicial restraint from weighing conflicting expert/scientific reports - validity of seizure memo pending investigation - High Court will not in exercise of Article 226 adjudicate the validity of a seizure memo by weighing conflicting scientific/test reports that are disputed and are part of an on going investigation. - HELD THAT: - The Court held that the petitioner sought, by way of writ under Article 226, an appraisal of divergent laboratory reports and a determination on the scientific question whether the imported goods are Naphtha or Natural Gasoline Liquid. Where preliminary investigation is pending and the authorities rely on scientific analysis disputed by the petitioner, the High Court should not undertake a roving inquiry into the merits of competing expert reports and disturb an interim seizure. The exercise of extraordinary writ jurisdiction is inappropriate to resolve such disputed questions of fact and scientific opinion in the midst of investigation; confiscation and final classification remain matters for the statutory process under the Customs Act post-investigation. [Paras 11]

Writ jurisdiction under Article 226 will not be exercised to weigh conflicting expert reports and set aside the seizure memo pending completion of the statutory investigation.

Provisional release under Section 110 of the Customs Act, 1962 - interim seizure pending investigation and post-investigation confiscation process - Applications for provisional release under Section 110 of the Customs Act, 1962 filed by the petitioner are to be decided by the competent authority and the Court will not pre-empt that administrative process; the authority is directed to decide pending applications within a specified timeline. - HELD THAT: - The Court observed that provisional release applications were pending before the statutory authorities and that no final decision had been taken. Rather than entertain the writ seeking release or quashing of the seizure memo, the Court declined to adjudicate the merits and left the petitioner to pursue the statutory remedy. The Court directed the respondents to decide the provisional release applications in accordance with law within four weeks from receipt of certified copy of the order. [Paras 14]

Petition dismissed; respondents directed to decide the provisional release applications under Section 110 within four weeks.

Final Conclusion: The petition seeking quashing of the seizure memo and release of goods was dismissed. The High Court declined to weigh conflicting scientific reports under Article 226 while an investigation is pending, and directed the authorities to decide the pending applications for provisional release under Section 110 of the Customs Act, 1962 within four weeks.

Dispensation of meetings under Sections 230-232 of the Companies Act, 2013 - convening of meetings of equity shareholders, secured creditors and unsecured creditors - consent affidavits of shareholders and creditors as basis for dispensing meetings - compliance of accounting treatment with Indian Accounting Standards - no pending proceedings under Sections 210-225 of the Companies Act, 2013 - filing of company petition for sanction of composite scheme of amalgamation and arrangement

Dispensation of meetings under Sections 230-232 of the Companies Act, 2013 - convening of meetings of equity shareholders, secured creditors and unsecured creditors - consent affidavits of shareholders and creditors as basis for dispensing meetings - Dispensation of convening and holding of meetings of equity shareholders, preference shareholder, secured creditors and unsecured creditors of the Applicant Companies. - HELD THAT: - The Tribunal examined the application under Sections 230-232 of the Companies Act, 2013 and the documents filed therewith, including certificates from chartered accountants identifying the numbers and identities of shareholders and creditors and affidavits from authorised representatives expressing no objection to the proposed Scheme. The Board approvals and the filing of consent affidavits by the relevant equity shareholders, the sole preference shareholder, secured creditors and a substantial number of unsecured creditors were taken as satisfying the statutory requirements for dispensing with meetings. The Tribunal found that material facts relating to the Scheme had been disclosed and that the applicants had complied with the extant provisions and supporting certifications. On that basis, the Tribunal was satisfied to dispense with the convening and holding of the meetings specified in the application.

Applications to dispense with the meetings of equity shareholders (all Applicant Companies), the 9.5% preference shareholder (Applicant No.3), secured creditors (Applicant Nos.1 & 3) and unsecured creditors (Applicant Nos.1, 2 & 3) are allowed.

Compliance of accounting treatment with Indian Accounting Standards - no pending proceedings under Sections 210-225 of the Companies Act, 2013 - Sufficiency of statutory auditor/chartered accountant certificates and absence of relevant investigations or proceedings as support for dispensing meetings. - HELD THAT: - The Tribunal considered certificates from the statutory auditors and chartered accountants certifying the accounting treatment's compliance with applicable Indian Accounting Standards and certifying the lists and statuses of shareholders and creditors. The Tribunal also noted the assertion that no investigations or proceedings under Sections 210-225 of the Companies Act, 2013 were pending against the applicant companies. Relying on these certifications and the absence of disclosed proceedings, the Tribunal concluded that the procedural and material preconditions for dispensing with the meetings were met.

The auditor/chartered accountant certificates and the representation of absence of investigations/proceedings are accepted as sufficient for the purpose of granting dispensation of the meetings.

Filing of company petition for sanction of composite scheme of amalgamation and arrangement - Ancillary procedural directions following dispensation of meetings, including public notification, right to seek further directions and permission to file the sanction petition. - HELD THAT: - Having dispensed with the meetings, the Tribunal directed the applicant companies to publish paper notifications in one English and one Kannada newspaper informing about the dispensation within ten days of receipt of the order. The Tribunal further recorded that any aggrieved party may file a miscellaneous application seeking appropriate directions in the company application. Finally, the Tribunal permitted the companies to file the necessary Company Petition for sanction of the composite Scheme after complying with statutory requirements. These directions were issued to ensure public notice and to preserve remedies for interested parties while allowing the sanction process to proceed.

Applicants directed to publish notifications; aggrieved parties may file miscellaneous applications; applicants permitted to file the Company Petition for sanction of the Scheme after complying with law.

Final Conclusion: The Tribunal allowed the application to dispense with the convening and holding of the specified meetings for the composite scheme of amalgamation and arrangement, having accepted the statutory certifications, consents and absence of relevant investigations; it directed publication of notices, preserved the remedy for aggrieved parties, and permitted filing of the Company Petition for sanction of the Scheme.

Scheme of amalgamation - convening meetings of shareholders and creditors - no requirement to convene meetings where there are no creditors - consent affidavits of shareholders and creditors - appointment of chairman and scrutinizer for meetings - compliance with Companies (Compromises, Arrangements and Amalgamation) Rules, 2016 - requirement of notice, advertisement and filing of affidavits in company arrangement proceedings - statutory notice to regulatory authorities under section 230(3) as part of scheme approval process

Convening meetings of shareholders and creditors - scheme of amalgamation - Meetings of specified classes of shareholders and creditors for consideration of the Scheme were directed to be convened on appointed dates at the Transferee Company's registered office. - HELD THAT: - The Tribunal, after hearing and upon the applicants' filings, directed that meetings of the Equity Shareholders of both applicant companies and of the Secured and Unsecured Creditors of the Transferee Company be convened on 27.09.2021 at specified times and venue for considering and, if thought fit, approving with or without modification(s) the arrangement embodied in the Scheme of Amalgamation. The direction is recorded as the appropriate step under the Companies (CAA) Rules, 2016 to enable voting on the Scheme and to obtain stakeholders' approvals necessary for onward proceedings. [Paras 13, 15]

Meetings as specified were ordered to be convened at the dates, times and place indicated for consideration of the Scheme.

No requirement to convene meetings where there are no creditors - No meetings were required to be convened for Secured and Unsecured Creditors of the Transferor Company as there were none. - HELD THAT: - The Tribunal noted the Transferor Company's chartered accountant certificate stating there were no secured or unsecured creditors as on the relevant date. On that basis, and consistent with the procedural scheme, the Tribunal recorded that convening meetings of such classes for the Transferor Company was not required. [Paras 9, 14]

Convening of meetings for secured and unsecured creditors of the Transferor Company was dispensed with for want of any such creditors.

