TaxTMI Updates e-Newsletter
Sep 03,2024

Audit under Section 65 and limits under Section 65(4) - prohibition on issuance of demand letters during audit - effect of irregular audit memos on subsequent adjudication - validity of show cause notice under Section 74

Audit under Section 65 and limits under Section 65(4) - prohibition on issuance of demand letters during audit - Whether issuance of multiple audit memos calling upon the taxpayer to pay determined tax, interest and penalties during the course of an audit is permitted - HELD THAT: - The Court held that Section 65(6) requires the proper officer to inform the registered person of the findings of the audit, his rights and obligations and the reasons for such findings, but the statute and scheme do not contemplate issuance of repeated demand letters or multiple audit memos determining and calling for payment of tax during the audit. The audit memos in the present case did more than state findings; they called upon the petitioner to discharge the determined liability. No provision or rule was pointed out which permits issuance of such demand letters during the audit, and therefore the issuance of multiple audit memos in that manner is not in conformity with the statutory framework governing audits. [Paras 7, 8, 9]

Issuance of multiple audit memos functioning as demand letters during the audit is not contemplated by the statutory scheme and is irregular.

Effect of irregular audit memos on subsequent adjudication - validity of show cause notice under Section 74 - Whether the impugned show cause notice issued under Section 74 is liable to be quashed on account of the irregularity in issuance of audit memos or alleged time-bar - HELD THAT: - The Court found that although the impugned show cause notice was premised on the findings of the audit report, any procedural irregularity in issuing the audit memos did not impinge upon the validity of the impugned show cause notice. The adjudicatory process under Section 74 falls within the statutory framework, and the court declined to set aside the show cause notice at the threshold for the reasons urged. The petitioner was, however, permitted to raise all contentions, including those relating to limitation or irregular audit memos, before the adjudicating authority which was directed to consider the petitioner's reply within three weeks and pass such order as appropriate. All rights and contentions of the parties were reserved. [Paras 10, 11, 12]

The impugned show cause notice is not quashed at this stage; the petitioner may ventilate objections before the adjudicating authority which shall consider the reply and decide within three weeks.

Final Conclusion: The petition is disposed of: the Court declared multiple demand-style audit memos during an audit to be irregular but refused to quash the impugned show cause notice; the petitioner is permitted to raise its contentions before the adjudicating authority, which is directed to decide the petitioner's reply within three weeks, with all rights reserved.

Provisional attachment of property to protect Government revenue - commencement of proceedings under Chapter XII, XIV or XV as precondition to attachment - existence of continuing proceedings at the time of attachment - irrelevance of whether controversy involves a question of law or fact for provisional attachment - power of the Commissioner to attach bank accounts pending adjudication

Commencement of proceedings under Chapter XII, XIV or XV as precondition to attachment - existence of continuing proceedings at the time of attachment - power of the Commissioner to attach bank accounts pending adjudication - Validity of the provisional attachment made under Section 83(1) where proceedings under Chapter XII/ XIV/ XV had been initiated prior to the attachment - HELD THAT: - The Court held that Section 83(1) permits an order of provisional attachment only after the initiation of proceedings under Chapter XII, XIV or XV. In the present case proceedings under Section 67 had been initiated prior to the issuance of the provisional attachment dated 10.05.2024, and subsequent show cause proceedings under Section 74 were pending. The statutory pre-condition of initiation of proceedings was therefore satisfied, and the Commissioner was entitled to form an opinion to provisionally attach the petitioner's bank accounts to protect Government revenue. The contention that the attachment ceased to have effect once the particular proceedings mentioned in the attachment order concluded was rejected for lack of basis. [Paras 9, 10, 11]

Provisional attachment under Section 83(1) is valid because proceedings under the relevant Chapters had commenced and were continuing.

Provisional attachment of property to protect Government revenue - irrelevance of whether controversy involves a question of law or fact for provisional attachment - Whether the existence of a disputed question of law (liability to GST on sale of liquor) precluded exercise of power under Section 83(1) - HELD THAT: - The Court observed that the object of provisional attachment under Section 83(1) is to protect Government revenue and that the power is exercisable irrespective of whether the underlying controversy involves questions of law or fact. The determinative requirement is formation of an opinion, based on material, that attachment is necessary to safeguard revenue. A preliminary estimate of liability by the respondents, and material gathered during search (including POS data and recorded statements), supported formation of such an opinion in the present case. [Paras 12, 13]

The existence of a legal controversy as to tax liability does not bar provisional attachment where the Commissioner forms an opinion that attachment is necessary to protect revenue.

Final Conclusion: The petition is dismissed; the order of provisional attachment is upheld. The petitioner may approach the authorities to offer other unencumbered assets in lieu of the attached bank accounts; all rights and contentions on the merits are reserved.

Show cause notice - Principles of natural justice - Cancellation of GST registration - Retrospective cancellation - Revocation of cancellation order - Fresh proceedings in accordance with law

Show cause notice - Principles of natural justice - Cancellation of GST registration - Retrospective cancellation - Validity of the impugned Show Cause Notice dated 19.05.2023 and the consequent cancellation order dated 20.06.2023. - HELD THAT: - The impugned SCN merely reproduced the statutory ground-registration obtained by fraud, wilful misstatement or suppression of facts-without specifying the nature of any alleged fraud, the statement alleged to be wilfully misstated, or any fact said to have been suppressed. A show cause notice must supply sufficient particulars to enable an effective response; it is a fundamental requirement of natural justice that a person be informed of the case against him so as to be heard. The cancellation order likewise gives no independent reasons and effects a retrospective cancellation from 24.07.2019, a relief which was not proposed in the SCN. For these reasons the SCN and the cancellation order fail to meet the requisite standards and are in breach of natural justice. [Paras 7, 8, 9, 10, 11]

Impugned SCN and cancellation order set aside; petitioner's GST registration restored forthwith.

Revocation of cancellation order - Fresh proceedings in accordance with law - Effect of subsequent proceedings and scope for further action by revenue. - HELD THAT: - The Court noted that subsequent communications and an SCN dated 21.07.2023 contained more particularised allegations including alleged availing of ineligible input tax credit and non functionality, and that the petitioner had sought revocation and responded to the SCN. The Court did not adjudicate the merits of those factual allegations but clarified that by setting aside the impugned cancellation order and restoring registration it does not preclude the proper officer from initiating fresh proceedings or the respondents from pursuing recovery or other statutory action, provided such action is taken in accordance with law and after affording the assessee requisite opportunity. [Paras 14, 15, 16, 18, 19]

Restoration of registration without prejudice to initiation of fresh proceedings or recovery action in accordance with law; prior defective order quashed.

Final Conclusion: The impugned show cause notice and cancellation order are quashed for failure to disclose particulars and for violation of natural justice; the petitioner's GST registration is restored forthwith, while preserving the respondents' right to initiate fresh, legally compliant proceedings and recovery action if warranted.

Principles of natural justice - service of notice via electronic portal - difference between GSTR-2A and GSTR-3B as basis for denial of input tax credit - setting aside administrative order and recovery notice for breach of natural justice - remand for fresh consideration with opportunity of personal hearing

Principles of natural justice - service of notice via electronic portal - setting aside administrative order and recovery notice for breach of natural justice - Impugned order dated 29.12.2023 and consequential recovery notice dated 17.05.2024 quashed for violation of principles of natural justice. - HELD THAT: - The Court found that the notices and orders were uploaded under the 'Additional Notices' column on the GST portal, a location which the petitioner did not have occasion to view, and that no adequate opportunity was afforded to the petitioner to establish its case before the authorities. In view of this failure in the mode of communication and the absence of a personal hearing, the impugned order and the consequential recovery notice were held to be passed in violation of principles of natural justice. The respondents' reliance on issuance via the portal did not cure the defect where the petitioner had not been given effective notice or an opportunity to be heard. [Paras 5]

Impugned order dated 29.12.2023 and recovery notice dated 17.05.2024 set aside for breach of principles of natural justice.

Remand for fresh consideration with opportunity of personal hearing - claim of input tax credit - difference between GSTR-2A and GSTR-3B as basis for denial of input tax credit - Matter remitted to the first respondent for reconsideration with directions to afford the petitioner an opportunity to file reply and to grant a personal hearing before passing orders on merits. - HELD THAT: - Having set aside the impugned orders for lack of fair hearing, the Court remitted the case to the first respondent for fresh consideration. The petitioner was directed to file a reply within two weeks. Thereafter the authorities are to send a physical notice to the petitioner, provide 14 days' time for personal hearing, and then decide the matter on merits and in accordance with law. The remand encompasses consideration of the tax demand and any denial of input tax credit, including issues arising from discrepancies between GSTR-2A and GSTR-3B, subject to the petitioner being heard. [Paras 5]

Matter remitted to the first respondent for reconsideration; petitioner to file reply within two weeks; authorities to issue physical notice affording 14 days for personal hearing and thereafter decide on merits.

Final Conclusion: The writ petition is disposed of by setting aside the impugned order dated 29.12.2023 and the consequential recovery notice dated 17.05.2024 for breach of principles of natural justice, and remitting the matter to the first respondent for fresh consideration after the petitioner files a reply and is afforded a physical notice and personal hearing; no order as to costs.

Failure to consider reply to show cause notice - violation of principles of natural justice - non-speaking order - opportunity of personal hearing under Section 75(4) of the CGST Act - remand for fresh consideration and direction to pass a speaking order

Failure to consider reply to show cause notice - non-speaking order - violation of principles of natural justice - Impugned summary order confirming demand was set aside for being non-speaking and for having been passed without consideration of the reply uploaded by the petitioner, thereby violating principles of natural justice. - HELD THAT: - The Court found that the petitioner had uploaded a detailed reply on 12.04.2024 in response to Form GST DRC-01 dated 28.12.2023, but the respondent's order dated 23.04.2024 recorded that no reply had been filed and confirmed the defects. The impugned order failed to consider the uploaded reply and was rendered without application of mind. Being non speaking and given the absence of consideration of the petitioner's submissions, the order amounted to a breach of the principles of natural justice and is unsustainable in law. On that basis the Court concluded that the order could not stand. [Paras 5]

Impugned order dated 23.04.2024 set aside as non-speaking and contrary to principles of natural justice.

Remand for fresh consideration and direction to pass a speaking order - opportunity of personal hearing under Section 75(4) of the CGST Act - Matter remitted to the respondent for reconsideration of the petitioner's uploaded reply and for passing a speaking order on merits in accordance with law, with due regard to the right of personal hearing contemplated under Section 75(4) of the CGST Act. - HELD THAT: - Having set aside the impugned order, the Court directed that the respondent shall consider the reply filed by the petitioner on 12.04.2024 and re decide the issues on merits. The respondent was required to apply mind, consider the submissions, and pass a reasoned (speaking) order in accordance with law, affording the petitioner the opportunity of personal hearing as contemplated by the statutory provision. The direction contemplates fresh consideration rather than mere quantification, ensuring adjudicatory application of mind. [Paras 5]

Matter remitted to the respondent to reconsider the reply and to pass a speaking order on merits, affording the statutory opportunity of personal hearing.

