TaxTMI Updates e-Newsletter
Sep 08,2022

Detention and release of goods under Section 129(1) of the Tamil Nadu Goods and Services Tax Act, 2017 - show cause notice and order under Section 129(3) of the Tamil Nadu Goods and Services Tax Act, 2017 - prematurity of writ petition challenging interim detention documents - opportunity to be heard before the assessing authority

Prematurity of writ petition challenging interim detention documents - The writ petition challenging Form GST MOV-01 was premature in view of subsequent statutory proceedings under the Act. - HELD THAT: - The Court observed that after issuance of Form GST MOV-01 (detention document) on 21.08.2022, further statutory steps - namely MOV-6 (order of detention) and MOV-7 (show cause notice under Section 129(3)) - were issued on 24.08.2022. In those circumstances the challenge to the earlier interim document was held to be premature while the statutory process under Section 129 remained pending. The petition was therefore not entertained on merits at the admission stage. [Paras 2]

Writ petition held premature and not adjudicated on merits.

Show cause notice and order under Section 129(3) of the Tamil Nadu Goods and Services Tax Act, 2017 - detention and release of goods under Section 129(1) of the Tamil Nadu Goods and Services Tax Act, 2017 - opportunity to be heard before the assessing authority - Direction to permit the petitioner to appear before the authority, to enable consideration of the reply and hearing, and for the authority to pass an order under Section 129(3), with liberty to make an offer for release under Section 129(1). - HELD THAT: - Noting that the petitioner had submitted a reply to the show cause notice and that the matter was listed for hearing, the Court granted the petitioner leave to appear before the authority on 01.09.2022 (if not already appeared). The authority was directed, upon considering any reply and hearing the petitioner, to pass an order in terms of Section 129(3). The petitioner was also permitted to make an offer before the assessing authority for release of the consignment in accordance with Section 129(1). This effectively remanded the controversy for fresh consideration and final disposal by the statutory authority in accordance with the Act. [Paras 3]

Petitioner permitted to appear; authority directed to consider reply, hear petitioner and pass orders under Section 129(3); liberty granted to make offer under Section 129(1).

Final Conclusion: Writ petition disposed as premature; petitioner permitted to appear before the assessing authority for hearing on 01.09.2022 (if not already done), the authority to consider the reply, hear the petitioner and pass appropriate orders under Section 129(3) of the Act, with liberty to make an offer for release under Section 129(1); no costs.

Detention, seizure and release of goods and conveyances in transit - proviso to Section 129(1) and Section 129(3) of the CGST Act - statutory compliance with time lines for issuance of detention orders and show cause notices - procedural effect of departmental circulars issued under Section 168 - distinction between orders for inspection/stationing of conveyance and orders of detention

Detention, seizure and release of goods and conveyances in transit - proviso to Section 129(1) and Section 129(3) of the CGST Act - statutory compliance with time lines for issuance of detention orders and show cause notices - Validity of proceedings where no order of detention was issued within the statutory time and no show cause notice was served within seven days of detention/seizure. - HELD THAT: - The Court found that an order of detention is a precondition to the issuance of the show cause notice under Section 129(3) and must be issued prior to the 7th day from the date of detention/seizure. In the present case the order of detention is dated 22.08.2022 whereas the detention/seizure occurred on 13.08.2022 and the statutory timeline required issuance on or before 20.08.2022. The fact that the notice was dispatched only on 24.08.2022 and that neither the detention order nor the SCN were issued within the prescribed period constitutes a serious procedural flaw that vitiates the interception and subsequent proceedings. The Court rejected the revenue's contention that holidays/working days alter the statutory timeline, noting the amendment to the departmental circular which replaced 'three working days' with 'three days' and the operational reality that the roving squad functions without regard to holidays; reliance on general clauses principles to extend time was held inapposite. These lapses in temporal compliance render the detention/seizure proceedings invalid. [Paras 7, 9, 11, 12, 13]

Proceedings vitiated for failure to issue detention order and show cause notice within the statutory time; procedural non compliance invalidates detention/seizure.

Procedural effect of departmental circulars issued under Section 168 - statutory compliance with time lines for issuance of detention orders and show cause notices - Whether the procedure and forms prescribed in the CBEC circular (including GST MOV series) are merely directory guidance or must be followed to ensure lawful detention/release. - HELD THAT: - The Court examined Circular No.41/15/2018 and its amendment and held that the procedure enunciated therein, issued under Section 168, prescribes the sequence and timelines for interception, inspection, detention and issuance of notices. The respondents' submission that the Circular has no statutory force and its forms are flexible was rejected. The Court treated the Circular's procedural mandates (including timelines and requirement of uploading and issuing specified forms) as integral to lawful exercise of the detention/seizure powers under the Act and found material non compliance in the present case. [Paras 4, 5, 6, 11, 17]

The departmental Circular's procedural prescriptions must be followed; the respondents' departure from those mandates cannot validate the detention/seizure.

Distinction between orders for inspection/stationing of conveyance and orders of detention - Form GST MOV 02 and Form GST MOV 06 - Whether directions in Form GST MOV 02 (to station the conveyance and not to move the goods until further orders) amount to an order of detention under Section 129. - HELD THAT: - The Court analysed the content of Form GST MOV 02 and contrasted its directional character (requiring the driver to station the conveyance and assist inspection, leaving risk and responsibility with the transporter) with a formal order of detention in Form GST MOV 06 which effects legal transfer of risk/responsibility to the Department. The Court concluded that MOV 02 cannot be equated to an order of detention; absent a valid MOV 06 issued within the statutory period, the status of detention was not lawfully crystallised. [Paras 15, 16]

Form GST MOV 02 does not constitute an order of detention; therefore no valid detention arose from its issuance.

Final Conclusion: Writ petition allowed. Mandamus granted on the findings of procedural non compliance; the detention/seizure proceedings were vitiated for failure to issue a detention order and show cause notice within the prescribed time and for non adherence to the procedural prescriptions of the departmental Circular. The respondents' contention that the Circular is non binding and that holidays extend timelines is rejected.

Passing on benefit of input tax credit by way of commensurate reduction in price - applicability of Section 171 of the CGST Act, 2017 - comparative base price pre-GST and post-GST for profiteering assessment - provisional input tax credit and reversal on unsold units - extension of investigatory time-limits due to COVID-19

Comparative base price pre-GST and post-GST for profiteering assessment - applicability of Section 171 of the CGST Act, 2017 - Whether there was any reduction in rate of tax or increase in the benefit of input tax credit in respect of the impugned construction project which would trigger Section 171. - HELD THAT: - The Authority accepted the DGAP's finding that the impugned project commenced after introduction of GST w.e.f. 01.07.2017 and there were no bookings, supplies or CENVAT/ pre-GST input tax credits in the pre-GST period which could form a comparative base. The project starting date and first bookings were recorded in the post-GST period and the occupancy/building permissions likewise post-dated GST; therefore no antecedent pre-GST tax structure or input tax credit benefit existed to be compared with post-GST ITC. In view of this factual matrix, a reduction in rate of tax or an increase in ITC benefit (which are the triggering events for Section 171) was not established for the project under investigation. The DGAP's conclusion that Section 171(1) was not attracted in the present case was concurred with by the Authority. [Paras 2, 9, 10]

No reduction in tax rate or increase in benefit of input tax credit was established; Section 171(1) did not apply to the impugned project.

Passing on benefit of input tax credit by way of commensurate reduction in price - provisional input tax credit and reversal on unsold units - Whether the respondent passed on any benefit to the recipient by way of commensurate reduction in price in terms of Section 171. - HELD THAT: - Because the Authority found no antecedent pre-GST tax/credit position and no reduction in rate or additional ITC benefit to be passed on, the question of whether the respondent had passed on such a benefit did not arise on merits. The DGAP's investigation and the records (including project commencement, booking dates and GST returns) showed first bookings and project activities only in the post-GST period; consequently the respondent could not be held to have contravened the obligation to pass on benefit. The Authority also noted that issues relating to provisional ITC on unsold units and possible reversal were collateral and did not establish any contravention in respect of the purchases complained of. [Paras 2, 9, 10]

No contravention for failure to pass on benefit by way of commensurate reduction in price was found; the question of passing on benefit was not attracted.