Appointment of chairman and scrutinizer for meetings - conduct of meeting and voting by proxy - Chairman and Scrutinizer were appointed for the meetings, remuneration fixed, and procedural rules for conduct of meetings (including quorum and proxy voting) were prescribed. - HELD THAT: - The Tribunal appointed Ms. Niharika Agarwal as Chairperson for the shareholder and creditor meetings and Mrs. J. Anantha Laxmi as Scrutinizer, fixed their remuneration for each meeting, and authorised the Chairperson to issue advertisements, send notices, decide procedural questions and ascertain the decision of the meeting including by ballot/poll. The Tribunal directed that quorum be as per Section 103 of the Companies Act and permitted voting by proxy/authorised representatives subject to filing prescribed forms within the specified time, thereby laying down the regimented conduct of the meetings required for valid decision-making on the Scheme. [Paras 15]

Chairperson and Scrutinizer were appointed, remuneration fixed, and procedural directions including quorum and proxy voting were issued for the meetings.

Requirement of notice, advertisement and filing of affidavits in company arrangement proceedings - compliance with Companies (CAA) Rules, 2016 - statutory notice to regulatory authorities under section 230(3) as part of scheme approval process - Detailed compliance directions were given requiring publication of advertisement, issuance of notices, filing of affidavits by the Chairperson, reporting of meeting results in Form CAA-4, and service of notices on statutory authorities within prescribed timelines. - HELD THAT: - The Tribunal ordered publication of an advertisement in specified newspapers at least one month prior to the meeting indicating availability of the Scheme and related documents, directed the Chairperson to issue notices and to file an affidavit certifying compliance with issuance of notices and advertisements at least seven days before the meeting, and required reporting of meeting results in Form No. CAA-4 within seven working days. Further, in compliance with sub-section (5) of section 230 and the Rules, the applicants were directed to send required notices with copies of the Scheme and explanatory statements to the Regional Director, Registrar of Companies, Income Tax Authorities and Official Liquidator, and to allow those authorities a 30-day period to make representations. These directions implement the procedural safeguards under the Companies (CAA) Rules, 2016 for stakeholder and regulatory participation in the scheme process. [Paras 15]

Applicants were directed to comply with advertisement, notice and filing requirements, to report results in Form CAA-4, and to serve statutory authorities with the scheme and explanatory statements within the prescribed manner and timelines.

Final Conclusion: The Company Application CA(CAA) No. 24/230/HDB/2021 was disposed of by directing convenance and conduct of the specified meetings, appointing meeting officials with fixed remuneration, dispensing with meetings where there were no creditors, and issuing detailed procedural and regulatory compliance directions under the Companies (CAA) Rules, 2016 to facilitate consideration of the Scheme of Amalgamation.

Strike off and restoration of company name - power to restore struck off company under Section 252 - requirement to file annual returns and balance sheets - locus standi of director after company struck off - restoration subject to compliance, cost and conditions - prohibition on alienation of assets pending compliance - restoration does not automatically revive disqualified directorship

Strike off and restoration of company name - power to restore struck off company under Section 252 - Restoration of the Company's name in the Register was warranted on the material placed before the Tribunal. - HELD THAT: - The Tribunal exercised the discretionary power vested in it under Section 252(1) & (3) of the Companies Act, 2013 to restore the name of the company which had been struck off under Section 248. The Company produced bank statements and additional documents showing it was carrying on business since incorporation. On that basis and in the interest of stakeholders, the Tribunal found it just to restore the name of the Company to the register as if the name had not been struck off. [Paras 7, 8]

Application allowed and Registrar directed to restore the Company's status to 'Active'.

Locus standi of director after company struck off - The Registrar's contention that the applicant lacked locus to file the restoration application was rejected. - HELD THAT: - The ROC had contended that the Board ceased to exist upon strike off and therefore the applicant director had no locus. The Tribunal noted the affidavit verifying the petition was filed by the director-cum-shareholder and held that the ROC's plea in this regard was not sustainable. [Paras 6, 7]

Applicant's capacity as director/shareholder to institute the application was accepted.

Restoration subject to compliance, cost and conditions - requirement to file annual returns and balance sheets - prohibition on alienation of assets pending compliance - Restoration was made conditional on specified statutory compliances, payment of costs, and other directions. - HELD THAT: - The Tribunal permitted restoration subject to directions: the Company must file pending annual returns, balance sheets and other statutory compliances within 30 days of restoration with requisite fees and additional charges; pay the prescribed cost for revival through the MCA portal; refrain from alienating valuable assets until compliance; file an affidavit of compliance within two months; and shareholders must give an undertaking regarding non-use of accounts to transact tainted money during demonetization. Those conditions were imposed as part of the discretionary restoration order. [Paras 8, 9]

Restoration granted on the terms and conditions specified by the Tribunal.

Restoration does not automatically revive disqualified directorship - Restoration of the Company's name does not ipso facto restore any director who had been disqualified under the Companies Act to directorship. - HELD THAT: - The Tribunal observed that although the Company's name is restored, directors who were disqualified under the provisions of the Companies Act will not regain directorship by virtue of this order except in accordance with law. This preserves the ROC's statutory powers and any separate procedure for removal of disqualification. [Paras 8]

Directors disqualified under law are not automatically restored to directorship by this order.

Final Conclusion: The Tribunal allowed the application and directed the Registrar of Companies, Chennai to restore the Company's name to the register as 'Active', subject to the filing of pending statutory returns and accounts, payment of specified costs, compliance with the other conditions imposed and without prejudice to the ROC's power to proceed for alleged late filings or to any disqualification of directors which is not revived by this order.

Liquidation under Section 33(1) of the Insolvency and Bankruptcy Code, 2016 - obligation of the Adjudicating Authority to initiate liquidation where CoC resolves for liquidation - commercial decision of the Committee of Creditors - rejection of resolution plans by Committee of Creditors - forensic audit indicating transactions under Section 66 of the Code - appointment of liquidator and vesting of management powers in the liquidator - cessation of moratorium on liquidation

Liquidation under Section 33(1) of the Insolvency and Bankruptcy Code, 2016 - obligation of the Adjudicating Authority to initiate liquidation where CoC resolves for liquidation - commercial decision of the Committee of Creditors - rejection of resolution plans by Committee of Creditors - Whether the Tribunal should pass an order for liquidation of the Corporate Debtor after the CoC resolved in favour of liquidation having received no viable resolution plan. - HELD THAT: - The Tribunal applied the principle that the Adjudicating Authority is not to reassess the commercial wisdom of the Committee of Creditors but is obligated to initiate liquidation under Section 33(1) of the Code once the CoC, after following the CIRP process, resolves for liquidation and no viable resolution plan is accepted. The CoC undertook the requisite steps-constituting CoC, issuing Form G, inviting EOIs, evaluating resolution plans and extending timelines-and none of the plans were voted in favour. The Tribunal noted the binding effect of the CoC's commercial decision as expounded in K. Sashidhar, and found no reason to take a contrary view; accordingly liquidation was ordered. [Paras 16, 17, 18]

Application under Section 33 allowed; Corporate Debtor to be liquidated in the manner laid down in Chapter III of the Code.

Appointment of liquidator and vesting of management powers in the liquidator - cessation of moratorium on liquidation - forensic audit indicating transactions under Section 66 of the Code - Appointment of the liquidator and consequential directions incidental to commencement of liquidation. - HELD THAT: - The Tribunal recorded that the Resolution Professional initially consented to act as liquidator but subsequently withdrew consent after the Joint Lenders Forum proposed another insolvency professional. Having allowed the liquidation application, the Tribunal appointed the proposed professional as liquidator and issued standard consequential directions: public announcement of liquidation, cessation of the moratorium, vesting of powers of the board and KMP in the liquidator, duties and powers of the liquidator as per the Code and Regulations, cooperation by personnel of the Corporate Debtor, and entitlement of liquidator's fees as specified by the Board. The Tribunal also noted the forensic audit finding transactions attracting Section 66, which had been separately the subject of an application and does not preclude appointment of the liquidator or initiation of liquidation. [Paras 15, 18]

Mr. Rajesh Chillale appointed as Liquidator; public announcement to be made, moratorium to cease, powers of management vested in the Liquidator and Liquidator to exercise duties and rights as per the Code and applicable Regulations.