Final Conclusion: Impugned order dated 23.04.2024 in Ref.No.ZD330424177038F set aside; matter remitted to the respondent to consider the petitioner's reply dated 12.04.2024 and to pass a speaking order on merits in accordance with law, with no order as to costs.

Condonation of delay in filing appeal - principles of natural justice - service of notices through GST portal - direction to admit appeal and decide on merits

Condonation of delay in filing appeal - service of notices through GST portal - Whether the delay of 25 days in filing the statutory appeal should be condoned. - HELD THAT: - The petitioner's explanation that notices were uploaded under the portal's "view additional notices/orders" column, which he did not have occasion to view, and that he had paid the tax amount, furnished a plausible cause for the delay. The impugned order was passed without affording the petitioner an opportunity to establish his case before the authorities, reflecting a procedural defect. In these circumstances the Court found the reason for delay to be genuine and, having regard to the payment of tax, exercised its discretion to condone the 25-day delay and permit the appeal to be admitted.

Delay of 25 days in filing the appeal is condoned and the appeal is to be taken on record.

Principles of natural justice - direction to admit appeal and decide on merits - Submission of the appeal to the appellate authority for fresh consideration on merits. - HELD THAT: - The impugned order was passed without affording the petitioner an opportunity to be heard, which amounted to a violation of principles of natural justice. The Court did not decide the substantive controversy regarding input tax credit, interest or penalty; instead, having admitted the appeal by condoning delay, it directed the respondent to take the appeal on record and to decide the matter on merits and in accordance with law after affording opportunity to the petitioner.

The appellate authority is directed to admit the appeal and decide the issues on merits in accordance with law after affording opportunity to the petitioner.

Final Conclusion: The writ petition is disposed by condoning the 25-day delay in filing the appeal and directing the respondent to admit the appeal and decide the disputed issues on merits in accordance with law; no order as to costs.

Violation of principles of natural justice - right to personal hearing before confirming show cause notice - remand for fresh consideration on terms - conditional interim relief by deposit of a percentage of disputed tax - direction to issue fresh notice of personal hearing with minimum notice period - lifting of bank attachment to enable compliance with conditional order

Violation of principles of natural justice - right to personal hearing before confirming show cause notice - Impugned assessment/confirmation orders were passed without affording the petitioner a personal hearing, thereby violating principles of natural justice. - HELD THAT: - The reminder notices fixed personal hearing on 18.01.2024 and allowed time to file additional replies till 19.01.2024. The petitioner sought two weeks' time on 18.01.2024 to file additional replies, but the impugned orders dated 29.01.2024 were passed before the expiry of that period and without affording the petitioner the requested opportunity of personal hearing. The Court observed that where an assessing officer intends to confirm a show cause notice after receipt of a reply, it is the assessing officer's duty to afford an opportunity of personal hearing before passing an assessment order. In the present cases that requirement was lacking, and therefore the impugned orders suffered from denial of a hearing and breached natural justice. [Paras 6, 7, 8]

Impugned orders set aside for having been passed without affording a personal hearing; matter remanded for fresh consideration.

Remand for fresh consideration on terms - conditional interim relief by deposit of a percentage of disputed tax - direction to issue fresh notice of personal hearing with minimum notice period - lifting of bank attachment to enable compliance with conditional order - Appropriate remedial directions on remand, including conditions to be satisfied by the petitioner and procedural steps for the respondent. - HELD THAT: - The Court directed that the impugned orders be set aside and the matters remanded to the respondent for fresh consideration on merits and in accordance with law, subject to conditions. The petitioner was ordered to deposit 10% of the disputed tax demand for each assessment year within six weeks of receipt of the order and thereafter allowed two weeks to submit additional replies with supporting documents. On receipt of those replies and satisfaction of the 10% deposit, the respondent must issue separate notices of personal hearing giving not less than 14 days' notice and thereafter pass fresh orders on the merits within eight weeks of receiving the petitioner's replies. To enable compliance with the conditional deposit order, the respondent was directed to lift any bank attachment, if sufficient funds are available in the petitioner's account and upon request in accordance with relevant rules. [Paras 9, 10, 11]

Matters remanded with specified conditional terms: deposit 10% per year, opportunity to file additional replies, issuance of fresh hearing notices with minimum 14 days' notice, and consideration and disposal within prescribed timelines; bank attachment to be lifted to permit compliance where applicable.

Final Conclusion: Writ petitions allowed; impugned orders set aside and matters remanded for fresh consideration on terms: petitioner to deposit 10% of disputed tax for each assessment year and file additional replies, respondent to give fresh personal hearing (minimum 14 days' notice) and pass fresh orders within stipulated time; bank attachment to be lifted to permit compliance where funds are available.

Maintainability of appeal against penalty where tax alone has been paid - challenge to penalty in appeal - power of appellate authority to admit appeal and decide on merits after tax is paid - direction to appellate authority to reopen/accept appeal and decide on merits

Maintainability of appeal against penalty where tax alone has been paid - challenge to penalty in appeal - Whether the appeal filed only against the penalty could be rejected as not maintainable by the appellate authority when the tax has been paid by the petitioner - HELD THAT: - The Court noted that a show cause notice was issued and an assessment order imposing tax and penalty was passed. The petitioner paid the tax amount and filed an appeal only against the penalty. The 2nd respondent rejected the appeal as not maintainable on the ground that penalty alone cannot be challenged. The Court found that, in the factual matrix where the tax liability has been discharged and the grievance relates solely to the penalty, it was not proper for the appellate authority to refuse to take the appeal on record. In consequence, the Court set aside the intimation rejecting the appeal and directed the appellate authority to admit the appeal, grant the petitioner an opportunity, and decide the appeal on merits and in accordance with law expeditiously. [Paras 6, 7]

Intimation rejecting the appeal set aside; appellate authority directed to take the appeal on record and decide on merits after affording opportunity to the petitioner.

Final Conclusion: Writ petition allowed to the extent that the order rejecting the appeal is set aside; the appellate authority is directed to admit and decide the appeal on merits after providing an opportunity to the petitioner, expeditiously. No costs.

Validity of show cause notice under Section 73(1) of the CGST Act - Availing of Input Tax Credit and time limit under Section 16(4) of the CGST Act - Retrospective extension of time by GST Council and its applicability to past returns - Condonation of delay in filing GSTR-3B

Validity of show cause notice under Section 73(1) of the CGST Act - Availing of Input Tax Credit and time limit under Section 16(4) of the CGST Act - Retrospective extension of time by GST Council and its applicability to past returns - Condonation of delay in filing GSTR-3B - Whether the show cause notice dated 16.05.2024 proposing reversal of ITC in respect of the petitioner's delayed GSTR-3B for September 2020 is liable to be quashed. - HELD THAT: - The petitioner filed GSTR-3B for September 2020 with a one day delay and attributed the delay to the COVID 19 situation. The GST Council in its 53rd meeting recommended extending the deadline for availing ITC for returns filed in the financial years 2017 18 to 2020 21, with retrospective effect from 01.07.2017. The respondent issued Form GST DRC 01A and thereafter initiated proceedings under Section 73(1) proposing reversal of ITC, refusing to condone the delay. Having regard to the Council's recommendation extending the deadline and the circumstances of the one day delay, the Court found the respondent's action to reverse ITC and proceed under Section 73(1) detrimental to the petitioner. The Court therefore held that the show cause notice could not be sustained and set it aside, allowing the writ petition. [Paras 6, 7]

Show cause notice dated 16.05.2024 set aside; writ petition allowed.

Final Conclusion: The Court set aside the show cause notice dated 16.05.2024 issued under Section 73(1) and allowed the writ petition in respect of the petitioner's delayed GSTR 3B for the financial year 2019 2020; no order as to costs.

Violation of principles of natural justice - service by electronic upload to GST portal not constituting sufficient service - ex parte order - right to personal hearing - remand for fresh consideration subject to deposit as condition for interim relief - revocation of bank attachment upon petitioner's instruction for deposit - violation of Articles 14 and 19(1)(g) by denial of hearing

Service by electronic upload to GST portal not constituting sufficient service - ex parte order - violation of principles of natural justice - right to personal hearing - Impugned orders passed without personal service and without affording opportunity of hearing are ex parte and unsustainable - HELD THAT: - The Court found that all notices and communications culminating in the impugned orders were uploaded to the GST Portal under the dashboard tabs and were not physically served on the petitioner. The petitioner, a small concern, had no occasion to monitor the GST Portal and remained unaware of the notices until contacted by phone and later on receiving a bank-attachment letter. In these circumstances the Department did not afford the petitioner an opportunity of personal hearing or a chance to file replies before passing the orders, and therefore the orders were passed behind the petitioner's back. The absence of direct service and hearing renders those orders ex parte and violative of principles of natural justice, amounting to a denial of the petitioner's rights protected under Articles 14 and 19(1)(g). [Paras 7, 8]

Impugned orders are ex parte and unsustainable for want of service and denial of hearing

Remand for fresh consideration subject to deposit as condition for interim relief - right to personal hearing - Impugned orders set aside and matter remanded for fresh adjudication after giving personal hearing, subject to deposit of 10% of disputed tax within prescribed time - HELD THAT: - The Court, on the finding that the orders were passed without hearing, set aside the impugned order dated 31.10.2023 and the consequential demand order dated 01.11.2023 and remanded the matter to the first respondent for fresh consideration. The remand is conditional: the petitioner must deposit 10% of the disputed tax within four weeks of receipt of the order; thereafter the petitioner may file a reply within two weeks, and the Department must issue notice and grant a personal hearing before passing fresh orders in accordance with law. The direction balances the procedural defect by requiring fresh adjudication while stipulating a deposit as a condition for interim relief. [Paras 9]

Orders set aside and matter remanded for fresh consideration after personal hearing, conditioned on deposit of 10% within four weeks

Revocation of bank attachment upon petitioner's instruction for deposit - deposit as condition for interim relief - Order freezing the petitioner's bank account is to be revoked upon petitioner's letter to the bank to transfer 10% to the Department - HELD THAT: - The petitioner offered to give a letter to the bank authorising transfer of 10% of the disputed tax to the Department. The Court directed that upon the petitioner providing such a letter to the bank (second respondent), the order freezing the petitioner's bank account dated 26.06.2024 shall be revoked, thereby enabling the transfer contemplated as the condition for interim relief. [Paras 10]

Bank freezing order revoked on petitioner's instruction to bank to transfer 10% to the Department

Final Conclusion: Writ petition allowed: impugned adjudication and demand orders set aside for denial of hearing and remanded for fresh consideration after personal hearing; interim relief conditioned on deposit of 10% of disputed tax within four weeks and bank attachment revoked upon petitioner's instruction to the bank to transfer that amount.