Final Conclusion: The Authority concurred with the DGAP report and held that Section 171(1) of the CGST Act, 2017 was not attracted in respect of the project for the period 01.07.2017 to 31.05.2020; no contravention was found and the complaint was dismissed. The order was delivered within the extended limitation period applicable during the COVID-19 pandemic.

Disallowance under Section 40(a)(ia) of the Income Tax Act - interpretation of the word "deducted" for computing business income - non-obstante clause in Section 40 and its overriding effect on Sections 30 to 38 - tax deduction at source obligation under Section 195 vis-a -vis income deemed to arise under Section 9(1)(vii) - valuation by District Valuation Officer and appellate interference with valuation findings - Tribunal as final fact-finding authority on valuation

Disallowance under Section 40(a)(ia) of the Income Tax Act - interpretation of the word "deducted" for computing business income - Whether disallowance under Section 40(a)(ia) is permissible where the payment to a non-resident was not debited to the profit and loss account and was not claimed as a deduction in computing business income. - HELD THAT: - The Court examined Section 40 (which contains a non-obstante clause) and held that its object is to override Sections 30 to 38 where conditions in Section 40 are not complied with. Central to applicability is the meaning of "deducted" - the Court adopted ordinary dictionary meaning (to take away from a total) and explained that an amount operates as a deduction only if it is debited to the profit and loss account or claimed in computing business profits. Consequently, where payments (including advances forming part of capital work-in-progress or loans and advances) were not debited to the profit and loss account and were not claimed as expenditure in computing business income, Section 40(a)(ia) does not operate to disallow those amounts. The appellate authorities (CIT(A) and the Tribunal) correctly recorded that the sums in question were capital advances or shown under loans and advances and had not been charged to profit and loss account, and therefore deletion of the disallowance was justified. The Court noted supporting decisions of other High Courts on the point and distinguished the decision relied on by revenue as inapplicable. [Paras 23, 24, 25, 26, 29]

Disallowance under Section 40(a)(ia) cannot be made where the impugned amounts were not debited to the profit and loss account and were not claimed as deductions; deletion of the disallowance was upheld.

Valuation by District Valuation Officer and appellate interference with valuation findings - Tribunal as final fact-finding authority on valuation - Whether the Tribunal was justified in directing recomputation of long term capital gains by adopting the guideline value determined by the DVO and in scrutinising the DVO's approach to arrive at a factual finding. - HELD THAT: - The Court observed that the Tribunal did not disturb the guideline value determined by the DVO but directed the Assessing Officer to rework capital gains adopting the guideline value in the same manner as the DVO. The Tribunal, as the final fact-finding authority, scrutinised the materials and returned a factual finding regarding the DVO's methodology (including adjustments). Since the conclusion on valuation was factual in nature, the Court held that no substantial question of law arose for interference in an appeal under Section 260A. [Paras 30]

Tribunal's direction to recompute capital gains adopting the DVO's guideline value and its factual scrutiny of valuation stand; no substantial question of law arises.

Final Conclusion: The appeal is dismissed. The deletion of the disallowance under Section 40(a)(ia) was upheld because the amounts were not debited to the profit and loss account nor claimed as deductions; the Tribunal's factual findings on valuation and direction to recompute capital gains on the basis of the DVO's guideline value do not raise any substantial question of law.

Attribution of business profits to a permanent establishment - application of judicial precedents to determine attributable income - comparative factual analysis with precedent - substantial question of law

Attribution of business profits to a permanent establishment - application of judicial precedents to determine attributable income - comparative factual analysis with precedent - Whether the Income Tax Appellate Tribunal erred in attributing only 15% of the assessee's revenue to its permanent establishment in India. - HELD THAT: - The Tribunal and the Commissioner (Appeals) found no available guidelines to precisely quantify income attributable to the assessee's PE and therefore determined the attributable share on the basis of material facts and existing judicial precedents. The Tribunal accepted that the Indian entity's activities were limited to generating requests and receiving end-results, with travel agents' computers connected only to effect bookings and not processing combined airline data, and that the assessee had not deployed assets in India. On these factual findings the Tribunal applied the ratio of Galileo International and also relied on the Coordinate Bench decision in Amadeus Global Travel I Distribution S.A. The Revenue did not place on record any material differentiating the present facts from those in Galileo. In view of the Tribunal's factual conclusions and its application of precedent, the High Court found no error in attributing 15% of the revenue to the PE in India. [Paras 5, 6, 7, 8]

Tribunal's attribution of 15% of revenue to the assessee's PE in India upheld; no error shown in applying Galileo precedent.

Substantial question of law - Whether a substantial question of law arises warranting interference with the Tribunal's order. - HELD THAT: - The Court examined the contentions advanced by the Revenue and the Tribunal's reasoning and concluded that the Revenue failed to demonstrate any legal error or distinguishing factual material that would raise a substantial question of law. The Court therefore declined to entertain the appeal. The Court clarified that it has not considered or decided orders passed in subsequent assessment years, which are not before it and must be decided on their own merits. [Paras 8, 9, 10]

No substantial question of law arises; appeal dismissed. Subsequent assessment-year orders not considered and to be decided on their own merits.

Final Conclusion: The appeal is dismissed; the Tribunal's attribution of 15% of revenue to the assessee's permanent establishment in India is upheld on the facts and precedents relied upon, and no substantial question of law is made out. Orders in subsequent assessment years were not considered and shall be decided independently.

Validity of order under Section 148A(d) of the Income Tax Act - Requirement of a speaking and reasoned order under Section 148A - Limitation on use of "information" in Explanation 1 to Section 148 - Prohibition on re-opening on a different ground than that stated in the notice - Verification of departmental portal/database information before initiating proceedings - Remand to Assessing Officer for fresh adjudication

Validity of order under Section 148A(d) of the Income Tax Act - Requirement of a speaking and reasoned order under Section 148A - Prohibition on re-opening on a different ground than that stated in the notice - The order dated 7th April, 2022 passed by the Assessing Officer under Section 148A(d) was unsustainable and liable to be set aside. - HELD THAT: - The Court found that the AO's order under Section 148A(d) did not address the basis on which the notice under Section 148A(b) had been issued. The AO, after receiving the assessee's detailed reply and documents denying fictitious derivative transactions, proceeded in the order to make allegations on a distinct ground-accommodation entry from a different company-thereby effectively abandoning the original basis of the notice. The order therefore indirectly accepted the assessee's explanation on the stated ground and, since the AO proceeded on a fresh and unrelated premise without adopting the reason for which the notice was issued, the order was illegal and wholly unsustainable. In this factual matrix the requirement of a reasoned, speaking order addressing the specific information forming the basis of the notice was not fulfilled, and the impugned order was set aside.

Order dated 7th April, 2022 under Section 148A(d) is set aside as unsustainable for proceeding on a different ground than that stated in the notice and for lacking a proper reasoned answer to the assessee's objections.

Remand to Assessing Officer for fresh adjudication - Verification of departmental portal/database information before initiating proceedings - Limitation on use of "information" in Explanation 1 to Section 148 - The Single Bench's direction to remand the matter to the Assessing Officer for a fresh speaking order was unjustified and therefore set aside; no further departmental action could be taken on the subject issue. - HELD THAT: - Given that the AO's order was quashed for being based on an unrelated ground and for failing to address the original information, the Court held that remanding the matter for a fresh order was unnecessary in the facts of this case. The Court relied on the administrative instruction in the CBDT circular emphasising verification of data available on departmental portals before drawing adverse inference and initiating proceedings under Section 148/147. The Court also referred to the established principle that the term "information" under Explanation 1 to Section 148 cannot be lightly used to reopen assessments and that the benchmark of escapement of income remains the condition for invoking reassessment jurisdiction (as discussed in the cited authority Divya Capital One (P.) Ltd. ). In light of the incorrect basis of notice and the AO's departure from that basis, the Court concluded that permitting the department to reopen the matter on a different issue by remand would be inappropriate and set aside the remand direction, prohibiting further action on the subject issue.