Final Conclusion: The Tribunal allowed the Section 33 application and directed liquidation of M/s. Kanakadhara Ventures Private Limited, appointed Mr. Rajesh Chillale as Liquidator, and issued standard consequential directions including cessation of the moratorium, vesting of management powers in the Liquidator, public announcement of liquidation and exercise of duties and entitlement to fees in accordance with the Code and regulations.

Non-convertible debentures as financial debt under Section 5(8)(c) of the IBC, 2016 - Default entitling initiation of proceedings under Section 7 of the IBC, 2016 - Admission of Section 7 application and initiation of Corporate Insolvency Resolution Process - Appointment of Interim Resolution Professional and vesting of powers - Moratorium on proceedings and enforcement of security under Section 14 of the IBC, 2016

Non-convertible debentures as financial debt under Section 5(8)(c) of the IBC, 2016 - Default entitling initiation of proceedings under Section 7 of the IBC, 2016 - Existence of financial debt and default in respect of NCDs subscribed by the Financial Creditor - HELD THAT: - The Tribunal found on the record that the Financial Creditor had subscribed to non-convertible debentures issued by the Corporate Debtor and that amounts raised pursuant to such debentures fall within the definition of 'financial debt' under Section 5(8)(c) of the IBC, 2016. The Corporate Debtor did not dispute the investment, the debt or the default; written submissions filed did not controvert the existence of the debt or repayment default. The Tribunal therefore concluded there was clear evidence of financial debt and default payable by the Corporate Debtor to the Financial Creditor. [Paras 12, 13, 14]

The amounts raised by way of NCDs qualify as financial debt and a default has occurred, justifying action under Section 7.

Admission of Section 7 application and initiation of Corporate Insolvency Resolution Process - Admissibility of the Section 7 application and order admitting the petition - HELD THAT: - Having established the existence of financial debt and default and noting absence of any disputation on those core facts by the Corporate Debtor, the Tribunal applied the statutory test under Section 7 and concluded that the petition should be admitted. The Tribunal exercised its power under Section 7(5) to admit the application and initiate the Corporate Insolvency Resolution Process in respect of the Corporate Debtor. [Paras 14, 15]

The Section 7 petition is admitted and the CIRP is initiated against the Corporate Debtor.

Appointment of Interim Resolution Professional and vesting of powers - Appointment of the proposed Interim Resolution Professional and supersession of board powers - HELD THAT: - The Financial Creditor had proposed a person who filed the prescribed consent in Form 2. The Tribunal appointed the proposed person as Interim Resolution Professional and directed him to perform duties under the Code, including filing reports within the mandated time. Consequent to initiation of CIRP, the powers of the board of directors of the Corporate Debtor were held to be superseded in terms of the Code. [Paras 3, 16]

The proposed person is appointed as IRP and the board's powers stand superseded; the IRP to act under the Code.

Moratorium on proceedings and enforcement of security under Section 14 of the IBC, 2016 - Operation and scope of moratorium consequent to admission of the petition - HELD THAT: - Upon admission of the Section 7 application, the Tribunal ordered the moratorium to come into effect in accordance with Section 14, enjoining institution or continuation of suits, transfer or encumbrance of assets, and actions to foreclose or enforce security interests, subject to the statutory exceptions and the duration rules set out in Section 14(4). The Tribunal directed communication of the order to the parties and statutory authorities. [Paras 17, 18, 19, 20]

Moratorium under Section 14 is declared with the statutory scope and duration from the date of the order.

Final Conclusion: The Tribunal admitted the Section 7 petition: the amounts raised by NCDs constituted financial debt and default was established; the Corporate Insolvency Resolution Process was initiated, the proposed Interim Resolution Professional was appointed and the statutory moratorium under Section 14 was declared effective from the date of the order.

Scheme of amalgamation - Dispensing with meetings of shareholders and creditors - Consent by shareholders and creditors by affidavit - Secured creditors: no meeting where nil verified by auditor or paid with closure/no dues certificate - Service of notice under Section 230(5) of the Companies Act, 2013

Scheme of amalgamation - Dispensing with meetings of shareholders and creditors - Consent by shareholders and creditors by affidavit - Dispensing with the meetings of equity shareholders of the Applicant Companies. - HELD THAT: - The Tribunal examined the affidavits of the equity shareholders filed in the Company Application and recorded that all equity shareholders of the Applicant Companies have respectively given their consent to the Scheme by way of affidavits. In view of unanimous consent evidenced by these affidavits, the Tribunal found that convening meetings of equity shareholders for consideration of the Scheme was unnecessary and dispensed with such meetings. [Paras 17]

Meetings of equity shareholders of the Applicant Companies are dispensed with.

Scheme of amalgamation - Dispensing with meetings of shareholders and creditors - Consent by shareholders and creditors by affidavit - Dispensing with the meetings of Unsecured Creditors of Applicant Nos. 1 to 8 in respect of the Scheme based on the affidavits evidencing consent in specified percentages of value. - HELD THAT: - The Tribunal considered the auditors' verification and the affidavits filed on behalf of unsecured creditors of each Applicant company which showed the specified percentages in value of unsecured creditors had given consent to the Scheme (ranging from 93.85% to 100% as recorded). Having regard to the consents in value evidenced by affidavits, the Tribunal held that separate meetings of unsecured creditors for the respective Applicant companies were not required and accordingly dispensed with such meetings as set out in the order. [Paras 17]

Meetings of Unsecured Creditors of Applicant Nos. 1 to 8 are dispensed with as recorded in the order.

Secured creditors: no meeting where nil verified by auditor or paid with closure/no dues certificate - Dispensing with meetings of shareholders and creditors - No meetings required for Secured Creditors of Applicant Nos. 1 to 8. - HELD THAT: - The Tribunal noted auditors' certificates verifying NIL secured creditors for Applicant Nos. 1 to 7 and noted that the sole secured creditor of Applicant No. 8 had been paid in full and had issued an account closure/no due certificate annexed to the Company Application. On those bases the Tribunal concluded there was no requirement to convene meetings of secured creditors of the Applicant companies. [Paras 14, 15, 17]

No meetings of secured creditors of Applicant Nos. 1 to 8 shall be held.

Service of notice under Section 230(5) of the Companies Act, 2013 - Directions for service of notice and documents under Section 230(5) and consequential procedure. - HELD THAT: - The Tribunal directed that notice under Section 230(5) of the Companies Act, 2013 together with accompanying documents, including the Scheme and statement, be served on prescribed authorities (Regional Director, Registrar of Companies, Official Liquidator, Income Tax Department, Reserve Bank of India) by hand, post or email within two weeks. The notice must inform those authorities of the 30 day period to file representations and be sent in Form No. CAA3 with necessary variations; proof of service and publication must be filed at least one week before the (now dispensed) meetings or compliance date. [Paras 18, 19]

Notice and documents to be served as directed and affidavit of service/compliance to be filed in accordance with the order.

Final Conclusion: The Company Application Comp.Appl.105/KB/2021 is allowed and disposed of; meetings of equity shareholders and the specified unsecured and secured creditors are dispensed with as recorded; directions for service under Section 230(5) are given and the connected Company Application (CAA) No. 86/KB/2021 stands disposed with the specified paragraphs deleted.

Recovery of excess service tax under Section 73-A - Recovery of service tax under Section 73 where fraud, suppression or wilful mis-statement alleged - Computation of taxable turnover: Balance Sheet figures versus Form 26 AS - Extended period of limitation (five years) and knowledge/suppression - Penalty contingent on invocation of extended limitation - Benefit of Notification No. 30/2012 ST

Recovery of excess service tax under Section 73-A - Recovery of service tax under Section 73 where fraud, suppression or wilful mis-statement alleged - Excess recoveries of service tax collected from recipients are recoverable under Section 73-A and cannot be confirmed under Section 73 where the adjudicating authority did not invoke Section 73-A and there is no challenge to that approach. - HELD THAT: - The adjudicating authority recorded that in certain cases the appellant collected full tax from service recipients but paid only part to the department. Section 73A specifically requires a person who has collected any amount in excess of assessed service tax to pay that amount to the Government and prescribes procedure for notice and adjustment. The adjudicating authority did not invoke Section 73A though the show cause notice did, and that finding was not disturbed on appeal. In these circumstances, the demand for excess recoveries cannot be sustained under Section 73, which deals with recovery where tax has not been levied or paid, and extends limitation where fraud, suppression or wilful mis-statement is established. The Tribunal therefore held that the excess recoveries must be treated under Section 73A and cannot be confirmed under Section 73. [Paras 7]

Demand for excess recovery cannot be confirmed under Section 73 and is to be dealt with under Section 73A.