Violation of principles of natural justice - right to personal hearing - remand for reconsideration - opportunity to file reply

Violation of principles of natural justice - right to personal hearing - Impugned order dated 26.12.2023 was passed in breach of natural justice for failing to afford the petitioner the adjourned personal hearing. - HELD THAT: - The petitioner sought and was granted an adjournment of the personal hearing fixed by the assessing authority. Despite the adjournment and the petitioner's attempt to attend on the rescheduled date, the impugned order was passed on 26.12.2023 without informing the petitioner or providing the opportunity for the personal hearing that had been arranged. The Court found this omission to be a clear contravention of the principles of natural justice and therefore quashed the impugned order. [Paras 5]

Impugned order bearing GSTIN.33AACCA4371K1ZR/2017-2018 dated 26.12.2023 set aside for violation of natural justice.

Remand for reconsideration - opportunity to file reply - Matter remitted to the assessing authority for fresh consideration after permitting the petitioner to file a reply and be heard. - HELD THAT: - Having set aside the order for want of a hearing, the Court remitted the matter to the first respondent for reconsideration. The petitioner was directed to file its reply within two weeks from receipt of the order. Thereafter the authority is to afford the petitioner a personal hearing by providing 14 days' notice and thereafter pass final orders in accordance with law. The remand contemplates fresh consideration and adjudication by the authority following compliance with these directions. [Paras 5]

Proceedings remitted to the first respondent; petitioner to file reply within two weeks; authority to grant personal hearing with 14 days' opportunity and then pass final orders.

Final Conclusion: The writ petition is allowed by setting aside the impugned order dated 26.12.2023 for breach of natural justice and remitting the matter to the assessing authority for fresh consideration after the petitioner files a reply and is afforded a personal hearing; no costs.

Maintainability of anticipatory bail under Section 438 Cr.P.C. where summons are issued under the CGST Act - power to summon under Section 70 of the CGST Act as an inquiry constituting a "judicial proceeding" - power of arrest under Section 69 of the CGST Act and availability of pre arrest relief by writ under Article 226 - inapplicability of Section 438 Cr.P.C. to proceedings initiated by summons under Sections 69/70 of the CGST Act - exercise of High Court's writ jurisdiction for pre arrest protection in GST inquiries

Maintainability of anticipatory bail under Section 438 Cr.P.C. where summons are issued under the CGST Act - inapplicability of Section 438 Cr.P.C. to proceedings initiated by summons under Sections 69/70 of the CGST Act - Whether an application for anticipatory bail under Section 438 Cr.P.C. is maintainable when summons have been issued to a person under Section 70 of the CGST Act, 2017 - HELD THAT: - The Court examined the scope of Section 70 (power to summon for inquiry deemed to be a "judicial proceeding") and Section 69 (power to arrest) of the CGST Act and the Supreme Court's exposition that Section 438 Cr.P.C. cannot be invoked where a person is summoned under Section 69 of the CGST Act. The Court held that there is no material distinction between summons under Section 69 and summons under Section 70 for the purpose of availability of anticipatory bail under Section 438 Cr.P.C.; both provisions place the inquiry within the special regime of the CGST Act and attract the principle that anticipatory bail under Section 438 is not the appropriate remedy. The Court relied on the settled position that the only recourse for pre arrest protection in such cases is by invoking the writ jurisdiction of the High Court under Article 226 of the Constitution. Applying these principles to the facts, the Court found the present anticipatory bail application not maintainable and therefore liable to be rejected, while leaving open the remedy of a writ petition under Article 226 for the applicants. [Paras 11, 15, 20, 21]

The anticipatory bail application under Section 438 Cr.P.C. is not maintainable where summons have been issued under Section 70 of the CGST Act; the applicants are at liberty to seek pre arrest protection by means of a writ under Article 226.

Final Conclusion: The application for anticipatory bail is rejected as not maintainable under Section 438 Cr.P.C. in view of the special scheme of the CGST Act; the applicants may approach the High Court by way of a writ petition under Article 226 for pre arrest protection.

Validity of notification under Section 168A of the CGST Act, 2017 - Requirement of GST Council recommendation for extension of limitation - Force majeure as basis for statutory extension - Applicability of Central GST notifications to State GST - Interim protection against coercive action

Validity of notification under Section 168A of the CGST Act, 2017 - Requirement of GST Council recommendation for extension of limitation - Prima facie view that Notification No.56/2023 dated 28.12.2023 may be not in consonance with Section 168A of the CGST Act, 2017 and requires further examination - HELD THAT: - The Court observed on a prima facie basis that Notification No.56/2023 appears not to conform to the mandate of Section 168A as it was issued without an express recommendation of the GST Council. The judgment records that if the notification cannot withstand legal scrutiny, consequential actions founded upon it would also fail. The Court therefore directed that the Respondent authorities be given an opportunity to place on record their stand and materials justifying the issuance and the claimed antecedent recommendation or the basis for issuing the notification. This issue has not been finally adjudicated on merits; the Court has only recorded a prima facie conclusion and called for production of materials for fuller consideration. [Paras 13, 14]

Prima facie finding against the consonance of Notification No.56/2023 with Section 168A; further examination and production of materials directed.

Force majeure as basis for statutory extension - Applicability of Central GST notifications to State GST - Applicability of the claimed force majeure justification and applicability of the Central notification to State GST requires verification and materials from authorities - HELD THAT: - The Court noted that the respondents assert reliance upon the Minutes of the 49th Meeting of the GST Council and recommendations of the GST Implementation Committee to justify the invocation of force majeure and issuance of Notification No.56/2023, and that the State authorities contend they follow Central notifications. The Court held that the question whether lack of manpower or the reasons recorded in the Council minutes constitute a force majeure within the statutory scheme is a matter requiring evidence and focused examination. Accordingly, the Court directed the respondents to file affidavits and place materials on record so that these contentions can be properly considered; the matter is not finally decided on merits and stands for further adjudication after receipt of materials. [Paras 6, 7, 11, 14, 16]

Questions on applicability of force majeure and on whether the Central notification binds the State GST are left for verification after filing of affidavits and production of materials.

Interim protection against coercive action - Interim protection granted to petitioners against coercive action based on the impugned assessment order dated 26.04.2024 - HELD THAT: - Having recorded the prima facie concerns about the validity of Notification No.56/2023 and the need for further material on the question of force majeure, the Court held that the petitioners are entitled to interim relief. Pending notice and further orders, the Court restrained the respondents from taking any coercive action founded on the impugned assessment order dated 26.04.2024. The Court further directed the respondents to file their affidavits by the specified date to enable fuller adjudication. [Paras 13, 15, 16]

Until the next date, no coercive action to be taken on the basis of the impugned assessment order; respondents to file affidavits.

Final Conclusion: Notice issued; prima facie doubts recorded as to the validity of Notification No.56/2023 under Section 168A and the claimed force majeure justification; respondents directed to file affidavits and produce materials; interim protection granted restraining coercive action based on the assessment order dated 26.04.2024 until the next date.

Sale of land and sale of building (Schedule III clause 5) - Scope of supply - Supply of goods or supply of services (Schedule II characterisation) - Contractual obligation to refrain from removal as supply of service (Schedule II entry 5(e)) - Transfer of ownership as element of sale - Consideration

Sale of land and sale of building (Schedule III clause 5) - Transfer of ownership as element of sale - Supply of goods or supply of services (Schedule II characterisation) - Handover of Building and Civil Structure, including railway siding, by the applicant to OMCL is not a sale of building covered under clause 5 of Schedule III to the CGST Act, 2017. - HELD THAT: - The Authority applied the statutory scheme: a 'sale' of immovable property entails transfer of ownership of land and building together. Buildings and railway siding erected on land are additions to land and their transfer as 'sale' requires appropriate rights in the land. The lease deed granted the lessee only a limited right to erect structures and imposed an obligation on the lessee to remove such structures on expiry; the State retained the power to deal with unremoved structures. The applicant had no ownership/right in the land and therefore could not effect a sale of the building independent of land rights. Consequently, the applicant's characterization of the handover as a 'sale of building' under Schedule III(5) is incorrect. Having examined the deed dated 28.06.2023 (handing over on an 'as is where is' basis with State consent), the Authority concluded that the contract amounted to the applicant making a promise to refrain from removing the erected structures (an obligation it was otherwise bound to perform). Such a contractual promise to tolerate or refrain from an act falls within the scope of 'supply' under Section 7(1) and, more specifically, is a service under Schedule II entry 5(e). The Authority therefore treated the transaction as a taxable service (classifiable under SAC 999792) chargeable at 18% under the applicable notification. [Paras 4, 5]

The handover does not amount to sale of building under Schedule III(5); it is a supply of service by way of agreeing to refrain from removal of structures and is taxable as other miscellaneous service (SAC 999792) at 18%.

Final Conclusion: The Authority ruled negatively on the applicant's primary contention: the handing over of buildings and railway siding to OMCL is not a sale of building under Schedule III(5) but constitutes a taxable supply of service (agreement to refrain from removal) under Schedule II entry 5(e), classifiable as SAC 999792 and taxable at 18%.

ITAT rejecting Petitioner’s application u/s 254(2) - HELD THAT:- We are not inclined to interfere with the impugned judgment and order passed by the High Court which has considered the impugned order as well as the application filed and we find no error in the order passed by the ITAT. We agree with the ITAT that application itself is in effect seeking a review of the ITAT’s order

However, the petitioner may, if so advised, file an appeal against the order of the Income Tax Appellate Tribunal (ITAT) [2022 (9) TMI 588 - ITAT PUNE]. Needless to say, we have not expressed any opinion on the merits of the matter.

Special Leave Petition is, accordingly, dismissed.

Allowable deduction of interest paid on the borrowings - Application of Section 14A and Section 36(1)(iii) - AO disallowed the interest holding that no deduction is to be allowed in respect of expenditure incurred in relation to income which does not form part of the total income under the Income Tax Act - As decided in HC [2024 (3) TMI 254 - BOMBAY HIGH COURT] if expenditure is incurred on earning the dividend income, that much of the expenditure which is attributable to the dividend income has to be disallowed and cannot be treated as business expenditure.