The Single Bench's remand to the Assessing Officer is set aside; no fresh action can be taken by the department on the subject issue.

Final Conclusion: The appeal is allowed: the order dated 7th April, 2022 under Section 148A is quashed and the Single Bench's direction remanding the matter to the Assessing Officer is set aside; consequently, the department is precluded from taking further action on the subject issue.

Charging income only once - taxation of trust income in hands of trustee or beneficiary - option to assess either trustee or beneficiary - double taxation - binding effect of departmental circular on assessment practice

Taxation of trust income in hands of trustee or beneficiary - charging income only once - double taxation - binding effect of departmental circular on assessment practice - Whether the remand by the ITAT, directing the Assessing Officer to reclassify and reassess amounts already assessed and taxed in the hands of the Trusts, was sustainable or amounted to permitting double taxation - HELD THAT: - The Court examined Circular No.157 [F.No.228/8/73-IT(A-II)] dated 26.12.1974 which, by its plain language, reiterates the principle that income under the relevant scheme is to be charged only once and that once the Income-tax Officer has exercised the option to assess either the trust or the beneficiaries, it is not open to assess the same income again in the hands of the other. The statutory scheme permits assessment of the trust in its own name and assessment of beneficiaries in their hands, but the Circular clarifies that the point must be kept in view to avoid loss of revenue and prevent double assessment. The factual finding that the respective Trusts had filed returns and paid tax was accepted; on that basis the Court held that the ITAT's order remitting the matter for reclassification and fresh assessment-thereby exposing the same income to taxation again-was unsustainable. The Court therefore answered the legal question in favour of the assessee and against the Revenue, setting aside the remand order and preventing double taxation. [Paras 8, 9, 11, 12, 13]

Remand by the ITAT directing fresh assessment was unsustainable; income already assessed and taxed in the hands of the respective Trusts cannot be taxed again in the hands of the appellant.

Final Conclusion: Appeal allowed: the legal question is answered in favour of the assessee and against the Revenue; the ITAT's remand order permitting reassessment of amounts already taxed in the Trusts is set aside to avoid double taxation.

Exclusion of agricultural land from the definition of capital asset under Section 2(14)(iii) - actual condition and intended use test for characterisation of land - conversion of land for non-agricultural/industrial purpose - location beyond prescribed municipal limits affecting capital asset status - entitlement to exemption under Section 54F of the Income Tax Act

Exclusion of agricultural land from the definition of capital asset under Section 2(14)(iii) - actual condition and intended use test for characterisation of land - location beyond prescribed municipal limits affecting capital asset status - Whether the land sold by the assessee was agricultural land and thereby excluded from the definition of capital asset. - HELD THAT: - The remand report of the Assessing Officer recorded that the land continued to be a mango orchard and there was no sign of development activity. The ITAT recorded as a finding of fact that the land is situated beyond the prescribed limits of Mysore City. Applying the principle that the actual condition and intended use of the land are determinative in characterising land as agricultural, the Court found that the material facts (orchard use and location beyond prescribed limits) establish the land as agricultural. Since agricultural land so situated is excluded from the definition of capital asset, the Tribunal's conclusion to the contrary could not stand. The Court therefore answered the question of characterisation in favour of the assessee. [Paras 10, 11, 12, 13, 14]

The land is agricultural and excluded from the definition of capital asset; question answered in favour of the assessee.

Final Conclusion: Appeal allowed; Question No.1 answered in favour of the assessee and against the Revenue; other questions rendered academic.

Unexplained expenditure under Section 69C - Genuineness of purchases and accommodation entries - Burden of proof on the assessee and duty on Assessing Officer to rebut - Reliance on third party non response to notices under Section 133(6) - Addition as unexplained investment under Section 69 - Reasonable restriction of disallowance to a percentage of disputed purchases

Unexplained expenditure under Section 69C - Genuineness of purchases and accommodation entries - Whether the Assessing Officer was justified in invoking Section 69C to treat the alleged purchases as unexplained expenditure and add the amounts to the assessee's income. - HELD THAT: - The Court examined Section 69C and its scope, noting that it applies where an assessee offers no explanation about the source of expenditure or the explanation is found by the Assessing Officer to be unsatisfactory. The authorities below found (and the record shows) that the assessee produced purchase bills, delivery challans, bank payment evidence (account payee cheques/RTGS) and that sales (exports) and book results were not doubted. The Assessing Officer's conclusion rested on a presumption - drawn from third party affidavits and non response to notices under Section 133(6) - that payments were returned in cash, but he did not place on record evidence demonstrating cash withdrawals or money flowing back to the assessee. The CIT(A) and the Tribunal held that once the assessee discharged the initial onus by producing documentary and bank evidence, it was incumbent on the Assessing Officer to rebut that evidence; he failed to do so. On these findings of fact, the Court held that the case did not fall within the ambit of Section 69C and that the Tribunal's view upholding deletion (except a 10% restriction) was a possible view and not liable to be interfered with. [Paras 24, 25, 26, 27, 28]

Addition under Section 69C could not be sustained in the absence of evidence rebutting the assessee's documentary and banking records; the Tribunal's deletion was upheld.

Burden of proof on the assessee and duty on Assessing Officer to rebut - Reliance on third party non response to notices under Section 133(6) - Reasonable restriction of disallowance to a percentage of disputed purchases - Whether the Assessing Officer could rely on non response of suppliers and Sales Tax/Investigation findings to treat purchases as bogus without further investigation and whether the CIT(A)'s and Tribunal's restriction of disallowance to 10% was permissible. - HELD THAT: - The Court recorded that the Assessing Officer issued notices under Section 133(6) to the suppliers but did not pursue further investigation to establish the alleged modus operandi (receipt of cheques and return of cash). The assessee produced ledger accounts, delivery challans and bank payment evidence and the sales/GPR were not disputed. The authorities below correctly held that mere suspicion or reliance on third party non response and external reports, without evidence of money being returned in cash or other rebuttal of the documentary proof, cannot justify treating purchases as wholly bogus. In light of unchallenged findings of fact and the Assessing Officer's failure to contradict the records, the appellate authorities reasonably restricted the disallowance to 10% of the disputed purchases; the Court found this to be a possible view and declined to interfere. [Paras 23, 24, 26, 28, 29]

Assessing Officer could not sustain a full addition based solely on third party non response and investigative reports without affirmative rebuttal; the 10% restriction of disallowance by the CIT(A) and Tribunal is upheld as a permissible view.

Final Conclusion: The appeal is dismissed. The Tribunal's confirmation of the CIT(A)'s order - setting aside the bulk of the additions under Section 69C and restricting disallowance to 10% of the disputed purchases - is a sustainable and non perverse view on the facts; no substantial question of law is made out.