Computation of taxable turnover: Balance Sheet figures versus Form 26 AS - Service tax demand must be computed on the basis of figures as recorded in the Balance Sheets (certified by the Chartered Accountant) rather than taking whichever is higher between Form 26 AS and Balance Sheet. - HELD THAT: - The adjudicating authority selected figures 'whichever is higher' from Form 26 AS or Balance Sheets to compute demand. The Tribunal observed that Balance Sheet figures record transactions by way of invoices and receipts and, being CA certified, are more authentic. Consequently, computation of the service tax demand requires examination and redetermination by the adjudicating authority on the basis of Balance Sheet figures rather than the arbitrary higher of approach adopted earlier. [Paras 8]

Compute service tax demand on the basis of Balance Sheet figures; impugned computation based on the higher of approach requires reconsideration.

Extended period of limitation (five years) and knowledge/suppression - Benefit of Notification No. 30/2012 ST - The extended period of limitation is not invokable because there was no suppression, fraud or wilful misstatement and the department had knowledge of the activity and tax payments; benefit of the notification and turnover computation were issues in the open. - HELD THAT: - The Tribunal found that the appellant availed the benefit of Notification No. 30/2012 ST and that computation of taxable turnover and payment of service tax were within the knowledge of the department. There was no finding of malafide, suppression of facts, fraud or collusion by the appellant. In absence of such culpable conduct, the conditions for invoking the extended five year limitation under Section 73 (proviso) are not satisfied. Accordingly, demands based on the extended period are set aside. [Paras 9]

Extended period of limitation is not invokable; related demands are set aside.

Penalty contingent on invocation of extended limitation - Penalty cannot be imposed where the extended period of limitation is not invokable. - HELD THAT: - Since the Tribunal held that extended limitation cannot be invoked in the absence of suppression, fraud or wilful misstatement, the statutory basis for imposition of penalty linked to such extended proceedings does not exist. Therefore, penalty on the appellant is not imposable. [Paras 10]

No penalty is imposable on the appellant.

Final Conclusion: The appeal is allowed to the extent that (a) excess recoveries must be dealt with under Section 73A and cannot be confirmed under Section 73; (b) computation of demand is to be redetermined on the basis of Balance Sheet figures; (c) extended limitation is not invokable; and (d) no penalty is imposable. The matter is remitted to the adjudicating authority for computation in accordance with these conclusions.

Condonation of delay - statutory period for filing appeal - proviso limiting extension to a further one month - circumscribed discretion of the appellate authority to condone delay - appeal dismissed as time-barred - application of precedent in Singh Enterprises to limitation

Condonation of delay - statutory period for filing appeal - proviso limiting extension to a further one month - circumscribed discretion of the appellate authority to condone delay - application of precedent in Singh Enterprises to limitation - Whether the Commissioner (Appeals) erred in dismissing the appeal as barred by limitation where the appeal was filed after the statutory two month period and also beyond the one month extended period permissible under the proviso. - HELD THAT: - The adjudicating order was received on March 15, 2015 and the appeal was filed on July 2, 2015, which is neither within the statutory two month period nor within the further one month extension permitted by the proviso. The proviso to the appellate limitation provision circumscribes the Commissioner (Appeals)'s discretion: condonation of delay is permissible only up to the further one month period after the initial two months, and not beyond. The Commissioner (Appeals) applied the binding precedent in Singh Enterprises, which interpreted a pari materia provision to permit condonation only up to the limited extended period; that principle governs the present provision. Applying that ratio, the appellate authority had no power to admit an appeal filed beyond the further one month period and therefore correctly dismissed the appeal as time barred.

The Commissioner (Appeals) rightly dismissed the appeal as barred by limitation; the appeal is dismissed.

Final Conclusion: The appeal is dismissed as the appeal was filed beyond the statutory two month period and also beyond the limited further one month extension permissible under the proviso; the Commissioner (Appeals)'s order is upheld in view of the binding precedent cited.

Sub-contractor liability to pay Service Tax despite main contractor having discharged tax - Cenvat/input tax credit prevents double taxation - Invoking extended period of limitation requires wilful suppression or deliberate concealment

Sub-contractor liability to pay Service Tax despite main contractor having discharged tax - Cenvat/input tax credit prevents double taxation - Appellant as sub-contractor is liable to discharge Service Tax on consideration received from the main contractor even though the main contractor has discharged Service Tax on the aggregate receipts from clients. - HELD THAT: - The Tribunal followed the Larger Bench decision in Commr. of S.T., New Delhi v. M/s. Melange Developers Pvt. Ltd., holding that a sub-contractor renders a taxable service to the main contractor and, in absence of any exemption, must discharge Service Tax on the consideration received. The availability of Cenvat/credit to the main contractor ensures there is no double taxation, since the main contractor can claim input credit for tax paid by the sub-contractor. Applying that ratio to the present facts, the Tribunal found the sub-contractor status of the appellant and held that the demand on merits is sustainable. [Paras 8]

Demand on merits sustained against the appellant; sub-contractor liable to pay Service Tax though main contractor had discharged tax.

Invoking extended period of limitation requires wilful suppression or deliberate concealment - Extended period of limitation invoked for recovery of Service Tax could not be sustained for the period 2006-07 in the absence of any finding of wilful suppression by the appellant. - HELD THAT: - The Tribunal examined the Show Cause Notice and the Order-in-Original and found no clear allegation or proof of wilful suppression or deliberate concealment by the appellant. The appellant had consistently maintained that the main contractor informed them that Service Tax would be discharged by the main contractor, and documentary evidence was produced to show the main contractor had subjected receipts to Service Tax. Having regard to earlier conflicting judicial views and the bona fide belief reasonably entertained by the appellant, the Tribunal held that invocation of the extended period was not justified. Consequently, demands and penalties predicated on the extended period were set aside, while demands within the normal period remain undisturbed. [Paras 9, 10]

Demand to the extent based on extended period and the penalties are set aside for lack of wilful suppression; normal-period demands are unaffected.

Final Conclusion: On merits the appeal fails: the sub-contractor is liable to pay Service Tax though the main contractor had discharged tax; however, the Tribunal sets aside demands and penalties made by invoking the extended period for 2006-07 for want of any finding of wilful suppression, leaving intact demands within the normal limitation period.

Services provided to the Government or a statutory authority by way of construction exempt under Mega Exemption Notification - Work contract services for a Mandi Samiti are not commercial activity - Services pertaining to post-harvest storage infrastructure for agricultural produce exempt - Negative List Regime and exclusion of mandi/market committee services from service tax - Limitation / time-bar of demand

Services provided to the Government or a statutory authority by way of construction exempt under Mega Exemption Notification - Work contract services for a Mandi Samiti are not commercial activity - Negative List Regime and exclusion of mandi/market committee services from service tax - Whether service tax was rightly demanded on construction services rendered to Rajya Krishi Utpadan Mandi Parishad for F/Y 2014-15 - HELD THAT: - The Tribunal found that the appellant rendered construction services to the Mandi Samiti, a statutory authority. Relying on coordinated decisions and on the principles of the Negative List Regime, the Tribunal held that construction/services provided to the Mandi Samiti for market yard purposes are not commercial in nature and fall within the exemptions notified for services provided to Government/statutory authorities by way of construction of structures meant predominantly for use other than commerce or industry. The Tribunal treated the cited clauses of the Mega Exemption Notification (Sl. Nos. 12, 13 and 14) as applicable to the works in question and accepted the assessee's reliance on precedents holding that Mandi Samiti activities are excluded from service tax liability. [Paras 12, 13, 15]

The appeal for F/Y 2014-15 was allowed and the demand confirmed by the lower authority was set aside insofar as it related to the said period, giving consequential benefit to the assessee.