As the dividend income from the two companies is not taxable and in that scenario the expenditure incurred on interest paid on funds borrowed in respect of investment in shares of two operating companies is hit by Section 14A of the Act inasmuch as the dividend received on such shares does not form part of the total income.

HELD THAT:- Permission to appear and argue the matter in person is granted.

Heard the learned counsel appearing for the petitioner.

We are not inclined to interfere with the impugned judgment passed by the High Court. Hence, the Special Leave Petition is dismissed.

Deduction for irrecoverable bad debts under Section 36(1)(vii) - independence of Section 36(1)(vii) and Section 36(1)(viia) - applicability of the first proviso to Section 36(1)(vii) - Section 36(2) requirement where clause (viia) applies - assessment-year-specific availability of provision for bad and doubtful debts -

As decided by HC [2023 (8) TMI 92 - DELHI HIGH COURT] appeal is allowed: the Tribunal's order disallowing the claimed bad debt deduction for AY 2003-04 is set aside and the assessee is entitled to the deduction u/s 36(1)(vii) as there was no provision for bad debts in the year in issue; the question of law is answered in favour of the assessee.

HELD THAT:- We are not inclined to condone the delay in filing the Special Leave Petition. Special Leave Petition is dismissed on the ground of delay.

Search and seizure powers u/s 132(1) of the Income-tax Act - prohibitory/restraint order under Section 132(3) of the Income-tax Act - meaning and scope of "valuable article"/"thing" in Section 132 - distinction between second proviso to Section 132(1) and Section 132(3) - colourable exercise of statutory power - gross delay of 200 days in filing this Special Leave Petition.

High Court [2023 (11) TMI 654 - MADHYA PRADESH HIGH COURT] held that liquor is a "valuable article" under Section 132 and that the impugned order under Section 132(3) was a colourable exercise of power when seizure under Section 132(1) was practicable; the restraint order dated 29.09.2023 is set aside and Revenue is at liberty to proceed lawfully, with costs awarded to the petitioners and the State Legal Services Authority as directed.

HELD THAT:- The reasons assigned are neither satisfactory nor sufficient in law to be condoned.The application seeking condonation of delay is dismissed.

Consequently, the Special Leave Petition also stands dismissed on the ground of delay.

However, question of law, if any, is kept open to be agitated in any other appropriate case.

Penalty u/s 271(1)(c) - Defective notice - cessation/remission of liability u/s 41(1) - HC [2023 (6) TMI 1219 - DELHI HIGH COURT] decided it is necessary for the AO to indicate, broadly, as to the provision/limb under which penalty proceedings are triggered against the assessee. Clearly, this has not happened in the instant case - even in the assessment order, whereby proceedings were triggered, there is no indication whatsoever, as to which limb of Section 271(1)(c) of the Act was triggered.

HELD THAT:- Delay condoned. The Special Leave Petition is dismissed.

Allowable business expenditure/commercial expediency - Disallowance of claim of expenditure on the ground that it was not incurred “wholly and exclusively for the purposes of the business” - Delay filling SLP - as decided by HC [2022 (11) TMI 782 - ORISSA HIGH COURT] considering that the expenditure was in the nature of moneys advanced to the subsidiaries, it cannot be said that there is no intimate connection between the Assessee and the two subsidiaries as far as the business activities are concerned.

HELD THAT:- There is gross delay of 526 days in filing the Special Leave Petition. We are not satisfied with the explanation offered for condonation of delay.

Hence, the application seeking condonation of delay is dismissed.

Consequently, the Special Leave Petition is also dismissed, keeping open the question of law, if any.

Notice u/s 148 - Circular No.19/2019 (14.08.2019) - requirement of stating reasons and prior approval for reopening assessments - Delay in approaching the Court and participation in subsequent proceedings - bar to equitable relief - Notice u/s 143(2) and Section 142(1) - disclosure of materials and persons relied upon - petitioner sought permission to withdraw the special leave petition with liberty to approach the High Court by way of a review petition so as to bring to the notice of the High Court the eighteen cases, which are enumerated in para `D’ of pages 7-8 of the memorandum of Special Leave Petition, which are pending consideration before the High Court and in which identical issues have been raised. His submission is placed on record.

HELD THAT:- The Special Leave Petition stands dismissed as withdrawn with the aforesaid liberty.

Draft assessment order u/s 144C - directions of the Dispute Resolution Panel u/s 144C - notice of demand u/s 156 issued after completion of assessment - assessment as an integrated process involving determination of tax - curability of defects u/s 292B - Delay filling SLP

HC [2023 (3) TMI 416 - KARNATAKA HIGH COURT] answered question in favour of the assessee and against the Revenue, holding that the order dated December 28, 2018 amounted to a final assessment (not a valid draft under Section 144C) and that the defect was not curable under Section 292B.

HELD THAT:- We are not inclined to condone the delay of 424 days in filing this Special Leave Petition. The application is hence, dismissed. Consequently, the Special Leave Petition also stands dismissed.

Reopening of assessment - reassessment on basis of Commission report - burden of proof on the Assessing Officer to establish under invoicing - inadmissibility of a Commission's tentative report as sole basis for income addition - finality of customs assessment and its bearing on income tax adjudication - computation of income in accordance with method of accountancy

Special leave petition [2020 (12) TMI 1403 - SC ORDER (LB)] as dismissed on the ground of low tax effect.

Miscellaneous application is filed for restoration of the SLP and the plea is founded on the Circular dated 28.08.2018 which sets out the circumstances where notwithstanding the low tax effect, the Revenue is required to contest the matter. More specifically the Revenue relies on the Clause (e) of the Circular, which reads as under:-

“(e) Where addition is based on information received from external sources in the nature of low enforcement agencies such as CBI/ ED/ DRI/ SFIO/ Directorate General of GST Intelligence (DCG).”

The respondent (assessee) has however contested the prayer for restoration. The copy of the counter affidavit be furnished to the learned counsel for the petitioner.

Revision u/s 263 - reassessment proceedings and de novo enquiry - onus on the assessee to establish identity, creditworthiness and genuineness of transactions - appellate scrutiny of factual findings by the Tribunal - substantial question of law - Delay filling SLP

As decided by HC [2022 (11) TMI 1432 - CALCUTTA HIGH COURT] Revenue's appeal u/s 260A is dismissed; the Tribunal's order setting aside the Commissioner's Section 263 order (in respect of AY 2012-13) is sustained and the connected application for stay is closed.

HELD THAT:- No justifiable grounds for condoning the delay of 530 days. The special leave petition is dismissed on the ground of delay.

Reopening of assessment - notice under Section 148 of the Income Tax Act - reason to believe - change of opinion - reassessment as distinct from review - faceless assessment

Writ petition allowed [2022 (7) TMI 1338 - ORISSA HIGH COURT] the reopening notice under Section 148 and the consequent faceless assessment order rejecting objections set aside.

HELD THAT:- There is a delay of 558 days in filing the Special Leave Petition which has not been satisfactorily explained.

Special Leave Petition is dismissed on the ground of limitation.

Deduction u/s 10A - export profit computation - eligibility of non-core receipts for Section 10A (interest/rental) - unit located in STPI - application of HCL export turnover formula - delay filling SLP

HELD THAT:- Having regard to the inordinate delay of 469 and 465 respectively in filing these special leave petitions, even on merits we are not inclined to entertain the same.

Special leave petitions are, accordingly, dismissed on the ground of delay as well as on merits.

Penalty under Section 221(1) - defective return - filing wrong ITR form - rectification of mistake - remedy under Section 154 - notice of demand under Section 156

Penalty under Section 221(1) - defective return - filing wrong ITR form - Validity of penalty imposed on account of filing a wrong return for AY 2013-14. - HELD THAT: - The Court recorded that the return for AY 2013-14 was filed in an incorrect ITR form, which rendered the return defective and led to processing that did not take into account the claimed exemption, resulting in a demand. The petitioner had, in a subsequent year, himself corrected the ITR format, which evidenced knowledge of the incorrect filing. Given these circumstances the Court found that the defect arose from the petitioner filing the wrong ITR form and that the resulting demand flowed from that procedural error. The Court observed that no further adjudication on the merits of the penalty is required at this stage in view of the availability of statutory rectification proceedings. [Paras 6]

Petition challenging the penalty is dismissed insofar as the challenge rests on the consequences of filing the wrong ITR form; the defect in return filing is attributable to the petitioner.

Rectification of mistake - remedy under Section 154 - notice of demand under Section 156 - Whether the petitioner has available remedy and the course to be followed for correction of the defective return and consequential demand. - HELD THAT: - The Court set out the scope of the rectification provision and emphasised that an assessee may seek amendment of records where a mistake apparent from the record exists. The Court held that the petitioner has the remedy under Section 154 of the Act to seek necessary rectifications and directed that if such an application is moved, the respondent shall decide it on the statutory basis and, if required, permit the petitioner to file the correct return. The Court also noted the procedural consequences under Section 154(6) that an amendment enhancing assessment would attract issuance of a notice of demand deemed to be under Section 156, underscoring that any enhancement requires notice and opportunity to be heard. [Paras 5, 7]

Petitioner to pursue rectification under Section 154; respondent directed to decide any such application and permit filing of the correct return where appropriate.

Final Conclusion: Writ petition dismissed. The petitioner has the statutory remedy of rectification under Section 154 for the defective filing in AY 2013-14; the assessing authority is directed to consider any rectification application and permit correction of the return if appropriate. All pending applications disposed of.

Working capital adjustment subsumes imputation of interest on outstanding receivables - imputation of interest on overdue inter-company receivables - remand to Transfer Pricing Officer for fresh examination of realization of bills

Working capital adjustment subsumes imputation of interest on outstanding receivables - imputation of interest on overdue inter-company receivables - The principle that once working capital adjustment is granted there is no need for separate imputation of interest on outstanding receivables at year end is applicable and must govern the TPO's treatment. - HELD THAT: - The Tribunal accepted the proposition, derived from Kusum Health Care, that a working capital adjustment, when granted, subsumes any further notional interest imputation on outstanding receivables. The High Court agreed with that proposition and held that while the TPO may be directed to examine the factual matrix of realization of bills, any imputation of interest must be carried out only in conformity with the principle that a working capital adjustment obviates separate interest imputation. The Court therefore qualified the Tribunal's direction: the TPO should reassess the bills but must act keeping in view the judgment in Kusum Health Care, and should not proceed to impute interest contrary to that principle. [Paras 4, 5, 6]

Principle accepted; TPO to apply Kusum Health Care principle when deciding on any imputation of interest.