Application of non-obstante clause restricting deduction until payment under Section 43B - liability to pay electricity duty versus role as collecting agent under the Punjab Electricity (Duty) Act, 1958 - statutory collection agency doctrine - rejection of mercantile accounting alone to attract Section 43B

Application of non-obstante clause restricting deduction until payment under Section 43B - liability to pay electricity duty versus role as collecting agent under the Punjab Electricity (Duty) Act, 1958 - rejection of mercantile accounting alone to attract Section 43B - Whether Section 43B of the Income-tax Act, 1961 applies to electricity duty collected by the assessee under the Punjab Electricity (Duty) Act, 1958. - HELD THAT: - Section 43B operates as a non-obstante provision permitting deduction only in the year in which a sum 'payable by way of tax, duty, cess or fee' is actually paid. The critical question is whether the electricity duty in dispute is a sum payable by the assessee as a primary liability or whether the assessee functions merely as a statutory collecting agency. The Punjab Electricity (Duty) Act, 1958, read as a whole - particularly Section 3 (levy of duty), Section 4 (collection and payment by Board or licensee to State Government), Section 5 (prohibition on licensee reimbursing consumer without State sanction) and the Rules prescribing deposit to Government treasury - shows the liability to pay rests on the consumer and that the licensee/licensee's role is to collect and remit the duty to the State Government. The licencee's statutory duty to collect and deposit in treasury demonstrates agency character rather than primary liability. Consequently, the mere use of the mercantile system of accounting by the assessee does not, by itself, attract Section 43B; revenue must show the obligation to pay devolves on the assessee. The Gujarat decision relied upon by revenue was distinguishable on its facts because, under the relevant statute considered there, the liability of the licensee was clear. The Calcutta High Court's reasoning in CESE Ltd. v. CIT-II, Kolkata, to the effect that electricity duty collected for passing on to the State does not attract Section 43B against the licensee, supports the present conclusion. Applying these principles to the facts of the assessment year, the court held Section 43B is not attracted to the electricity duty collected by the assessee under the 1958 Act. [Paras 11, 12, 13, 14, 15]

Section 43B does not apply to the electricity duty collected by the assessee under the Punjab Electricity (Duty) Act, 1958, because the primary liability to pay the duty lies on the consumer and the licensee acts as a collecting agency; mercantile accounting alone cannot invoke Section 43B.

Final Conclusion: Appeals dismissed; the electricity duty collected by the licensee under the Punjab Electricity (Duty) Act, 1958 is not a sum payable by the assessee for the purpose of Section 43B, and thus the disallowance made by revenue is set aside.

Deduction under income from other sources (u/s 57) - allocation of cost between original land area and saleable developed area - onus of proof to substantiate claimed cost and expenses - remand to Assessing Officer for verification and fresh consideration

Deduction under income from other sources (u/s 57) - allocation of cost between original land area and saleable developed area - onus of proof to substantiate claimed cost and expenses - Whether the cost of sites sold and incidental expenses claimed under section 57 should be accepted on the basis of the assessee's contention that only the saleable area (41,947.19 sq.ft.) is attributable to her, or whether the cost must be apportioned over the entire original area (87,120 sq.ft.), and whether the claimed incidental expenses are attributable to the sale of developed sites. - HELD THAT: - The Tribunal recorded that the land was purchased in 2010 for a specified total consideration and that the assessee contends she received only the saleable area as per an approved plan, which would raise the cost per sq.ft. The Assessing Officer adopted a lower per sq.ft. cost by spreading acquisition cost over the entire original area and disallowed certain incidental expenses; the CIT(A) confirmed those findings on the ground that the assessee had not discharged the onus to substantiate her claim with supporting documents. The assessee, however, produced before the Tribunal an approved plan indicating the percentage of saleable area and other documentary material which it is not clear were before the authorities below. Given that the determinative question turns on factual verification of the approved plan, the actual saleable area received by the assessee in exchange, and the attribution of the incidental expenses to the sold developed sites, the Tribunal found it appropriate to remit the matter to the Assessing Officer for fresh consideration. The assessee was directed to produce necessary evidence to prove the saleable area and the expenses attributable to the sale of developed sites; the AO is to afford a reasonable opportunity of hearing and decide after verification, with the assessee cooperating and avoiding unnecessary adjournments. [Paras 8, 9]

Issue remanded to the Assessing Officer for verification of the asserted saleable area and for determination of cost allocation and admissibility of incidental expenses after affording the assessee an opportunity to produce evidence.

Final Conclusion: The Tribunal restored the matter to the Assessing Officer for fresh consideration and verification of the assessee's claim regarding saleable area and attributable expenses; the appeal is allowed for statistical purposes.

Application of income for charitable purposes - provision for gratuity and leave encashment treated as application - accrual/mercantile system of accounting - true and fair view of accounts analogous to depreciation provisions - statutory compliance under Payment of Gratuity Act and actuarial valuation

Provision for gratuity and leave encashment treated as application - application of income for charitable purposes - accrual/mercantile system of accounting - true and fair view of accounts analogous to depreciation provisions - Whether the provision for gratuity of Rs. 8,00,019 made in the books of account by the trust is to be disallowed or shall be treated as 'applied' income under section 11(1)(a) for AY 2014-15. - HELD THAT: - The Tribunal examined whether a provision for gratuity, made in accordance with statutory mandate and applicable accounting standards and maintained on accrual basis, constitutes 'application' of income for charitable purposes. Relying on reasoning that provisions mandated by law and accountancy to reflect a true and fair view (analogous to provision for depreciation) are necessary outgoings chargeable against income, the Tribunal followed the coordinate-bench decision in Anandlal & Ganesh Podar Society vs DCIT which held that such provisions should be allowed. The Tribunal further relied on precedent in CIT vs Trustees of H.E.H. the Nizam's Charitable Trust that 'applied' is not tantamount to actual 'spent' and that actual payment is not a precondition for finding application of funds. The facts showed (and it was not disputed) that the provision complied with statutory requirements, actuarial valuation, was consistently made under the mercantile system, and that gratuity was paid to employees on retirement from an earmarked account. Applying these principles, the Tribunal concluded that the provision for gratuity was correctly part of the income applied to charitable objects and directed deletion of the addition made by the AO, allowing the ground of appeal. [Paras 8, 9, 10]

Provision for gratuity made in the books, being a statutory/accounting provision reflecting accrual-based application for charitable purpose, is to be allowed and the addition deleted.

Final Conclusion: Assessee's appeal is allowed: the Tribunal deleted the addition of the provision for gratuity for AY 2014-15, holding that such provision, made in compliance with statutory/accounting requirements and maintained on accrual basis, qualifies as 'applied' income under section 11(1)(a).

Revision under section 263 - erroneous and prejudicial to the interests of revenue - failure to furnish documentary evidence - unexplained investment - assessment set aside for fresh inquiry

Revision under section 263 - erroneous and prejudicial to the interests of revenue - failure to furnish documentary evidence - assessment set aside for fresh inquiry - Whether the Principal Commissioner of Income Tax was justified in invoking revisionary powers under section 263 to set aside the assessment order as erroneous and prejudicial to the interests of revenue and directing fresh assessment proceedings. - HELD THAT: - The Principal Commissioner issued a show cause notice identifying specific defects in the assessment - inter alia, unexplained investment/value of land not recorded in books and partner's remuneration vis a vis survey disclosure - and sought documentary particulars and explanations. The assessee was given opportunities in the revisional proceedings but failed to furnish the required documents and particulars despite specific notices and reminders. The revisional authority recorded that the Assessing Officer had not made complete inquiry into the identified issues and that, in the absence of the requested material, the assessment remained susceptible to revision. The Tribunal finds on the record that adequate opportunity was afforded to the assessee during the revision proceedings and that the assessee did not participate in the appeal before the Tribunal or produce any substantiating material. In these circumstances the revisional authority was entitled to conclude that the assessment order was erroneous and prejudicial to the interests of revenue and to set it aside for fresh enquiry and assessment.

Order of the Principal Commissioner under section 263 setting aside the assessment is affirmed and the appeal is dismissed.

Final Conclusion: The Tribunal confirms the revisional order under section 263 for AY 2013-14, holding that the assessment was rightly set aside as erroneous and prejudicial to the revenue in view of the assessee's failure to furnish required documentary evidence and justification; the appeal is dismissed.