Services pertaining to post-harvest storage infrastructure for agricultural produce exempt - Limitation / time-bar of demand - Whether the proposed demand for F/Y 2015-16 was sustainable - HELD THAT: - For the subsequent period the Tribunal accepted that the impugned demand, as upheld below, was time-barred. The Tribunal further observed that services related to post-harvest storage, marketing and allied activities carried out by the Mandi Samiti are covered by the exemption provision for post-harvest storage infrastructure. In view of the time-bar and the applicability of the exemption, the impugned order for that period was held unsustainable and was set aside. [Paras 14, 15]

The revenue's appeal for F/Y 2015-16 was dismissed; the impugned demand for that period was held to be time-barred and not sustainable.

Final Conclusion: The Tribunal allowed the assessee's appeal for F/Y 2014-15 holding construction services to the statutory Mandi Samiti exempt under the Mega Exemption Notification and dismissed the revenue's appeal for F/Y 2015-16 on the grounds of time-bar and applicability of the exemption.

Refund of deposit - appropriation under section 73(3) of the Act - show cause notice - deposit during investigation - service tax liability - maintainability of refund claim

Refund of deposit - appropriation under section 73(3) of the Act - show cause notice - deposit during investigation - maintainability of refund claim - Whether rejection of the appellant's refund claim and alleged appropriation of the deposit without issuance of a show cause notice was lawful. - HELD THAT: - The Tribunal found as an admitted fact that no show cause notice was issued to the appellant either for appropriation of the amount deposited during investigation or for rejection of the refund claim. In the absence of any notice or formal appropriation proceedings under the statutory scheme, the amount paid in the course of investigation remained only a deposit and could not be treated as service tax. The impugned orders, which rejected the refund claim on the basis that the amount had been appropriated under section 73(3) and therefore refund was not maintainable, lacked authority of law because the statutory precondition of issuing a show cause notice and effectuating appropriation was not satisfied. Consequently, the Tribunal held that the refund claim was sustainable and the order of rejection had to be set aside. [Paras 6, 7]

The rejection of the refund claim is set aside and the appellant is entitled to refund of the deposit; appeal allowed with consequential relief.

Final Conclusion: The appeal succeeds: the deposit made during investigation, not having been appropriated after issuance of a show cause notice, is refundable; the impugned orders rejecting the refund claim are set aside and the appellant is entitled to consequential relief.

Refund of excess payment - adjustment of excess towards future liability under Rule 6(4A) of Central Excise Rules - characterisation of receipt as tax/duty versus assessee's own money - bar of limitation under Section 11B of the Central Excise Act - relevant date for refund under Section 11B(f)

Adjustment of excess towards future liability under Rule 6(4A) of Central Excise Rules - characterisation of receipt as tax/duty versus assessee's own money - Whether the excess amount deposited by the appellant for the quarter April, 2017 to June, 2017 constituted service tax/duty or was the assessee's own money available for adjustment under Rule 6(4A). - HELD THAT: - The Tribunal found on the admitted facts that the appellant had an opening balance paid during April 2017 which exceeded the actual service tax liability for the quarter; the excess remained unutilised for any tax liability up to 30.06.2017. The excess had been deposited as an amount to be adjusted against future liability in terms of Rule 6(4A) and therefore did not constitute an accrued tax liability of the appellant for the quarter. The Tribunal relied on the factual admission that the entire tax liability for the quarter was less than the payment made and concluded that the balance was the assessee's money held by the Department and could not be treated as tax/duty retained by the Department. [Paras 6, 8]

The excess amount of Rs. 1,51,404/- was the assessee's own money deposited for adjustment under Rule 6(4A) and did not qualify as service tax/duty.

Bar of limitation under Section 11B of the Central Excise Act - relevant date for refund under Section 11B(f) - Whether the one-year limitation under Section 11B of the Central Excise Act applied and whether the 'relevant date' for commencing limitation was the date of payment of duty. - HELD THAT: - Having held that the amount was not tax or duty but the assessee's money deposited for future adjustment, the Tribunal concluded that the limitation bar in Section 11B was not applicable to the refund claim. The Tribunal rejected the Commissioner (Appeals)'s application of clause (f) of Section 11B to treat the date of payment as the 'relevant date' because that clause presupposes the existence of a duty or tax payment. Since the impugned deposit did not constitute duty, the date of payment could not be invoked as the relevant date to fasten the one-year limitation; accordingly, the order rejecting the refund as time-barred was set aside. [Paras 6, 8]

Section 11B limitation and the 'date of payment' relevant date under clause (f) do not apply to the excess amount which is not duty; the refund claim is not barred by Section 11B.

Final Conclusion: The order rejecting the refund claim was set aside and the appeal allowed on the ground that the deposited excess was the appellant's money available for adjustment under Rule 6(4A) and therefore not a tax/duty subject to the one-year limitation under Section 11B; the 'date of payment' in Section 11B(f) was inapplicable.

Input service - place of removal - CENVAT credit on outward transportation upto the place of removal - FOR destination / FOB destination - transfer of risk and property - beneficial circulars cannot be withdrawn retrospectively - extended period of limitation not invokable where alternate interpretation existed - transfer of property in goods

Input service - place of removal - CENVAT credit on outward transportation upto the place of removal - FOR destination / FOB destination - transfer of risk and property - transfer of property in goods - Outward freight (GTA) paid on transportation of goods sold on FOR/FOB destination basis is eligible CENVAT credit for the manufacturer. - HELD THAT: - On the facts the sales were on FOR/FOB destination terms where the seller retained risk and title until delivery at buyer's place and the buyer had a right to inspect and reject. The CENVAT definition of "input service" includes services used in relation to clearance of final products upto the place of removal. "Place of removal" under the excise scheme includes any place from where goods are to be sold after clearance from the factory. Where title and risk remain with the seller until delivery at buyer's premises, the transporter engaged by the seller is the recipient of the transport service and that outward transportation falls within outward transportation upto the place of removal. Applying these definitions and factual contractual terms, the Tribunal held the appellant to be the service recipient and that the service-tax paid on outward freight was an eligible input credit. The Tribunal distinguished reliance on Ultratech Cement on facts and applied Roofit Industries and earlier authorities to allow credit for the period in issue. [Paras 7, 8, 11, 12, 13]

CENVAT credit on outward freight for goods sold on FOR/FOB destination basis held admissible and the disallowance set aside.

Beneficial circulars cannot be withdrawn retrospectively - Circular No. 1065/4/2018 (08.06.2018) cannot be applied retrospectively to deny benefit of earlier circulars for the period April 2015 to June 2017. - HELD THAT: - The Tribunal observed that earlier circulars (including Circular No. 988/12/2014 and Circular No. 97/8/2007) were in force during the relevant period and, as a matter of settled principle, a beneficial circular cannot be retrospectively withdrawn to the detriment of assessees who acted on the earlier position. Consequently, the 2018 circular relied upon by the adjudicating authority could not be given retrospective effect to deny credit for the impugned period. [Paras 14]

Benefit of the earlier circulars retained; retrospective application of the 2018 circular rejected.

Extended period of limitation not invokable where alternate interpretation existed - Extended period of limitation could not be invoked against the appellant for the impugned credits. - HELD THAT: - The Tribunal noted that the appellant had disclosed credit in ER-1 returns and that alternate interpretations existed on the legal question during the relevant period. Circular No. 1065/4/2018 itself advised that extended period should not be invoked where an alternate interpretation had been taken by the assessee before the Supreme Court judgment in Ultratech. There being no suppression or misrepresentation, and given the contemporaneous disclosure and genuine interpretative controversy, invocation of extended limitation was held impermissible. [Paras 15]

Demand based on extended period of limitation quashed.