Remand to Transfer Pricing Officer for fresh examination of realization of bills - The matter is remitted to the TPO to examine the dates of realization of bills raised to associated enterprises and opening balances to determine whether realization occurred within the granted credit period, subject to the guiding principle from Kusum Health Care. - HELD THAT: - The Tribunal had directed the TPO to check (a) realization dates of bills raised on or after 01.04.2010 and whether they were realized within the allowed credit period of 70 days, and (b) realization dates of opening outstanding bills as on 01.04.2010, with a view to imputing interest where realization exceeded the credit period. The High Court modified this direction: it upheld the need for the TPO to examine the factual particulars of realization but restricted any imputation of interest to the limits imposed by the Kusum Health Care ratio, directing reconsideration in light of that authority. [Paras 6]

Matter remanded to TPO for fresh factual examination of bill realisations, to be decided in light of Kusum Health Care.

Final Conclusion: Appeals disposed of by modifying the impugned order: the TPO is directed to re-examine the realization of bills and opening balances for the A.Y.s 2011-12 & 2012-13 and to decide on any imputation of interest only in accordance with the principle that a working capital adjustment subsumes separate notional interest, as laid down in Kusum Health Care.

Grandfathering clause in DTAA Article 13(3A) - limitation of benefits (LOB) clause - tax residency certificate (TRC) conclusivity - treaty shopping - substance over form - piercing the corporate veil - beneficial ownership - Chapter X-A / GAAR applicability - Rule 10U grandfathering - admissibility under proviso to Section 245R(2)

Admissibility under proviso to Section 245R(2) - authority for advance rulings - admissibility - Whether the AAR's dismissal as based on a prima facie finding was immune from judicial review and whether the AAR's order was only provisional - HELD THAT: - The Court examined the preliminary contention that the AAR merely recorded a tentative opinion and therefore its order was not amenable to judicial interference. After analysing the material placed before the AAR (including the CIT(International Taxation) report and the earlier Section 197 proceedings) the Court found that the AAR's and the Department's reports contained determinations of a conclusive character and were not merely tentative. The impugned order went beyond a preliminary view by recording decisive findings on treaty eligibility, economic substance and beneficial ownership and thus had the effect of prejudicing regular assessment processes. Consequently the Court held that the AAR's order was susceptible to judicial review and could be quashed if shown to suffer from manifest illegality or perversity. [Paras 102, 103, 104, 105, 106]

The AAR's order was not a mere tentative view immune from review; its determinative findings could be judicially examined.

Grandfathering clause in DTAA Article 13(3A) - limitation of benefits (LOB) clause - Whether petitioners were entitled to DTAA protection for capital gains on shares acquired prior to 01 April 2017 - HELD THAT: - The Court analysed Article 13 post-amendment and the Protocol which inserted Paragraphs 3A and 3B. Paragraph 3A expressly subjects to source taxation gains from alienation of shares acquired on or after 01 April 2017. The Court emphasised that the Contracting States intended to grandfather acquisitions prior to 01 April 2017. In that light, and having regard to the LOB framework negotiated into the DTAA, the Court concluded that capital gains arising from shares acquired prior to 01 April 2017 were outside the new source-taxing net created by Article 13(3A) and therefore entitled to the treaty protection claimed, subject only to the narrow exceptions recognised by law (fraud/sham etc.). [Paras 28, 41, 269, 270, 271]

The transactions in respect of shares acquired prior to 01 April 2017 are grandfathered under Article 13(3A) and the petitioners are entitled to DTAA protection in respect of those acquisitions.

Tax residency certificate (TRC) conclusivity - treaty shopping - substance over form - Whether the TRC held by the petitioners could be disregarded and whether treaty shopping/abuse justified denial of benefits in the absence of clear fraud or sham - HELD THAT: - The Court reviewed CBDT Circulars, the Finance Ministry Press Release of 1 March 2013, and relevant precedents (including Azadi Bachao Andolan and Vodafone). It held that a TRC issued by the competent Mauritian authority is to be afforded due weight as sufficient evidence of residence and beneficial ownership, and that Circular No. 789 continues to have operative force absent clear demonstration of fraud, sham or other illegal activities. The Court reiterated that treaty shopping per se is not outlawed; denial of treaty benefits is confined to cases where objective evidence establishes that the arrangement is a colourable device, a sham or intended to perpetrate fraud. In the present case the Revenue had not discharged the exacting burden of proving such abuse. [Paras 196, 269, 312, 313, 314]

TRC is entitled to prima facie conclusivity; treaty benefits cannot be denied merely on the basis of treaty shopping unless fraud, sham or clear abuse is proved.

Beneficial ownership - Whether the petitioners were mere conduits and whether TGM LLC was the beneficial owner of the gains - HELD THAT: - The Court examined the factual record, the petitioners' constitutional documents, audited financial statements, board minutes and the CIT report. It held that the AAR and Revenue proceeded on an erroneous factual premise that TGM LLC was the holding/parent company. The petitioners consistently disclosed TGM LLC as an investment manager (not an investor or equity holder) and no material was produced to show a legal or contractual obligation to forward sale proceeds to TGM LLC. On principles governing beneficial ownership (forwarding/attributes of ownership approach), beneficial ownership cannot be imputed without evidence that the recipient lacked the right to use or enjoy the income or was under a binding obligation to pass it to another. Those indicia were absent here. [Paras 233, 234, 245, 246, 269]

The petitioners were not mere conduits and TGM LLC was not shown to be the beneficial owner; the AAR's contrary finding was based on an erroneous factual premise and is unsustainable.

Economic substance - piercing the corporate veil - Whether the petitioners lacked commercial/economic substance so as to disentitle them from treaty benefits - HELD THAT: - The Court considered the petitioners' incorporation, Category 1 GBL status, TRCs, the scale and duration of investments, number and diversity of investors, audited accounts and the expenditure and equity figures. It held that these uncontested facts demonstrate real economic substance: pooled investments from hundreds of investors, substantial equity and operating outlays, and objective indicia of business purpose. The AAR's conclusion that the petitioners were mere paper conduits was therefore erroneous. The Court affirmed that lifting the corporate veil is permissible only in narrow circumstances of sham/fraud and was not justified on the record before the AAR. [Paras 211, 255, 256, 257, 269]

The petitioners possess economic substance; the AAR erred in treating them as shell/conduit entities.

Chapter X-A / GAAR applicability - Rule 10U grandfathering - Whether Chapter X-A (GAAR) and Rule 10U could be invoked to deny treaty benefits for investments made before 01 April 2017 - HELD THAT: - The Court analysed Chapter X-A, Rule 10U and the interplay with the DTAA. It accepted that GAAR is a domestic anti-avoidance regime but emphasised that treaty provisions negotiated by Contracting States (including the grandfathering in Article 13(3A) and the LOB provisions) must be respected. Rule 10U(1)(d) expressly grandfathered income from transfers of investments made before 01 April 2017. The Court rejected the respondents' reliance on Rule 10U(2) as overriding that grandfathering, explaining that a subordinate rule cannot be read to nullify the explicit saved provision and that "without prejudice" language does not mean to displace the clear grandfathering in (1)(d). Consequently GAAR (Chapter X-A) could not be applied to defeat the treaty grandfathering in the circumstances of these petitions. [Paras 230, 231, 269, 270, 271]

GAAR/Chapter X-A does not displace the DTAA grandfathering for investments made before 01 April 2017; Rule 10U(1)(d) protects such transfers and Rule 10U(2) does not override that protection.

Admissibility under proviso to Section 245R(2) - authority for advance rulings - admissibility - Whether the AAR correctly applied the proviso to Section 245R(2) in rejecting the applications - HELD THAT: - The Court reviewed the AAR's reliance on the proviso to Section 245R(2) and the CIT(International Taxation) report which had urged rejection on grounds including prior Section 197 proceedings. The Court found that the AAR's application of the proviso was tainted by the same factual errors (mischaracterisation of petitioners' structure and control). Because the AAR's factual predicates were erroneous and its conclusions decisive rather than provisional, the Court held the AAR erred in rejecting the applications under the proviso. [Paras 103, 104, 105, 269, 270]

The AAR misapplied the proviso to Section 245R(2) based on erroneous factual findings; its rejection was unsustainable.

Final Conclusion: The writ petitions are allowed. The impugned AAR order dated 26 March 2020 is quashed. The Court held that the petitioners (Mauritius entities) are entitled to treaty protection in respect of shares acquired prior to 01 April 2017 (Article 13(3A) grandfathering); the AAR's findings of conduit status, lack of economic substance, beneficial ownership by TGM LLC and prima facie tax avoidance were based on erroneous factual premises and are unsustainable; TRCs and the negotiated LOB regime must be afforded due effect and GAAR/Chapter X-A does not displace the treaty grandfathering in the circumstances before the Court. Consequential reliefs follow.

Liberty to file appeal - effect of limitation where fresh appeal is permitted - raising all contentions before the appellate authority - disposal of pending applications

Liberty to file appeal - effect of limitation where fresh appeal is permitted - Petitioner granted liberty to file an appeal before the appellate authority within one month and, if so filed, the question of limitation would not arise. - HELD THAT: - The Court disposed of the special leave petition by expressly reserving liberty for the petitioner to institute an appeal before the appropriate appellate authority within a period of one month from the date of the order. The consequence of the grant is procedural: where the appeal is filed within the stipulated period, the Court declared that the issue of limitation shall not be taken to bar the appeal. The order thus permits a belated or prospective filing to be entertained without being defeated on limitation grounds, subject to the condition of filing within the stipulated time.

Liberty granted to file appeal within one month; limitation will not be a bar if appeal is filed within that period.

Raising all contentions before the appellate authority - disposal of pending applications - All contentions raised before the High Court may be reiterated before the Customs, Excise And Service Tax Appellate Tribunal (CESTAT), and pending applications stand disposed of. - HELD THAT: - The Court permitted the petitioner to press before the appellate authority all grounds and contentions earlier urged in the writ proceedings, thereby leaving it open to the appellate forum to examine those contentions afresh. In tandem, the Court disposed of any pending applications connected with the petition, rendering them no longer sub judice before this Court while the appellate remedy is pursued.

Petitioner may raise all previously advanced contentions before CESTAT; pending applications are disposed of.

Final Conclusion: Special leave petition disposed of by granting liberty to the petitioner to file an appeal before the appellate authority within one month; if so filed, limitation will not be a bar; all prior contentions may be urged before CESTAT and pending applications are disposed of.