Validity of proceedings under section 153C where assessment has attained finality - Requirement of incriminating material seized from searched person to reopen or make additions in search assessments - Effect of prior notice under section 148 on assumption of jurisdiction under section 153C where jurisdiction has been transferred - Invalidity of notice issued without jurisdiction

Validity of proceedings under section 153C where assessment has attained finality - Requirement of incriminating material seized from searched person to reopen or make additions in search assessments - Whether additions and disallowances in assessment framed under section 153C for A.Y.2008-09 could be sustained when the assessment for that year had earlier attained finality and no incriminating material relatable to that year was received from the searched person. - HELD THAT: - The Tribunal found that the assessment for A.Y.2008-09 had been completed under section 143(3) on 22/12/2010 and a re-assessment under section 143(3) r.w.s. 147 was completed on 31/01/2014, so that as on the date of assumption of jurisdiction under section 153C (26/11/2014) no proceedings in respect of A.Y.2008-09 were pending. The Assessing Officer had made various disallowances and an addition, but the record showed that those adjustments were either already made in prior assessments or were not based on any seized incriminating material handed over by the Assessing Officer of the searched person. In particular the addition for alleged illegal unaccounted production was founded on the Justice M.B. Shah Commission report and not on the petty cash book (Annexure A-8) received from the searched person; that petty cash book related to a different year. Relying on settled law that concluded assessments should not be disturbed in search assessments in the absence of incriminating material relatable to the assessment year, the Tribunal held that the additions/disallowances in the section 153C assessment could not be sustained. [Paras 4]

Assessment framed under section 153C for A.Y.2008-09 is not sustainable insofar as additions/disallowances were made without any incriminating material from the searched person relatable to that year; the return filed in response to notice under section 153C is to be accepted and total income recomputed accordingly.

Effect of prior notice under section 148 on assumption of jurisdiction under section 153C where jurisdiction has been transferred - Invalidity of notice issued without jurisdiction - Whether the notice dated 13/10/2014 issued under section 148 by the Kolkata Assessing Officer could render proceedings pending on the date of assumption of jurisdiction under section 153C (26/11/2014), despite transfer of the assessee's case to Mumbai on 30/09/2014. - HELD THAT: - The Tribunal noted that the assessee's case had been transferred from Kolkata to Mumbai by order under section 127(2) dated 30/09/2014. Consequently, a subsequent notice purportedly issued by the Kolkata Assessing Officer on 13/10/2014 was held to be issued without jurisdiction and therefore null and void. Since that notice was invalid, there were no pending proceedings under section 148 on the date the Assessing Officer assumed jurisdiction under section 153C, and the Revenue's argument that an extant section 148 proceeding obviated the need for incriminating material in the section 153C assessment was rejected. [Paras 4]

The notice dated 13/10/2014 under section 148 issued by the Kolkata Assessing Officer was without jurisdiction and null; therefore no section 148 proceedings were pending when jurisdiction under section 153C was assumed.

Final Conclusion: The assessee's appeal is allowed: the section 153C assessment for A.Y.2008-09 cannot sustain the additions/disallowances made without incriminating material relatable to that year and the Assessing Officer is directed to recompute total income accepting the return filed in response to the section 153C notice; the Revenue's appeal is dismissed.

Allowability of service tax as an expenditure/liability not collected from customers - Disallowance for lack of quantitative stock records and sufficiency of stock register - Judicial restraint in interfering with appellate finding that meets the ends of justice

Allowability of service tax as an expenditure/liability not collected from customers - Deletion of addition of service tax claimed in profit and loss account - HELD THAT: - The Assessing Officer disallowed the service tax claimed by the assessee on the ground that service tax was not shown as collected from customers and was not mentioned in the Notes to Accounts. The Tribunal found that service tax is a liability of the assessee where it was not collected from customers and that the Assessing Officer had misconstrued the Notes to Accounts. The first appellate authority had therefore rightly deleted the addition by treating the payment as an allowable liability rather than an omitted collection. The Revenue's challenge to that conclusion was rejected. [Paras 8]

Addition relating to service tax disallowed by Assessing Officer was deleted; Revenue's ground dismissed.

Disallowance for lack of quantitative stock records and sufficiency of stock register - Judicial restraint in interfering with appellate finding that meets the ends of justice - Sustenance of partial disallowance (10%) on account of rejected consumption of food and beverages for lack of quantitative details/stock records - HELD THAT: - The Assessing Officer made a large disallowance for failure to produce quantitative details, item-wise trading results and opening/closing stocks. The assessee explained that it procures perishable items daily and produced a stock register and purchase details; the first appellate authority accepted the explanation only partially and restricted the disallowance to 10% of consumption of food and beverages. Having regard to the nature of the assessee's restaurant business and the appellate authority's assessment that a limited disallowance would meet the ends of justice, the Tribunal declined to interfere with the exercise of discretion by the CIT(A) and upheld the confirmed addition. [Paras 14]

Disallowance reduced and sustained at 10% by CIT(A) was upheld; Revenue's challenge dismissed.

Final Conclusion: The Revenue's appeal is dismissed: the deletion of the service-tax addition was upheld and the CIT(A)'s confirmation of a restricted 10% disallowance in respect of consumption of food and beverages was sustained.

Deduction for employee's contribution under Section 36(1)(va) - interaction of Section 36(1)(va) with Section 43B - effect of amendment by Finance Act, 2021 and prospectivity of its Explanation - prima facie adjustments in processing under Section 143(1)(a)(iv) - eligibility for deduction where statutory dues are paid before filing return under Section 139(1)

Deduction for employee's contribution under Section 36(1)(va) - eligibility for deduction where statutory dues are paid before filing return under Section 139(1) - interaction of Section 36(1)(va) with Section 43B - effect of amendment by Finance Act, 2021 and prospectivity of its Explanation - prima facie adjustments in processing under Section 143(1)(a)(iv) - Whether employees' contributions to PF/ESI paid after the statutory due date but before the due date for filing return under Section 139(1) for AY 2019-20 are allowable as deduction and whether the Explanation introduced by Finance Act, 2021 applies retrospectively to disallow such amounts for AY 2019-20. - HELD THAT: - The Tribunal found on the facts that the employees' contributions collected by the assessee were deposited before the due date for filing the return under Section 139(1) for AY 2019-20. Relying on binding decisions of the jurisdictional Rajasthan High Court and consistent Tribunal precedents, it held that where such contributions are paid before filing the return under Section 139(1), they cannot be disallowed under Section 43B read with Section 36(1)(va). Although the CPC made a prima facie adjustment under Section 143(1)(a)(iv) on the ground that payment was not within the statutory due date, that adjustment is not sustainable where payment was made before the return filing date. The Tribunal also examined the amendment introduced by the Finance Act, 2021 and the explanatory memorandum, noting the express provision that the amendment takes effect from 1 April 2021 (applicable to AY 2021-22 and subsequent years). Consequently, the Explanation cannot be read to operate retrospectively to affect AY 2019-20. Applying these legal conclusions to the record, the Tribunal directed deletion of the addition made by CPC and confirmed by the CIT(A). [Paras 6, 7, 8]

Addition on account of delayed deposit of employees' contribution to ESI/PF for AY 2019-20 deleted; Explanation inserted by Finance Act, 2021 held prospective and not applicable to AY 2019-20.

Final Conclusion: The appeal is allowed: the disallowance of employees' contribution towards ESI/PF (processed under Section 143(1)) is deleted for AY 2019-20, and the Finance Act, 2021 Explanation is held to apply prospectively from 01.04.2021 (AY 2021-22 onwards).