Final Conclusion: The Tribunal allowed the appeal: CENVAT credit on outward freight for goods sold on FOR/FOB destination basis for April, 2015 to June, 2017 was held admissible; retrospective application of the 2018 circular to deny credit was rejected; and invocation of the extended period of limitation was disallowed, resulting in setting aside the impugned order.

Liability to pay interest on differential excise duty arising from post-price variation - retrospective escalation and valuation as at time of removal - interpretation of Section 11AB and rules as to time of payment of duty and interest - binding effect of Supreme Court precedents

Liability to pay interest on differential excise duty arising from post-price variation - retrospective escalation and valuation as at time of removal - interpretation of Section 11AB and rules as to time of payment of duty and interest - Appellant was liable to pay interest on the differential excise duty that crystallised on account of retrospective price variation, with liability dating from the time of removal of goods. - HELD THAT: - The Tribunal applied the reasoning of the Apex Court in Steel Authority of India Ltd. (supra), which affirmed that where price is provisional and later varied retrospectively under an escalation clause, the finally determined price is to be treated as the value at the time of removal; consequently duty and interest are payable with effect from the month for which the duty is determined (i.e., from time of removal) and not from the date of final assessment. Interpreting the statutory scheme otherwise would conflict with the plain words of Section 11AB read with the rules and would defeat the object of those provisions. The present facts, involving differential duty on post-price-variation amounts, are squarely covered by those precedents and bind the Tribunal.

Liability to pay interest from date of removal affirmed; appellant not entitled to refund of interest on differential duty.

Refund erroneously granted - binding effect of Supreme Court precedents - The refund of interest earlier paid and later allowed to the appellant was erroneous and liable to be recovered. - HELD THAT: - Having held that interest was payable from the date of removal on the differential duty arising from retrospective price variation, the Tribunal concluded that the Deputy Commissioner's grant of refund was contrary to the binding legal position established by the Apex Court. The Commissioner's action in issuing show cause notice and confirming recovery of the refunded amount was therefore correct in law.

Refund allowed earlier was erroneous; recovery of the refunded interest upheld.

Final Conclusion: The impugned orders confirming recovery of the refunded interest are upheld and the appeal is dismissed.

Input service - Cenvat credit - sales promotion - place of removal - direct nexus between financing services and manufacture/clearance of final products - inclusive definition under Rule 2(l) of the Cenvat Credit Rules, 2004

Input service - sales promotion - Cenvat credit - inclusive definition under Rule 2(l) of the Cenvat Credit Rules, 2004 - direct nexus between financing services and manufacture/clearance of final products - place of removal - Entitlement to cenvat credit on commission/finance incentive paid to financers for arrangements which promote sale of the appellant's vehicles. - HELD THAT: - The Tribunal applied the inclusive and expansive definition of "input service" in Rule 2(l) of the Cenvat Credit Rules, 2004 and held that services provided by the financers fall within "sales promotion" when those services promote the sale of vehicles manufactured by the appellant. The Memorandum of Understanding and the described activities (co-branded promotion, direct marketing, evaluation of customer needs, promotional activities at dealer locations, display of promotional materials, and agreed service levels) demonstrate that the financers undertake activities that promote and expand the appellant's sales. The Tribunal accepted the view in the cited High Court decision (TVS Motor Company Ltd.) that financing services, where they are in relation to financing of the assessee's products and promote their sale, are taxable as business auxiliary services and amount to input services for the manufacturer. The Tribunal further held that such sales-promotion services may be availed beyond the place of removal and there is no bar in the definition preventing credit for services rendered outside the place of removal. Applying these principles to the facts, the commission paid to the financers has a direct nexus with the manufacture/clearance of the appellant's final products and is therefore admissible as cenvat credit under the inclusive part of the definition. [Paras 15, 16, 17]

Appellant entitled to take cenvat credit on commission paid to financers as the payments relate to "sales promotion" which is an input service; impugned order set aside and appeal allowed with consequential relief.

Final Conclusion: The impugned denial of cenvat credit on commission/finance incentive paid to financers for promoting and arranging buyers of the appellant's vehicles is set aside; the appeal is allowed and consequential relief, if any, is granted.

Limitation for filing appeal - condonation of delay - statutory time limit for appeals - appellate authority's power to reject appeal for delay - mandatory compliance with statutory timelines - reliance on binding precedent for rejection on limitation

Limitation for filing appeal - condonation of delay - appellate authority's power to reject appeal for delay - Whether the appeal was liable to be dismissed on the ground of limitation for being filed beyond the statutory and condonable period. - HELD THAT: - The Tribunal found on the record that the adjudication order was communicated to the appellant and that the appeal was not filed within the prescribed statutory period nor within any condonable period provided by law. The Commissioner (Appeals) dismissed the appeal as barred by limitation and relied on authoritative precedents holding that appeals filed beyond the statutory and condonable periods must be rejected. The Tribunal held that the Appellate Authority is a statutory creation required to enforce statutory mandates concerning limitation; consequently, there was no infirmity in rejecting the appeal for delay. The ratio of the authorities relied upon by the Commissioner (Appeals) was held to be squarely applicable to the facts, and no ground was shown to justify condonation of the delay. [Paras 3, 4]

Appeal dismissed as barred by limitation; no condonation of delay warranted and Commissioner (Appeals) order upheld.

Final Conclusion: The appeal is dismissed for lack of merit because it was filed beyond the statutory and condonable period; the Commissioner (Appeals)'s order rejecting the appeal on limitation is affirmed.

Priority of government tax dues over secured creditors - void transfers during pendency of tax proceedings - doctrine of constitutional priority - priority under SARFAESI and DRT Acts - remedial jurisdiction of appellate authorities under TNVAT Act - role of writ jurisdiction under Article 226 in adjudicating disputed facts

Role of writ jurisdiction under Article 226 in adjudicating disputed facts - remedial jurisdiction of appellate authorities under TNVAT Act - Whether the High Court in a writ petition can adjudicate disputed factual issues concerning priority of charges and related antecedent proceedings or whether such disputes must be adjudicated by the statutory appellate/quasi judicial authorities under the TNVAT Act. - HELD THAT: - The Court held that contested facts as to which proceedings were initiated earlier, the pendency of taxation proceedings at the time of creation of mortgages, and related factual determinations cannot be resolved in exercise of writ jurisdiction under Article 226. Those matters require scrutiny of original documents and evidence and must be adjudicated by the competent appellate or adjudicatory authorities under the TNVAT Act, which are invested with quasi judicial powers. Consequently, the writ petition was not permitted to proceed to determine the competing claims of priority on the basis of disputed factual matrices and the petitioner was directed to approach the statutory appellate forum. The Court further directed that any appeal filed before the appellate authority under the TNVAT Act shall be entertained despite delay and disposed of on merits after affording opportunity to all parties. [Paras 13, 15, 16]

Writ petition rejected; petitioner permitted to file appeal before the appellate authorities under the TNVAT Act which shall be entertained notwithstanding delay and decided on merits after affording opportunity to all parties.

Priority of government tax dues over secured creditors - void transfers during pendency of tax proceedings - doctrine of constitutional priority - priority under SARFAESI and DRT Acts - Whether the priority claimed by the Bank as a secured creditor prevails over the Commercial Tax Department's claim to recover tax arrears, or whether tax claims have constitutional pre eminence, and how such conflicting statutory priorities are to be addressed. - HELD THAT: - The Court reviewed provisions of the TNVAT Act concerning priority and voidance of transfers made to defeat revenue, and surveyed jurisprudence recognising the State's claim to priority (the doctrine of constitutional priority). It observed that statutes like the SARFAESI Act and the DRT Act provide priority to secured creditors, while tax statutes provide for priority of tax arrears and voidance of transfers made during pendency of tax proceedings. Given the potential conflict, the Court emphasised that the question of which claim prevails depends on the facts - for example, whether the mortgage was created before or during the relevant tax proceedings - and constitutional considerations support the priority of tax dues in appropriate circumstances. However, the Court did not decide the competing claims on merits; instead it remitted the factual and legal determination of priority to the competent appellate/quasi judicial authority under the TNVAT Act for adjudication in accordance with law and established principles. [Paras 34, 38, 41, 42, 46]

Court declined to adjudicate the competing priority claims finally; the question of priority (tax dues versus secured creditor rights, and validity of transfers/mortgages vis a vis tax proceedings) is to be determined by the designated appellate/quasi judicial authority under the TNVAT Act after enquiry and on merits.