Classification of imported goods under competing Customs Tariff Headings - show cause notice issued at pre-assessment stage - binding effect of appellate authority's decision on subordinate authorities - pre-notice consultation and its relevance to issuance of show cause notice - extended period of limitation under Section 28(4) of the Customs Act

Show cause notice issued at pre-assessment stage - classification of imported goods under competing Customs Tariff Headings - binding effect of appellate authority's decision on subordinate authorities - Validity of the show cause notice dated 07.08.2023 challenging classification of the Relevant Goods and invoking extended limitation - HELD THAT: - The writ challenge to the show cause notice was entertained because the impugned notice sought to re-open an issue which had been previously finally dealt with by a customs appellate authority in favour of the petitioner on substantially identical test-report findings. The settled rule that a writ court will not ordinarily interfere with issuance of a show cause notice is subject to exceptions, including where the authority attempts to resurrect an issue already concluded by a higher authority. The appellate orders accepted the petitioner's classification on the basis of test reports disclosing the presence of an absorbent (tin) layer and a ZnSO4 protective film; those orders were not appealed. The respondents, without challenging those appellate orders, issued the present show cause notice relying on test findings of substantially similar character and construed the tin layer as inherent to float glass production. Further, the show cause notice wrongly recorded that the petitioner did not reply to the prior audit consultative communication and failed to record reasons for moving from a consultative process to invoking the extended period under Section 28(4). Considering (a) the prior final appellate findings, (b) the absence of any successful challenge to those findings, (c) the substantially identical nature of the test reports relied upon earlier and in the present proceedings, and (d) the lack of reasons justifying invocation of Section 28(4), the Court concluded that the impugned show cause notice amounted to an impermissible reopening and was liable to be quashed. [Paras 19, 20, 21, 25, 27]

Show cause notice SCN No.74/2023 dated 07.08.2023 quashed.

Classification of imported goods under competing Customs Tariff Headings - pre-notice consultation and its relevance to issuance of show cause notice - Whether consignments labelled as Light Green Float Glass (tinted non-wired type) should be permitted clearance under CTH 70051010 pending outcome of further appeals - HELD THAT: - The Court directed that, subject to the customs authorities being satisfied that the consignments in question actually contain light green float glass (tinted non-wired type), clearance under CTH 70051010 should be permitted. This direction was qualified by the requirement that it would operate so long as the earlier appellate orders upholding the petitioner's classification are not reversed in further appeal. The Court declined to undertake a factual/classification determination itself (which would require testing and detailed adjudication) but afforded conditional relief on the basis of existing appellate conclusions and the absence of a successful challenge to them. [Paras 26, 27]

Consignments labelled as Light Green Float Glass (tinted non-wired type) to be cleared under CTH 70051010 subject to verification of the consignments and subject to the appellate orders upholding that classification not being reversed.

Classification of imported goods under competing Customs Tariff Headings - Prayer for a declaratory judgment that the petitioner's classification is correct - HELD THAT: - The Court refused to grant a positive declaration on classification in writ proceedings because such relief would necessitate detailed factual examination, including testing of the goods and adjudication of factual issues. The supervisory jurisdiction under Article 226 is confined to review of the decision-making process and cannot be used to substitute the factual and evidentiary determination properly within the competence of the customs authorities and appellate tribunal. [Paras 26, 27]

Prayer for a declaration that the petitioner's classification is correct is dismissed.

Final Conclusion: The writ petitions result in quashing of the show cause notice; conditional permission to clear consignments labelled as Light Green Float Glass (tinted non-wired type) under CTH 70051010 subject to verification and subject to any future reversal of the prior appellate orders; the petitioner's separate prayer for a declaratory determination of classification is declined.

Denial of cross-examination without recording reasons - right to cross-examination in disciplinary inquiry - procedural compliance in disciplinary inquiries under the Customs Broker License Regulations - forfeiture and revocation of customs broker licence for alleged regulatory violations - admissibility and sufficiency of telephone contact evidence

Denial of cross-examination without recording reasons - right to cross-examination in disciplinary inquiry - procedural compliance in disciplinary inquiries under the Customs Broker License Regulations - Whether the departmental denial of the broker's request to cross-examine persons whose statements formed the basis of the inquiry, without recording reasons in writing as required by the CBLR, vitiated the disciplinary proceedings and warranted setting aside the penalties, forfeiture and revocation imposed on the broker. - HELD THAT: - CESTAT found that the broker had specifically sought cross-examination of certain persons whose statements were relied upon in the Show Cause Notice, and that the inquiry officer denied that request without recording any reasons. Sub regulation (4) of Regulation 17 of the Customs Broker License Regulations entitles the customs broker to cross examination of persons whose statements form the basis of inquiry and requires reasons to be recorded if cross examination is refused. The tribunal also observed that alleged telephonic contact between those persons and the broker had not been brought on record in a manner permitting a specific finding of the broker's active role in over valuation. Reliance was placed on earlier authority holding that denial of an opportunity to cross examine in such circumstances undermines the inquiry. In these circumstances the CESTAT allowed the appeal and set aside the penalties, forfeiture and revocation, and the High Court declined to interfere with that conclusion, noting the department's duty to comply with the procedural safeguards in the CBLR when cross examination is sought.

The High Court upheld the CESTAT's finding that denial of cross examination without reasons vitiated the inquiry and declined to interfere with the tribunal's order allowing the broker's appeal.

Final Conclusion: The High Court dismissed the appeal, declining to disturb the CESTAT's order which set aside the penalty, forfeiture and revocation imposed on the customs broker on the ground that the department denied cross examination without recording requisite reasons under the CBLR.

Classification of imported calcite powder versus precipitated calcium carbonate - reliance on Customs Laboratory chemical examiner report - inability of Customs laboratory to test calcite powder as per Board circular - requirement of IS specification parameters (including oil absorption and particle size) for classification - burden on revenue to dislodge classification assessed under bills of entry - per incuriam and distinguishability of co ordinate bench decisions

Classification of imported calcite powder versus precipitated calcium carbonate - reliance on Customs Laboratory chemical examiner report - requirement of IS specification parameters (including oil absorption and particle size) for classification - burden on revenue to dislodge classification assessed under bills of entry - inability of Customs laboratory to test calcite powder as per Board circular - Imported goods held to be natural calcite (classifiable under Chapter 25) and not precipitated calcium carbonate (Chapter 28); classification declared by the appellant is upheld. - HELD THAT: - The Tribunal rejected the Department's classification under CTH 2836 50 00 because the claim rested solely on the Kandla Customs Laboratory report, and the Board itself has admitted that Customs laboratories were not equipped to test calcite powder during the relevant period. In absence of tests demonstrating conformity with the IS specification for precipitated calcium carbonate (including crucial parameters such as oil absorption ratio and particle size), the goods could not be held to fall under the tariff for precipitated calcium carbonate. The importer's supplier technical data sheets and independent testing evidence showing the presence of natural calcite characteristics were relied upon. Given the admitted incapacity of the lab to test the product and the lack of cogent independent evidence from the revenue to meet its burden to dislodge the classification declared in the bills of entry, the Tribunal held that the differential duty demand and consequential penalties could not be sustained.

Impugned classification under CTH 2836 50 00 is rejected; classification under the Chapter 25 tariff as declared by the appellant is upheld and the demand, interest and penal consequences set aside.

Reliance on Customs Laboratory chemical examiner report - inability of Customs laboratory to test calcite powder as per Board circular - per incuriam and distinguishability of co ordinate bench decisions - Test reports from Kandla Customs Laboratory were held unreliable and a co ordinate bench decision that relied on such reports was held per incuriam and distinguishable. - HELD THAT: - The Tribunal held that where the Board has issued a categorical admission regarding lack of infrastructure in Customs laboratories to test calcite powder, reports from such laboratories cannot be accepted as correct for classification purposes. A co ordinate bench decision (Meghraj Chemicals And Agencies) that relied on the Kandla lab report without considering the Board circular and without representation was found to be per incuriam and therefore distinguishable. Consequently reliance on that decision by the revenue did not furnish a sound basis to alter the classification.

Kandla Customs Laboratory reports discarded for reliability reasons; the co ordinate bench decision relying on them held per incuriam and not followed.

Final Conclusion: The impugned order is set aside; the appellant's classification of the imported goods as natural calcite (Chapter 25) is upheld, the differential duty demand and related penal consequences are quashed, and the appeal is allowed.

Deletion/discharge of a party from company petition and vacating of restraint/freeze on assets - protection of public interest and creditors versus fairness to an individual during prolonged investigation - power of NCLT to rectify or modify its orders for mistakes apparent on the face of record under Section 420 and Rules 11 & 154 - inordinate or prolonged delay in investigation as ground for relief - prima facie absence of charge-sheet or prosecution as material for lifting restraints

Deletion/discharge of a party from company petition and vacating of restraint/freeze on assets - prima facie absence of charge-sheet or prosecution as material for lifting restraints - inordinate or prolonged delay in investigation as ground for relief - Removal of the Appellant as Respondent No.316 in CP No.3638 of 2018 and vacating the restraint/freeze imposed on his movable and immovable properties. - HELD THAT: - The Appellate Tribunal found on record that the SFIO Final Report did not name the Appellant as part of the coterie and that no charge-sheet or prosecution had been initiated against him. The Tribunal noted NCLT's own observation recording undue delay in investigation and directed completion earlier; despite that, investigations remained pending for a prolonged period without supervening material implicating the Appellant. Balancing public interest with the Appellant's right to fair treatment, and noting absence of any allegation that the Appellant obstructed investigation, the Tribunal held that continuation of impleadment and the asset freeze was no longer justified. The Tribunal allowed deletion of the Appellant from the array of respondents and vacated the restraints while preserving the Respondent's right to initiate prosecution and seek appropriate orders including freeze of assets if, on conclusion of inquiry, substantial evidence emerges to charge the Appellant. [Paras 22, 24, 32, 33, 34]

Allowed removal of the Appellant as Respondent No.316 and vacated the restraint/freeze on his movable and immovable properties; respondent may frame charges and re-impose measures if subsequent investigation yields substantive evidence.

Power of NCLT to rectify or modify its orders for mistakes apparent on the face of record under Section 420 and Rules 11 & 154 - protection of public interest and creditors versus fairness to an individual during prolonged investigation - Whether the NCLT erred in refusing to modify its earlier order in CA No.233 of 2021 by declining to adjudicate newly pleaded facts and purported corrections. - HELD THAT: - The Tribunal recognised that NCLT's power to rectify or modify its own orders is limited to correction of mistakes apparent on the face of the record and does not extend to review or re-adjudication of contested facts. In the impugned order the NCLT correctly observed that the facts relied upon could be pleaded with precision in appropriate proceedings and refrained from deciding CA No.233 of 2021 on the merits. The Appellate Tribunal accepted this legal limitation of NCLT's jurisdiction but independently examined the overall circumstances (including the SFIO Final Report and absence of charge-sheet) to grant the relief of deletion and vacation of restraints on equitable grounds. [Paras 16, 17, 34]

NCLT was not in error in declining to exercise expansive review powers under its rectification jurisdiction; nevertheless, on appellate consideration equitable relief was granted given the material on record and prolonged investigation.