Amortisation of forward exchange premium as revenue expenditure - Accounting Standard (AS-11) - treatment of forward exchange contracts - applicability of accounting standards in absence of statutory bar - forward exchange contracts entered to hedge external commercial borrowings - Section 43A - computation with reference to forward exchange contracts (inapplicability)

Amortisation of forward exchange premium as revenue expenditure - Accounting Standard (AS-11) - treatment of forward exchange contracts - applicability of accounting standards in absence of statutory bar - Allowability of amortised portion of premium paid on forward foreign-exchange contracts as revenue expenditure under section 37(1) of the Act. - HELD THAT: - The Tribunal examined AS-11 (paras 36-39) which prescribes that premium or discount arising at the inception of a forward exchange contract should be amortised as expense or income over the life of the contract and that such premium is to be accounted separately from exchange differences. The language of AS-11 indicates that the premium amortised as "expense" is to be recognised in the profit and loss account. Having found no provision in the Act specifically barring the accounting treatment under AS-11, the Tribunal applied the principle in Virtual Soft Systems Ltd. that, in the absence of an express statutory bar, accounting standards prescribed by ICAI may be followed for tax computation. Section 43A was considered and held not to apply because the loans were not for acquisition of assets outside India; no other statutory provision displacing AS-11 treatment was pointed out by Revenue. Reliance on authorities treating such premiums as capital when linked to capital loans was distinguished on facts and on precedents that focus on utilisation at the time of devaluation. For these reasons the amortised premium was held to be allowable as revenue expenditure. [Paras 12, 13, 14, 15]

The amortised portion of the forward cover premium is revenue expenditure and is allowable; appeals for A.Y. 2014-15, 2015-16 and the relevant ground for 2016-17 are allowed (mutatis mutandis).

Dismissal as not pressed - Claim for excess depreciation was not pressed and is dismissed as not pressed. - HELD THAT: - The assessee's counsel did not press the ground relating to excess depreciation for A.Y. 2016-17 considering the smallness of the amount involved; the Tribunal therefore dismissed that ground as not pressed. [Paras 23]

Ground relating to excess depreciation is dismissed as not pressed; appeal is otherwise partly allowed for A.Y. 2016-17.

Final Conclusion: The Tribunal allowed the appeals concerning the amortised premium on forward foreign-exchange contracts for A.Y. 2014-15 and 2015-16, and allowed the corresponding ground for A.Y. 2016-17 (with one ancillary ground dismissed as not pressed), holding that AS-11 permits amortisation of such premium as revenue expense and no statutory provision barred that treatment.

Penalty under section 271AAA - Exception to penalty where undisclosed income is admitted in a statement under section 132(4), the manner of derivation is specified, and tax with interest is paid - Applicability of section 271AAA to the search year and block period - Discretion in levy of penalty (non-automatic nature of penalty proceedings) - Search and seizure - statement under section 132(4) as basis for exclusion from penalty

Penalty under section 271AAA - Exception to penalty where undisclosed income is admitted in a statement under section 132(4), the manner of derivation is specified, and tax with interest is paid - Search and seizure - statement under section 132(4) as basis for exclusion from penalty - Whether penalty under section 271AAA could be imposed where the assessee offered the undisclosed amounts in a statement recorded under section 132(4) and paid tax thereon. - HELD THAT: - The Tribunal examined sub-section (2) of section 271AAA which disapplies the penalty if the assessee (i) in the course of the search admits the undisclosed income in a statement under section 132(4) and specifies the manner of derivation, (ii) substantiates that manner, and (iii) pays tax with interest in respect of the undisclosed income. It was found on the record that the assessee offered the amounts found as income in the statement recorded under section 132(4) and paid tax thereon. Although the assessing authority recorded that no specific query was put regarding the mode of derivation and rejected the assessee's later reply at the threshold, the Tribunal held that where the assessee, during the search, comes forward to offer income and subsequently pays the tax, the assessee should be given the benefit of the exception in subsection (2). Applying this determinative statutory principle to the material on record, the Tribunal concluded that the conditions for exemption under section 271AAA(2) were satisfied and directed deletion of the penalty for the years under consideration. [Paras 13, 15, 16]

Penalty under section 271AAA deleted because the assessee offered the income in the statement under section 132(4) and paid tax thereon, thereby satisfying the exception in subsection (2).

Applicability of section 271AAA to the search year and block period - Penalty under section 271AAA - Whether the penalty under section 271AAA was leviable for assessment year 2009-10 (the search year) in the facts of the case. - HELD THAT: - The Tribunal considered the special position of the search year within the block period framework. It noted that for the assessment year 2009-10, being the search year, the year falls outside the block period criteria necessary for invoking the penal provision as contended by the department. On that basis, and coupled with the finding that the assesseee had offered income and paid tax, the Tribunal held that section 271AAA was not applicable to the assessment year 2009-10 in the circumstances of this case. [Paras 14, 16]

Penalty under section 271AAA not leviable for assessment year 2009-10; penalty deleted.

Final Conclusion: The appeals are allowed: the penalty imposed under section 271AAA is deleted for assessment years 2008-09 and 2009-10 as the assessee offered the undisclosed income in the statement under section 132(4) and paid the tax thereon, and the search-year considerations render section 271AAA inapplicable to 2009-10 in the facts of the case.

Jurisdiction of adjudicating authority under Section 60(5) of the Insolvency and Bankruptcy Code - powers and duties of Resolution Professional during corporate insolvency resolution process - entertainability of writ jurisdiction under Article 226 despite availability of statutory appeal - self-restraint in exercise of constitutional writ jurisdiction where an alternative statutory remedy exists - effect of lapse of statutory limitation for filing an appeal as a bar to collateral invocation of writ jurisdiction - scope of tribunal jurisdiction in relation to decisions of regulatory or quasi judicial authorities - exceptions permitting exercise of writ jurisdiction notwithstanding alternative remedy

Jurisdiction of adjudicating authority under Section 60(5) of the Insolvency and Bankruptcy Code - powers and duties of Resolution Professional during corporate insolvency resolution process - scope of tribunal jurisdiction in relation to decisions of regulatory or quasi judicial authorities - Whether the Resolution Professional was competent to file an interlocutory application under Section 60(5) of the IBC seeking payment of pending power purchase bills during the CIRP and whether the NCLT had jurisdiction to pass the impugned directions. - HELD THAT: - The Tribunal had held that the Resolution Professional, vested with management powers during CIRP and duties to preserve and protect the corporate debtor's assets and business operations, was entitled to file an application under Section 60(5) of the IBC to protect continuation of business operations and seek payment of bills raised on actual supply. The High Court recorded and accepted the Tribunal's reasoning that the RP exercises powers as IRP under the Code, including acting on behalf of the corporate debtor and protecting its ongoing operations, and that an application for payments during CIRP aimed at not adversely affecting the insolvency resolution process falls within that jurisdiction. The Court distinguished cases where tribunals have no jurisdiction to adjudicate matters that are within the exclusive competence of statutory or quasi judicial authorities, noting those distinctions in the facts, and did not disturb the Tribunal's conclusion on its competence to entertain the IA in the present factual matrix. [Paras 6, 7, 8]

Tribunal's conclusion that the RP could file the IA under Section 60(5) and that NCLT could direct interim payments to preserve the corporate debtor's operations is accepted.

Entertainability of writ jurisdiction under Article 226 despite availability of statutory appeal - self-restraint in exercise of constitutional writ jurisdiction where an alternative statutory remedy exists - effect of lapse of statutory limitation for filing an appeal as a bar to collateral invocation of writ jurisdiction - exceptions permitting exercise of writ jurisdiction notwithstanding alternative remedy - Whether the High Court should exercise its writ jurisdiction under Article 226 to entertain the petition impugning the NCLT order when an alternative statutory remedy of appeal under the IBC was available and the period for filing such appeal had expired. - HELD THAT: - The Court acknowledged the settled principle that availability of an alternative statutory remedy does not automatically oust writ jurisdiction; nevertheless constitutional courts exercise self restraint and interfere only in exceptional circumstances (for example, violation of natural justice or challenge to vires). The impugned order did not fall within those recognized exceptions. Further, the statutory remedy of appeal under Section 61 of the IBC was available in respect of the Tribunal's order; the petitioners had not availed the appeal within the prescribed or extended period. The Court held that failure to pursue the statutory appeal within limitation did not entitle the petitioners to substitute a writ petition as a backdoor remedy. Applying these principles, the Court declined to exercise Article 226 jurisdiction in the matter. [Paras 15, 21]

Writ petition dismissed for want of maintainability in view of the available statutory appeal and absence of exceptional circumstances justifying exercise of writ jurisdiction.