Final Conclusion: The writ petition challenging the Commercial Tax Officer's demand is rejected; the petitioner bank is at liberty to prefer the appropriate appeal under the TNVAT Act, which shall be entertained despite any delay and decided on merits by the appellate/quasi judicial authority after affording all parties an opportunity, leaving the factual and legal determination of competing priority claims to that forum.

Input Tax Credit - original Tax Invoice - reversal of input tax credit on account of return mismatch - set aside and remand for fresh consideration pursuant to fresh show-cause notice - centralized mechanism to examine return mismatches - no limitation defence against fresh show-cause notices

Input Tax Credit - original Tax Invoice - reversal of input tax credit on account of return mismatch - Validity of assessment orders reversing claim of input tax credit where original tax invoices were produced but mismatch was noted between purchaser's and seller's returns. - HELD THAT: - The Court applied the statutory requirement that claim of input tax credit is conditional on production of original tax invoices evidencing the purchases. The judgment records that purchasers had produced the original invoices from the sellers and, in the absence of any further statutory condition, reversal of input tax credit solely on the ground of mismatch between returns was unsustainable. The Court relied on the reasoning in connected decisions (including JKM Graphics Solutions Pvt. Ltd.) that procedural steps adopted by assessing officers in such mismatch cases have been irregular and that mere discrepancy in web-portal figures, without a proper enquiry, does not justify automatic reversal of ITC. Accordingly, the impugned assessments which reversed ITC on the basis of mismatch were found to be liable to be set aside. [Paras 4, 5, 6, 7]

Impugned assessment orders reversing the input tax credit are set aside where original invoices were produced; reversal based solely on return mismatch is not justified.

Set aside and remand for fresh consideration pursuant to fresh show-cause notice - centralized mechanism to examine return mismatches - no limitation defence against fresh show-cause notices - Procedure to be followed after setting aside the assessments and whether dealers can plead limitation when fresh show-cause notices are issued pursuant to remand. - HELD THAT: - The Court directed that the matters be remanded to the assessing officers for fresh adjudication by issuing fresh show-cause notices. The remand contemplates a thorough enquiry in consultation with the assessing officers of the other-end dealers and the evolution of a centralized mechanism to investigate mismatches before issuance of notices. The Court observed that the Department should frame fair and reasonable procedures (taking note of practices in other States) so that discrepancies are examined holistically. Pending such systemic measures, fresh show-cause notices may be issued and, in that event, dealers are not entitled to plead limitation when required to submit explanations to enable adjudication. [Paras 3, 7, 8]

Assessments set aside and remanded for fresh enquiry and fresh show-cause notices; Department to evolve centralized procedure to deal with mismatches; dealers cannot raise limitation defence against such fresh show-cause notices.

Final Conclusion: Writ petitions allowed; impugned assessment orders set aside and remanded for fresh consideration in terms of the Court's directions to issue fresh show-cause notices, conduct a thorough enquiry in consultation with other assessing officers, evolve a centralized mechanism for mismatch cases, and proceed without permitting a limitation plea against the fresh notices.

Priority of tax arrears over private claims - priority of secured creditors under SARFAESI and DRT/Recovery statutes - voidness of transfers made during pendency of tax proceedings - doctrine of constitutional priority - remedial/forum competence of statutory appellate/quasi judicial authorities under the TNVAT Act - inappropriateness of writ jurisdiction to adjudicate disputed factual claims requiring evidentiary scrutiny

Inappropriateness of writ jurisdiction to adjudicate disputed factual claims requiring evidentiary scrutiny - The writ petition under Article 226 cannot be used to decide disputed factual questions about the sequence and pendency of rival recovery proceedings and the genuineness/priority of competing charges. - HELD THAT: - The High Court held that the factual controversies-viz., which proceedings were initiated first, whether tax proceedings were pending at the time of creation/registration of the mortgage/charge, and the genuineness of competing transfers-require scrutiny of original documents and evidence and cannot be finally adjudicated in a writ petition under Article 226. An enquiry into such facts must be conducted by the competent fact finding authority; therefore the High Court declined to decide these factual disputes in the present writ jurisdictional exercise and refused the substantive relief sought. [Paras 14, 15]

Relief in the writ petition is rejected insofar as it seeks adjudication on disputed factual questions; such factual disputes are not to be decided by the High Court in writ proceedings.

Remedial/forum competence of statutory appellate/quasi judicial authorities under the TNVAT Act - inappropriateness of writ jurisdiction to adjudicate disputed factual claims requiring evidentiary scrutiny - Disputes as to priority between the bank and the Commercial Taxes Department under the TNVAT Act are to be adjudicated by the statutory appellate/quasi judicial authorities under the TNVAT Act and not by the High Court in writ proceedings. - HELD THAT: - The Court observed that the TNVAT Act provides specified appellate forums and quasi judicial authorities empowered to determine claims of revenue and competing private rights. The bank is therefore entitled to approach the appellate authorities under the TNVAT Act and those authorities must adjudicate the issues on merits after affording all parties an opportunity. The High Court directed that any such appeal filed by the bank be entertained without reliance on delay and be disposed of on merits and in accordance with law, expeditiously. [Paras 16, 17]

The petitioner is at liberty to file the appropriate appeal under the TNVAT Act; the appellate authority shall entertain and decide the appeal on merits (delay, if any, to be condoned) expeditiously.

Priority of tax arrears over private claims - priority of secured creditors under SARFAESI and DRT/Recovery statutes - voidness of transfers made during pendency of tax proceedings - doctrine of constitutional priority - The Court articulated the applicable legal principles governing competing priorities-statutory priority for tax arrears, statutory priority for secured creditors under SARFAESI/DRT/Recovery statutes, and the voidness of transfers created during pendency of tax proceedings-and endorsed the constitutional doctrine that tax claims may enjoy precedence. - HELD THAT: - Relying on provisions of the TNVAT Act (priority and transfers to defraud revenue), the SARFAESI Act, the Recovery of Debts and Bankruptcy Act and judicial precedents, the Court explained: (a) TNVAT contemplates priority of tax arrears and voidance of transfers made to defeat revenue during pendency of proceedings; (b) SARFAESI/DRT/Recovery statutes provide priority to secured creditors; and (c) where statutory priorities conflict the constitutional doctrine of priority and the historical common law principle recognising priority of Government debts are relevant guides. However, the Court confined itself to stating these legal principles and did not resolve the competing claims on the facts in this petition. [Paras 40, 41, 42, 43, 46]

The legal principles governing priority and void transfers are as stated, but the application of those principles to the present facts is to be determined by the competent appellate/quasi judicial authority; the Court did not adjudicate the priority dispute on merits in the writ.

Final Conclusion: The writ petition is dismissed. The petitioner bank may prefer the appropriate appeal under the TNVAT Act; the appellate/quasi judicial authority shall entertain the appeal notwithstanding delay, and decide the matter on merits after affording opportunity to all parties, expeditiously. The High Court has set out the relevant legal principles on priority and void transfers but declined to resolve the factual contest in writ jurisdiction.