Final Conclusion: The appeals are allowed to the extent that the Appellant is removed from the array of respondents in CP No. 3638 of 2018 and the restraint/freeze on his movable and immovable properties is vacated; the Respondent remains free, if subsequent inquiry produces substantive evidence, to frame appropriate charges and take lawful measures including re-imposition of restraints.

Maintainability of petition under Section 94(1) of the IBC - liberty to re-file - misuse of interim moratorium under Section 96 of the IBC - effect of dismissal for non-compliance and finality - power of the Adjudicating Authority to examine maintainability

Maintainability of petition under Section 94(1) of the IBC - power of the Adjudicating Authority to examine maintainability - Whether the fresh petition filed on 29.02.2024 under Section 94(1) was maintainable - HELD THAT: - The Tribunal held that the Adjudicating Authority was entitled to examine and decide the maintainability of the subsequent application. The Adjudicating Authority found that the second application was filed on the same facts and for the same cause of action while an earlier application remained dismissed for non-compliance, and therefore could be held not maintainable. The appellate court upheld that examination and conclusion, noting the Adjudicating Authority's reasoning that the applicant had not pursued or cured the earlier defective petition and that the second filing could be rejected on maintainability grounds. [Paras 15, 17]

The fresh Section 94(1) petition filed on 29.02.2024 was not maintainable and the Adjudicating Authority rightly dismissed it.

Liberty to re-file - effect of dismissal for non-compliance and finality - Whether the order dated 28.02.2024 granting liberty to withdraw the restoration IA with liberty to re-file amounted to nullifying the earlier dismissal dated 01.02.2024 - HELD THAT: - The Tribunal reasoned that the order of 01.02.2024 dismissing the original petition for non-compliance remained final because it was not challenged or set aside. The limited liberty recorded on 28.02.2024 related only to withdrawal of the restoration application and to the applicant's request to be permitted to re-file 'as per law'; it did not itself nullify or wipe out the consequences of the earlier dismissal nor amount to an express direction that a fresh petition would be maintainable. Accordingly, the Adjudicating Authority was correct to consider the effect of the prior dismissal when assessing the new filing. [Paras 14, 17]

The withdrawal with liberty to re-file did not obliterate the final order dismissing the earlier petition; it did not render a fresh filing automatically maintainable.

Misuse of interim moratorium under Section 96 of the IBC - effect of dismissal for non-compliance and finality - Whether the filings amounted to misuse of the interim moratorium under Section 96 and whether that justified dismissal - HELD THAT: - The Adjudicating Authority found, and the Tribunal accepted, that the applicant had prolonged reliance on the interim moratorium without curing procedural defects, thereby preventing the creditor from proceeding with recovery measures. That factual finding informed the Adjudicating Authority's decision to dismiss the original petition for non-compliance and was relied upon in assessing the bona fides and maintainability of the subsequent filing. The appellate court did not disturb that conclusion. [Paras 11, 16]

The conduct was found to amount to misuse of the interim moratorium, which supported dismissal and the assessment that the subsequent filing was not maintainable.

Final Conclusion: The Appellate Tribunal found no error in the Adjudicating Authority's conclusion that the fresh Section 94(1) petition was not maintainable in view of the earlier unchallenged dismissal for non-compliance and the misuse of interim moratorium; both appeals are dismissed.

Auction sale on "as is where is" basis - valuation by IBBI Registered Valuer - liquidator's power to sell assets of the liquidation estate - challenge to rights issue and its irrelevance to liquidation sale - possession and delivery of physical share certificates post-sale

Valuation by IBBI Registered Valuer - auction sale on "as is where is" basis - Validity of the auction sale price of 77,500 equity shares and whether the shares were sold undervalued such as to vitiate the auction - HELD THAT: - The Tribunal upheld the Adjudicating Authority's findings that the shares were valued by an IBBI Registered Valuer, with an average fair value of Rs.9.21 crores and liquidation value of Rs.4.61 crores, while book value was materially lower. The reserve price was fixed at the average fair value reported by the Registered Valuer and the successful bid exceeded that reserve. The court found no merit in the contention that the shares were sold at book value or otherwise undervalued, observing that the auction was conducted on the basis of the valuer's report and the successful bid was higher than the reserve fixed on that basis. The fact that the auction was conducted on an "as is where is" basis, notified in the sale document, reinforced that bidders took the title and value subject to existing conditions disclosed in the sale notice. The Tribunal therefore found no error in the Adjudicating Authority's conclusion that valuation and the quoting of the reserve price could not be faulted. [Paras 8, 10, 11, 12, 16]

The auction sale was not undervalued and the reserve and sale price fixed on the basis of the Registered Valuer's report were valid.

Challenge to rights issue and its irrelevance to liquidation sale - Whether a pending challenge to rights issues of the share-issuing company affects the validity of the liquidation auction of shares held by the corporate debtor - HELD THAT: - The Tribunal endorsed the Adjudicating Authority's view that the pendency of the appellant's challenge to the rights issue did not affect the auction of the corporate debtor's shares. The court noted that the auction sale was on an "as is where is" and "without recourse" basis and that the outcome of the pending IA concerning the rights issue could not nullify or impinge upon the liquidation estate's right to auction assets. Consequently, the pending proceeding in IA No.847 of 2021 was held to have no consequence on the auction held on 14.02.2023. [Paras 13, 16]

The pending challenge to the rights issue does not vitiate or prevent the liquidation auction of the corporate debtor's shares.

Liquidator's power to sell assets of the liquidation estate - possession and delivery of physical share certificates post-sale - Whether the liquidator could validly put the shares to auction and complete the sale despite not initially having physical possession of share certificates - HELD THAT: - The Tribunal accepted the Adjudicating Authority's finding that the shares formed part of the liquidation estate and could be put to auction. The sale notice expressly informed bidders that assets were on an "as is where is" basis and that steps were being taken to obtain physical certificates. The Adjudicating Authority had directed the issuing company to hand over the original certificates, and the record indicated that the certificates were handed over to the liquidator and subsequently to the successful bidder. On that basis the Tribunal found no substance in the contention that lack of immediate physical possession rendered the auction illegal. [Paras 13]

The liquidator was entitled to put the shares to auction and the subsequent handing over of physical share certificates to the successful bidder validated the sale.

Final Conclusion: Both appeals are dismissed: the Adjudicating Authority did not err in rejecting the appellant's application to stay or set aside the auction of the 77,500 shares, and correctly allowed the liquidator's application to declare the successful bidder and issue the sale certificate.

Sale of space or time for advertisement service - Technical Testing and Analysis Service - Renting of immovable property service - Commercial or industrial construction service - Extended period of limitation - Penalty not leviable where suppression with intent to evade not established

Sale of space or time for advertisement service - Whether the consideration received by the appellant for granting advertisement rights is taxable as 'Sale of space or time for advertisement service'. - HELD THAT: - The Tribunal found that the appellant granted advertisement rights to various agencies for display of hoardings and kiosks at specified premises. The services provided fall within the scope of sale of space or time for advertisement and are therefore taxable. The adjudicating authority's classification in this regard is affirmed. [Paras 9]

The consideration for granting advertisement rights is taxable as 'Sale of space or time for advertisement service'.

Technical Testing and Analysis Service - Whether fees received by the appellant for testing samples (concrete, aggregates, reinforcing bars, bricks, pH of water, soil strength, non destructive testing etc.) are taxable as 'Technical Testing and Analysis Service'. - HELD THAT: - The Tribunal accepted that the appellant carried out various testing services on samples supplied by agencies and received testing charges. Such activities squarely fall within the category of technical testing and analysis services and are therefore exigible to service tax. The adjudicating authority's classification is upheld. [Paras 9]

The testing charges received by the appellant are taxable as 'Technical Testing and Analysis Service'.

Renting of immovable property service - Whether the lease of the fourth and fifth floors of HRBC Bhawan to KMRCL is taxable as 'Renting of immovable property service'. - HELD THAT: - The Tribunal observed that the appellant rented out specified floors of its building to KMRCL and received rent. This transaction constitutes renting of immovable property service and is liable to service tax. The appellate findings endorse the adjudicating authority's classification. [Paras 9]

The rental of the floors to KMRCL is taxable as 'Renting of immovable property service'.

Commercial or industrial construction service - Whether the construction carried out by the appellant for KMRCL is taxable as 'Commercial or industrial construction service'. - HELD THAT: - The Tribunal noted that the buildings constructed by the appellant were not purely for Metro Railways' own use (one building for the office of the general consultant and another with commercial/residential components). On this basis the works are classifiable as commercial or industrial construction services and are exigible to service tax. The adjudicating authority's classification is therefore sustained. [Paras 9]

The construction works are taxable as 'Commercial or industrial construction service'.

Extended period of limitation - Penalty not leviable where suppression with intent to evade not established - Whether the department could invoke the extended period of limitation and impose penalty by establishing willful suppression or intention to evade tax against the appellant. - HELD THAT: - The Tribunal accepted the appellant's submission that, being a statutory organisation with public information available and having acted bona fide, there was no mens rea or intention to evade tax. The department produced no evidence of willful suppression or mis declaration. Relying on analogous Tribunal authority, the Tribunal held that extended period of limitation cannot be invoked and, since suppression with intent to evade was not established, no penalty is imposable. [Paras 10]

Extended period of limitation cannot be invoked; no penalty is imposable as suppression with intent to evade is not established.

Quantification remand - Whether the confirmed demand should be quantified for the normal period of limitation and by whom. - HELD THAT: - While the Tribunal set aside demands to the extent they were raised under the extended period, it upheld liability for the normal period of limitation. For accurate computation and quantification of the demand restricted to the normal limitation period, the matter was remanded to the adjudicating authority for determination and adjustment of amounts already paid. [Paras 11]

Demand upheld only for the normal period of limitation; matter remanded to adjudicating authority for quantification and adjustment.

Final Conclusion: The Tribunal held that the appellant's activities are taxable under the four specified service categories, disallowed invocation of the extended period of limitation and levying of penalty for want of proven suppression with intent to evade, and remanded the matter to the adjudicating authority for quantification of the demand limited to the normal period of limitation with adjustment of amounts already paid.