Final Conclusion: The High Court declined to interfere with the NCLT order on jurisdictional grounds in favour of the Resolution Professional but dismissed the writ petition as not maintainable under Article 226 because the petitioners had an alternate statutory remedy of appeal under the IBC which they failed to availed within the prescribed period; petitioners are left to pursue remedies under the IBC.

Locus of an aggrieved person - substitution of legal representative / substitution in proceedings - Section 213 Indian Succession Act - bar on establishing rights under an unprobated Will - requirement of speaking reasons / principles of natural justice - remand for fresh consideration by adjudicating forum

Locus of an aggrieved person - substitution of legal representative / substitution in proceedings - Whether the appellant-company had locus to prefer the appeal against the Tribunal's order substituting the Trust as representative of the deceased applicant - HELD THAT: - The Tribunal examined the pleadings and positions in the original petition and substitution applications and observed that the appellant-company was a respondent in the underlying company petition and had filed a detailed reply disputing the claim that the interest-free advance was a deposit and disputing other factual and legal contentions. Having regard to the reliefs sought in the main proceedings and to the adverse effect that the substitution order could have on the appellant's legal rights, the Tribunal concluded that the appellant possessed a substantial grievance and was an aggrieved person entitled to challenge the impugned order. The Tribunal therefore held the appeal to be maintainable and the appellant to have locus to agitate the substitution order. [Paras 102, 103, 104, 105]

The appellant-company has locus to prefer the appeal and is an aggrieved person for challenging the substitution order.

Section 213 Indian Succession Act - bar on establishing rights under an unprobated Will - requirement of speaking reasons / principles of natural justice - remand for fresh consideration by adjudicating forum - Whether the impugned order dated 26.05.2022 of the National Company Law Tribunal permitting substitution of the Trust should be sustained or requires interference and/or remand - HELD THAT: - The Tribunal found that the NCLT's impugned order suffered from legal infirmities: it did not adequately consider or adjudicate disputed questions concerning the validity, execution and effect of the Will and the trust instruments, nor did it furnish qualitative, threadbare, speaking reasons addressing the parties' rival contentions. Given that the Trust's claim to the movables (including the alleged deposit/loan) is interwoven with pending testamentary and civil proceedings before the High Court, and because rights under a Will (and attendant substitution) may be affected by the operation of Section 213 of the Indian Succession Act, the Tribunal concluded that the NCLT ought to have awaited or addressed the outcome of those proceedings and provided reasoned findings rather than deciding substitution in a summary manner. For these reasons the Tribunal set aside the impugned order and remitted the matter to the NCLT Division Bench-I, Chennai for fresh consideration and a reasoned, speaking order, permitting parties to make mention and proceed after adjudication of the pending testamentary proceedings; the Tribunal emphasized that the fresh consideration must be uninfluenced by its observations. [Paras 109, 111, 112, 113, 114]

Impugned order dated 26.05.2022 is set aside; the matter is remitted to the NCLT for fresh consideration and a reasoned speaking order after the testamentary proceedings are adjudicated.

Final Conclusion: The appeals are disposed of by holding that the appellant-company has locus to challenge the substitution order, and by setting aside the NCLT's impugned order dated 26.05.2022 as legally infirm; the matters are remitted to the NCLT Division Bench-I, Chennai for fresh consideration and a reasoned speaking order, with liberty to the parties to proceed after the pending testamentary proceedings before the High Court are adjudicated.

Auction purchaser liability for pre-sale dues - as is where is non-recourse sale - doctrine of clean slate - liquidation sale and Section 53 waterfall - operational creditor claim in liquidation

Auction purchaser liability for pre-sale dues - as is where is non-recourse sale - liquidation sale and Section 53 waterfall - operational creditor claim in liquidation - doctrine of clean slate - Liability of the successful bidder in a liquidation auction to discharge dues that accrued prior to the sale when the claimant had filed as an operational creditor and the liquidator had distributed proceeds under Section 53. - HELD THAT: - The Tribunal examined whether an auction purchaser who acquired property in liquidation (pursuant to a registered sale deed and sale certificate) can be made liable to pay pre-sale dues claimed as an operational debt where the claimant had submitted Form-B and the liquidator notified that sale proceeds were insufficient to satisfy secured creditors and no amount remained for operational creditors. Applying the statutory waterfall under Section 53 and the principle that claims in liquidation are to be submitted to and dealt with by the liquidator, the Tribunal relied on the rationale in Committee of Creditors, Essar Steels (that a purchaser should not be saddled with "undecided" claims) and on Ghanshyam Mishra (on disclosure of liabilities to resolution applicants) to hold that once the liquidation sale was completed and proceeds allocated, prior dues cannot be fastened upon the auction purchaser. The Tribunal distinguished authorities concerning sales on "as is where is" and liabilities in other contexts (e.g., electricity dues) on the facts that here the Appellant had filed its claim in liquidation and the liquidator had informed it that there were no funds for operational creditors. Consequently, the auction purchaser cannot be compelled to discharge pre-sale liabilities already addressed (or found to be unpaid due to insufficiency of proceeds) in the liquidation process. [Paras 12, 13, 14, 16, 17]

The auction purchaser is not liable to pay dues that arose prior to the liquidation sale where those dues were the subject of a claim in liquidation and the liquidator has distributed the proceeds under Section 53 leaving no amount for operational creditors; the Adjudicating Authority's order directing transfer in favour of the auction purchaser is upheld.

Final Conclusion: Appeal dismissed. The Adjudicating Authority correctly held that the successful bidder in the liquidation sale could not be fixed with pre-sale dues which had been claimed in liquidation and for which the liquidator had allocated proceeds under Section 53, leaving no amount for operational creditors.

Exclusion of time spent in litigation from CIRP period - application of Section 12 timelines under the Insolvency and Bankruptcy Code, 2016 - extension of CIRP period - binding effect of Essar Steel (paragraph 117) on computation of CIRP

Exclusion of time spent in litigation from CIRP period - application of Section 12 timelines under the Insolvency and Bankruptcy Code, 2016 - binding effect of Essar Steel (paragraph 117) on computation of CIRP - Whether periods spent in pending litigation and specified adjournments are to be excluded from computation of the CIRP period and whether the impugned order refusing such exclusion should be set aside. - HELD THAT: - The Tribunal applied the principle in paragraph 117 of the Essar Steel judgment, holding that the statutory timeline (now 330 days) for completion of CIRP includes time taken in legal proceedings related to the resolution process and that such periods are therefore to be treated as excluded for the purpose of calculating the CIRP timeline. On that basis the Tribunal found the Adjudicating Authority erred in declining to exclude periods spent in adjudication and consideration of related applications. The Tribunal set aside the Adjudicating Authority's order refusing the extension and excluded (a) a 60-day period from the CIRP, (b) the period from 19.02.2021 to 31.05.2021 (the duration of the impugned application), and (c) the period from 14.06.2021 (filing of the appeal) to 06.09.2022 (date of judgment), for the purposes of computing the CIRP period, directing that the Committee of Creditors consider the Resolution Plan accordingly.

Impugned order set aside; specified periods excluded from the CIRP calculation and the CoC directed to consider the Resolution Plan.

Final Conclusion: Appeal allowed; the Tribunal excluded the specified periods from the CIRP timeline in accordance with the principle in Essar Steel (para 117), set aside the Adjudicating Authority's order dated 31.05.2021 and directed the Committee of Creditors to consider the Resolution Plan.