Validity of a bank guarantee issued by a Scheduled Bank located in India - requirement to substitute a furnished bank guarantee with one from a Scheduled Indian Bank - effect of incorporation of the Uniform Rules for Demand Guarantees (URDG 758) on a demand bank guarantee - judicial correction of orders and actus curiae neminem gravabit - discretion of court to insist on guarantee from a particular bank or class of banks

Validity of a bank guarantee issued by a Scheduled Bank located in India - requirement to substitute a furnished bank guarantee with one from a Scheduled Indian Bank - Whether the High Court was justified in directing substitution of the irrevocable bank guarantee issued by Industrial and Commercial Bank of China Limited (Mumbai Branch), a Scheduled Bank included in the Second Schedule to the RBI Act, with a bank guarantee of an equivalent amount from a "Scheduled Indian Bank". - HELD THAT: - The Majority held that the operative order of 12.02.2019 required a bank guarantee from a Scheduled Bank located in India and that the appellant complied with that direction by furnishing an irrevocable, unconditional bank guarantee from ICBC's Mumbai branch, which is a Scheduled Bank listed in the Second Schedule to the Reserve Bank of India Act. The Court found no legal basis for treating a Scheduled Foreign Bank operating in India as being inherently inferior to a Scheduled Indian Bank where there was no material on record to cast doubt on the foreign bank's creditworthiness. The statement in the guarantee that it was subject to URDG 758 did not render the guarantee conditional or dilute the bank's obligation to pay on invocation pursuant to an order of the High Court. The Majority also observed that the appellant had altered its position and incurred expenditure in compliance with the order; consequently the High Court erred in directing substitution of the valid guarantee after compliance. The Division Bench's dismissal of the appeal was therefore set aside and the impugned High Court orders directing substitution were quashed. [Paras 22, 29, 56, 57, 60]

The direction to substitute the ICBC bank guarantee with one from a Scheduled Indian Bank was unjustified; the ICBC guarantee was valid and the orders directing substitution are set aside.

Effect of incorporation of the Uniform Rules for Demand Guarantees (URDG 758) on a demand bank guarantee - Whether the provision that the guarantee is subject to URDG 758 renders the bank guarantee conditional or less effective for the beneficiary under an order of the High Court. - HELD THAT: - The Court explained that URDG 758 is a voluntary set of contractual rules that, if incorporated, governs the contractual terms of a demand guarantee but does not by itself make a guarantee conditional or ineffective. Where the guarantor expressly covenants to pay pursuant to an order of the High Court, the mere statement that the guarantee is subject to URDG does not dilute the guarantor's obligation in the absence of any provision to that effect or any evidence of prejudice to the beneficiary. The High Court made no finding that the ICBC guarantee was conditional or that URDG incorporation caused prejudice to the respondent. [Paras 31, 32, 33, 34, 35]

Incorporation or reference to URDG 758 did not render the ICBC bank guarantee conditional or less effective; URDG does not, by itself, diminish the guarantor's obligation under the guarantee furnished.

Judicial correction of orders and actus curiae neminem gravabit - discretion of court to insist on guarantee from a particular bank or class of banks - Whether the High Court was entitled to correct its earlier order after the appellant had complied with it and altered its position to its detriment, and whether the appellant could rely on actus curiae neminem gravabit to resist correction. - HELD THAT: - The Majority held that although courts have discretion to require guarantees from particular banks or classes of banks to protect beneficiaries, such discretion must be exercised reasonably. Where an operative order was clear, complied with, and the party had incurred costs in reliance on the order, the Court should not, without good reason, alter the direction to the prejudice of the party who acted in compliance. The principle actus curiae neminem gravabit was invoked to emphasise that a court should not ordinarily prejudice a party who has complied with its order; here, the appellant had spent money and frozen funds to obtain the guarantee. There was no evidence of adverse material regarding ICBC to justify altering the order after compliance. [Paras 21, 22, 57, 58, 60]

The High Court should not have corrected its earlier direction to the appellant after the appellant had complied and altered its position without any demonstrable reason; the principle that the court's act should not prejudice a compliant party supports setting aside the substitution direction.

Final Conclusion: By a majority, the Special Leave Petitions were allowed in part: the Division Bench judgment and the Single Judge orders directing substitution of the ICBC bank guarantee were set aside on the grounds that the ICBC Mumbai branch was a Scheduled Bank within the Second Schedule to the RBI Act, the guarantee furnished was irrevocable and effective notwithstanding reference to URDG 758, and the High Court erred in ordering substitution after compliance and prejudice to the appellant. The Bench was not unanimous and the matter was placed before the Chief Justice of India for appropriate directions.

Doctrine of impossibility in court orders - Implementation feasibility of judicial directions - Judicial restraint in issuing directions with national or international ramifications - Separation of policy decisions and executive domain - Prerogative of the Chief Justice in constitution of Benches - Stay of judicial order

Doctrine of impossibility in court orders - Implementation feasibility of judicial directions - Stay of judicial order - Whether directions of the High Court which are incapable of being implemented should be treated as observations/advice and whether the impugned order should be stayed. - HELD THAT: - The Supreme Court observed that while the High Court's directions may be well intentioned and borne of anxiety for public welfare, courts must consider the practical feasibility of implementation before issuing mandatory directions. Directions which are manifestly incapable of being implemented would place an impossible burden on the Executive and its officers and may demoralise or embarrass those working to combat the emergency. Applying the doctrine of impossibility, the Court held that such directions should be treated as observations or advice rather than binding commands where implementation is not feasible. In the present case, several directions in the impugned order were identified as practically unimplementable within the stipulated timelines; accordingly the Supreme Court stayed the impugned order dated 17.05.2021 while expressly leaving further proceedings before the High Court intact.

Stay granted on the impugned order; directions incapable of implementation to be treated as observations/advice and the doctrine of impossibility applies to court orders.

Judicial restraint in issuing directions with national or international ramifications - Separation of policy decisions and executive domain - Whether the High Court should issue directions on matters having national or international ramifications or on policy matters that fall within the executive domain. - HELD THAT: - The Court emphasised that matters involving national policy or international ramifications, and decisions requiring expert data and policy choices, are ordinarily within the executive domain. High Courts should normally refrain from issuing directions in such areas, particularly where such directions could have broader ramifications beyond the State and where the Court may not possess complete data or the requisite expertise. The High Court ought to take the national perspective into account before passing directions of wide application. This is a caution against judicial overreach rather than a prohibition on judicial scrutiny; the Court recognised the value of High Courts' initiatives but advised restraint in issuing unimplementable or wide-ranging policy directives.

High Courts should normally refrain from issuing directions on matters of national/international import or core policy decisions; such matters are best left to the Executive equipped with experts and comprehensive data.

Prerogative of the Chief Justice in constitution of Benches - Whether the composition of Benches in the High Court, particularly assignment to the Chief Justice, is a matter for the Supreme Court to direct. - HELD THAT: - The Supreme Court acknowledged that it is desirable for matters of public importance to be considered by Benches presided over by the Chief Justice, but held that the constitution of Benches is the prerogative of the Chief Justice of the High Court. The Court therefore refrained from directing bench allocation and left it to the Chief Justice to consider whether the matter should be placed before a Bench presided over by the Chief Justice.

Bench constitution is the prerogative of the Chief Justice of the High Court; the Supreme Court declined to direct reassignment.

Assistance by Amicus Curiae - Appointment of independent assistance to aid the Court in the matter and interim listing. - HELD THAT: - Considering the public importance and complexities involved, the Supreme Court appointed a senior counsel as Amicus Curiae to assist the Court and directed listing of the matter on a specified date. The Registry was directed to supply the petition copy to the Amicus within three days. These are interlocutory and case-management directions to facilitate further consideration.

Amicus Curiae appointed and matter listed for further hearing; registry to supply petition copy to the Amicus.

Final Conclusion: The Supreme Court stayed the High Court's order dated 17.05.2021, holding that courts must avoid issuing directions that are practically incapable of implementation and that the doctrine of impossibility applies to judicial orders; High Courts should exercise restraint in issuing directions with national or international ramifications and leave core policy choices to the Executive, while bench constitution remains the Chief Justice's prerogative; proceedings before the High Court are not stayed and an Amicus Curiae has been appointed for further hearing.