CENVAT credit admissibility on inputs used in fabrication of capital goods - Definition of "input" and Explanation 2 to Rule 2(k) - "User test" / integral-part test for capital goods - Retrospectivity and clarificatory character of legislative amendment - Remand for recalculation of demand

CENVAT credit admissibility on inputs used in fabrication of capital goods - User test - Definition of "input" and Explanation 2 to Rule 2(k) - Admissibility of CENVAT credit on items such as HR coils, HR sheets, MS angles, MS channels and MS plates used in fabrication of capital goods for the period prior to 07.07.2009 - HELD THAT: - The Tribunal held that for the period prior to 07.07.2009 the disputed goods qualified for CENVAT credit either as capital goods (including accessories/components integral to capital goods) or as inputs used in relation to manufacture. Applying the user test and the integral-part approach as endorsed by Supreme Court and various High Courts, the Tribunal found that structurals and fabricated parts that become integral to plant and machinery installed in the factory fall within the definition of input/capital goods and are eligible for credit. Earlier authorities and larger-bench decisions were relied on to conclude that Explanation 2 (which was inserted only later) did not impact the pre-07.07.2009 period, and therefore the demand confirmed for that period was unsustainable. [Paras 7, 8, 9]

CENVAT credit on the disputed items is admissible for the period prior to 07.07.2009 and the demand for that period is not sustainable.

Definition of "input" and Explanation 2 to Rule 2(k) - Retrospectivity and clarificatory character of legislative amendment - Remand for recalculation of demand - Effect of insertion of Explanation 2 (Notification No.16/2009-CE(NT) dated 07.07.2009) on admissibility of CENVAT credit for the period 07.07.2009 to October 2009 and consequent disposal - HELD THAT: - The Tribunal noted that Explanation 2, inserted with effect from 07.07.2009, expressly excludes items like angles, channels and certain steel items from the definition of input. The Tribunal accepted the view that the amendment is not clarificatory and operates from its date of commencement; consequently, for the period 07.07.2009 to October 2009 the disputed items are, in principle, not admissible as inputs. The Tribunal therefore modified the adjudication to deny credit for that post-amendment period and remanded the matter to the original authority to recalculate the demand, if any, for the period after 07.07.2009, while directing that the appellant be afforded a reasonable opportunity of hearing and that no penalty is to be imposed. [Paras 8, 9]

For the period 07.07.2009 to October 2009 the disputed items are not admissible in principle; the matter is remanded to the original adjudicating authority to recalculate any demand for the post-07.07.2009 period, with opportunity of hearing and without imposing penalty.

Final Conclusion: Appeal allowed in part: CENVAT credit on the disputed items upheld for the period prior to 07.07.2009; for the period 07.07.2009 to October 2009 credit is not admissible in principle and the case is remanded to the original authority for recalculation of any demand for the post-amendment period; no penalty is leviable.

Finalization of provisional assessment - Provisional assessment under Rule 9B - Requirement of show cause notice under Section 11A - Delay and inordinate delay in adjudication - Directions of appellate Tribunal and mandatory compliance of time frame - Principles of natural justice

Finalization of provisional assessment - Provisional assessment under Rule 9B - Requirement of show cause notice under Section 11A - Validity of the demand confirmed by Order-in-Original dated 22.10.2008 where provisional assessments under Rule 9B had not been finalized and no SCN under Section 11A was issued for a prolonged period - HELD THAT: - The Tribunal found that the Assistant Commissioner's Order dated 14.10.1986 directed finalization of provisional assessments and issuance of a demand under Section 11A, but thereafter no show cause notice under Section 11A was issued for many years. Rule 9B requires final assessment by the proper officer and that provisional assessment be adjusted against the finally assessed duty; consequential duty can only be demanded after finalization. The record shows that the Department did not take the simple administrative steps of quantifying the differential duty and issuing the SCN; instead the Deputy Commissioner issued a letter in 2000 directing payment in instalments without proper finalization. In these circumstances the confirmed demand lacked legal sanctity and had to be set aside. [Paras 9, 11, 12, 13, 22]

The confirmed demand under Order-in-Original dated 22.10.2008 is not legally sustainable and is set aside for want of finalization of provisional assessment and absence of a proper SCN under Section 11A.

Directions of appellate Tribunal and mandatory compliance of time frame - Delay and inordinate delay in adjudication - Effect of the Tribunal's direction to the Original Authority to finalize the provisional assessment within four months and consequence of the Department's failure to comply - HELD THAT: - The Tribunal's Final Order dated 18.04.2007 explicitly directed de novo finalization of provisional assessment within four months after due notice and following principles of natural justice. The present Bench held that, in the context in which the direction was given and absent any claim of impossibility or change in circumstances, the four month time frame was to be treated as mandatory. The Department took about fourteen months to complete proceedings (SCN issued after nearly one year and OIO after further two months), thereby violating the time frame. The Tribunal emphasised that its earlier lenient remand was conditional on compliance within four months; failure to do so rendered the subsequent proceedings fatally delayed. [Paras 15, 16, 18, 20, 22]

Non compliance with the Tribunal's four month direction is fatal; the delayed finalization breached the time frame and vitiates the confirmed demand.

Delay and inordinate delay in adjudication - Principles of natural justice - Whether the long delay between the 1986 Order and subsequent finalization (including a 14 year lapse to the 2000 instalment letter and further delay till 2008) can be justified by asserted non cooperation of the assessee - HELD THAT: - The Tribunal examined the record and found that the Revenue had the requisite details to quantify the differential duty (monthly returns and earlier computations), and that the delay could not be reasonably attributed to the assessee's non cooperation. The court relied on precedents recognising that, in absence of limitation periods, authorities must act within a reasonable time. Given the simplicity of computing duty differential on reclassification, the unexplained and prolonged inaction over many years was inordinate and unjustified. Consequently the demand premised on such delayed action is unsustainable. [Paras 19, 20, 21, 25, 26]

The prolonged and unexplained delay by the Department in finalizing assessment and issuing demand is inordinate and unjustified; the demand cannot be sustained on this ground.

Finalization of provisional assessment - Requirement of show cause notice under Section 11A - Validity of Deputy Commissioner's letter dated 19.09.2000 directing payment in instalments as a substitute for formal SCN/finalization - HELD THAT: - The Deputy Commissioner's instalment direction followed many years after the 1986 Order but was issued without the mandatory finalization steps and without a SCN under Section 11A as contemplated by the OIO. The Tribunal held that such correspondence without statutory finalization procedures is not a proper substitute for a formal show cause notice and is void ab initio. The earlier Commissioner (Appeals) decision treating that letter as establishing quantification was therefore erroneous. [Paras 14, 17, 25]

The 19.09.2000 letter directing payment in instalments, issued without finalization of provisional assessment and without a proper SCN, is void and cannot sustain the demand.

Final Conclusion: The appeal is allowed. The confirmed demand arising from the belated finalization and the instalment direction is set aside: the Department's failure to finalize the provisional assessment and to comply with the Tribunal's four month direction, together with the unexplained long delay, render the demand legally unsustainable; consequential relief, if any, to follow as per law.

CENVAT credit admissibility - evidentiary value of departmental certification - appellate interference for perverse findings

CENVAT credit admissibility - evidentiary value of departmental certification - appellate interference for perverse findings - Portion of the impugned order denying CENVAT credit was set aside and the appellant held entitled to CENVAT credit as per the Assistant Commissioner's certificate dated 19.01.2017. - HELD THAT: - The Assistant Commissioner's letter dated 19.01.2017, placed on record, recorded that after examination of original invoices and the duty calculation chart the appellant had paid duty to the extent shown in the letter and certified the same. The Principal Commissioner proceeded to record a finding that documents were not furnished despite opportunities, but did not advert to the Assistant Commissioner's certificate on record. The Tribunal found that omission to consider the departmental certificate rendered the Principal Commissioner's finding perverse. Since the appellant did not challenge the Principal Commissioner's order on merits otherwise, the appropriate course was to set aside that portion of the order denying CENVAT credit and to modify the impugned order to give effect to the Assistant Commissioner's certification of duty paid, thereby entitling the appellant to CENVAT credit in terms of that letter. [Paras 6, 8, 9, 11]

The finding denying CENVAT credit is set aside and the appellant is held entitled to CENVAT credit in terms of the Assistant Commissioner's letter dated 19.01.2017; the impugned order is modified accordingly and the appeal is allowed to that extent.

Final Conclusion: The Tribunal allowed the appeal in part by setting aside the Principal Commissioner's finding denying CENVAT credit, holding the appellant entitled to credit in accordance with the Assistant Commissioner's certificate dated 19.01.2017, and modifying the impugned order accordingly.

Penalty under check-post provisions - Attempt to evade tax as condition precedent to penalty - Valuation of goods and domain of assessing authority - Use of MRP/central excise MRP-based valuation for inference of undervaluation - Reasonable nexus between exercise of check-post powers and suspected evasion

Use of MRP/central excise MRP-based valuation for inference of undervaluation - Attempt to evade tax as condition precedent to penalty - Whether penalty under Section 51(7)(b) could be sustained on the basis of presumed undervaluation by reference to MRP/central excise valuation - HELD THAT: - The Court held that drawing a presumption of undervaluation merely because the invoice purchase price was substantially lower than the printed MRP (or a valuation based on Central Excise abatement from MRP) was unsustainable. The invoices were issued by a manufacturer located in a State where excise duty was exempted, which rationally produced lower purchase prices; there was no finding that the appellant received different invoices than other distributors. The Court observed that MRP reflects a downstream retail price and has no direct rational connection with the taxable sale at the dealer's stage; taxing or penal consequences cannot be premised on a far fetched presumption that the dealer would sell at MRP. In these circumstances, invoking the check post penalty regime on the basis of such a comparison amounted to arbitrary exercise of power. The Court therefore answered this question in favour of the appellants and set aside the penalty imposed on that basis. [Paras 18]

Penalty under Section 51(7)(b) could not be upheld solely by reference to MRP/central excise valuation and presumed undervaluation; question answered in favour of the appellants.

Valuation of goods and domain of assessing authority - Reasonable nexus between exercise of check-post powers and suspected evasion - Whether the power to impose penalty under Section 51(7)(b) could be exercised at the stage of road side checking rather than by the assessing authority after valuation - HELD THAT: - The Court held that the power to impose a penalty under the check post provisions should not be invoked at the stage of roadside checking when determination of actual valuation is within the domain of the assessing authority. Citing precedent, the Court emphasised that check post powers must have a reasonable nexus with an attempt to evade tax and cannot be used to value goods on the spot where valuation requires adjudication by the assessing officer. Applying these principles, the Court concluded that imposition of penalty at the roadside, without proper valuation and adjudication by the assessing authority, was impermissible. [Paras 20]

Penalty could not be lawfully imposed at the roadside; valuation and determination of attempt to evade tax fall within the assessing authority's domain.

Final Conclusion: Both substantial questions were answered in favour of the appellants: the penalty imposed at the check post was quashed because (i) undervaluation could not be presumed from comparison with MRP/central excise valuation and (ii) the power to determine valuation and impose penalty could not be exercised at roadside checking; the impugned orders were set aside and the appeals allowed.