Withdrawal of CIRP under Section 12A of the IBC - duty of the Interim Resolution Professional to seek clear directions from the Adjudicating Authority - conduct of the Interim Resolution Professional and its bearing on entitlement to fees - classification of CIRP expenses as essential and non-essential for allowance - reimbursement of CIRP costs to the Corporate Debtor - obligations of insolvency professionals under the code of conduct including Section 208(2)(a)

Withdrawal of CIRP under Section 12A of the IBC - duty of the Interim Resolution Professional to seek clear directions from the Adjudicating Authority - conduct of the Interim Resolution Professional and its bearing on entitlement to fees - Continuation of CIRP by the IRP after filing a withdrawal application prior to constitution of the CoC was inappropriate in the factual matrix and justified adverse remarks on the IRP's conduct. - HELD THAT: - The Adjudicating Authority and this Tribunal found that the IRP filed the Section 12A withdrawal application 12 days after commencement of CIRP and before constitution of the CoC. Instead of actively pursuing pointed clarification from the Adjudicating Authority whether to proceed, the IRP continued full-scale CIRP activity merely by appearing at hearings and invoking CIRP Regulations. An IRP, as the driving force of CIRP, must act with fairness, diligence and take reasonable steps to obtain guidance where the process is in flux; mere mechanical presence and proceeding without seeking clear directions was held to be unbecoming and justified judicial disapproval of his conduct. The Tribunal concurred with the Adjudicating Authority that, given the circumstances, the IRP's choice to press on without obtaining clarification was not proper and could affect entitlement to fees. [Paras 12]

The IRP's continuance with CIRP without seeking clear directions after filing the withdrawal application was held to be improper and merited disapproval.

Classification of CIRP expenses as essential and non-essential - reimbursement of CIRP costs to the Corporate Debtor - The Adjudicating Authority did not err in disallowing certain CIRP expenses as non-essential and in allowing reimbursement only of those expenses found essential. - HELD THAT: - The Adjudicating Authority required the IRP to file detailed expense particulars and examined each item. Expenses contingent upon custody of records and assets (for example valuation-related costs and fees for preparation of certain applications) were disallowed because the ex-management had not handed over records and assets and the IRP himself had filed for non-cooperation. The Tribunal accepted that the terms 'essential' and 'non-essential' were used as an evaluative aid and that the impugned order gave cogent reasons for allowing some items and disallowing others. Consequently, the allowance of CIRP costs to the extent indicated in the impugned order was upheld. [Paras 13]

The evaluation and partial disallowance of CIRP expenses by the Adjudicating Authority was justified and is affirmed.

Conduct of the Interim Resolution Professional and its bearing on entitlement to fees - obligations of insolvency professionals under the code of conduct including Section 208(2)(a) - The adverse remarks and restriction of the IRP's fees by the Adjudicating Authority were sustainable insofar as they sprang from the IRP's conduct inconsistent with the expectations under the code of conduct. - HELD THAT: - The Tribunal noted that insolvency professionals are subject to a code of conduct requiring reasonable care and diligence and transparent, reasonable remuneration. Given that the withdrawal application was pending, reasonable prudence required the IRP to seek clear guidance before incurring avoidable costs. The Adjudicating Authority's strong disapproval was grounded on the view that the IRP 'pushed' CIRP activities despite the fluid situation and thereby added to costs that could have been deferred. The Tribunal agreed that the IRP's conduct warranted restriction of fees and that the Adjudicating Authority did not act arbitrarily in expressing disapproval. [Paras 15]

The adverse observations and limitation of the IRP's fees were justified on the material and are sustained.

Final Conclusion: The impugned order is affirmed; the Adjudicating Authority's categorisation and partial allowance of CIRP expenses, its adverse remarks regarding the IRP's conduct, and the consequent restriction of fees are upheld. The appeal is dismissed.

Commercial wisdom of Committee of Creditors - finality of approved resolution plan - dissenting secured creditor cannot challenge approved resolution plan - limited judicial review under Section 61(3) and compliance with Section 30(2) of the IBC - prima facie duty of the resolution professional under Section 30(2) - abuse of process by invoking Section 60(5) to reopen an approved plan

Finality of approved resolution plan - abuse of process by invoking Section 60(5) to reopen an approved plan - Appellant's challenge under Section 60(5) to a Resolution Plan already approved by the CoC and sanctioned by the Adjudicating Authority - HELD THAT: - The Tribunal held that once a Resolution Plan is approved by the Committee of Creditors by the requisite majority and sanctioned by the Adjudicating Authority, it attains finality and cannot be reopened or modified by invoking Section 60(5). The appeal was described as an attempt to circumvent the statutory process and delay the time bound CIRP; reliance on the Supreme Court's rulings that a submitted and approved resolution plan is binding and irrevocable established that allowing the present challenge would amount to indirectly setting aside or modifying an approved plan. Accordingly, the Tribunal found no merit in seeking relief under Section 60(5) after the plan had attained finality. [Paras 24, 25, 26, 27, 28]

Appellant is not entitled to relief under Section 60(5) since the Resolution Plan had been approved and attained finality; appeal dismissed on this ground.

Dissenting secured creditor cannot challenge approved resolution plan - commercial wisdom of Committee of Creditors - Competence of a dissenting secured creditor to challenge approval of a Resolution Plan before this Tribunal - HELD THAT: - Applying binding precedents, the Tribunal held that a dissenting secured creditor who did not vote in favour of the plan cannot challenge an approved Resolution Plan merely on account of dissatisfaction or claimed superior security. The scheme of the IBC treats acceptance by the CoC as a commercial decision; not every dissatisfaction constitutes a legal grievance. The Tribunal relied on Supreme Court authorities establishing that the entitlement of dissenting creditors is limited to the payment or enforcement of security to the extent of value receivable and that the CoC's financial proposal is at the core of its business decision. [Paras 29, 30, 31]

Appellant, being a dissenting secured creditor, is not competent to challenge the approved Resolution Plan before this Tribunal on the grounds raised.

Limited judicial review under Section 61(3) and compliance with Section 30(2) of the IBC - prima facie duty of the resolution professional under Section 30(2) - Whether alleged discrimination in distribution and categorisation of secured creditors justified interference with the CoC's commercial decision or the Adjudicating Authority's order - HELD THAT: - The Tribunal reiterated that judicial review of a CoC decision is confined to the four corners of Section 30(2) and Section 61(3) of the IBC and will not enter into merits of the commercial decision. The Resolution Professional examined the plan for compliance with Section 30(2) and placed it before the CoC; thereafter the CoC approved the plan and the Adjudicating Authority sanctioned it. Absent a finding that the approved plan contravened the IBC or other law within Section 61(3), allegations of discriminatory categorisation and distribution by a dissenting creditor do not warrant interference. The filing of the interlocutory application was characterised as an abuse of process aimed at reopening a plan that had satisfied statutory requirements. [Paras 34, 35, 36, 37, 38]

Alleged discrimination does not override the CoC's commercial wisdom nor justify setting aside the Adjudicating Authority's order; no interference warranted.

Final Conclusion: The appeal is dismissed; the order of the Adjudicating Authority dated 9th May 2019 in I.A. No. 24 of 2019 in C.P.(IB) No. 41/7/HDB/2017 is confirmed, as the approved Resolution Plan had attained finality, the Appellant as a dissenting secured creditor could not challenge it, and the Tribunal will not interfere with the CoC's commercial decision absent a contravention of the IBC or other law.

Operational Debt - Section 9 application under Insolvency and Bankruptcy Code, 2016 - Section 8 demand notice - Development Agreement / Joint venture for construction and marketing - Adjudicating Authority's admission of insolvency petition - Falsity / fabrication of document relied upon as defence

Operational Debt - Development Agreement / Joint venture for construction and marketing - Whether the amounts paid by the Operational Creditor to the Corporate Debtor constituted an operational debt arising from provision of services under the proposed development agreement and therefore supported admission of the Section 9 application. - HELD THAT: - The Tribunal examined the genesis and nature of the transactions between the parties and placed weight on the drafted Development Agreement dated 01.10.2016 which was forwarded by the Operational Creditor and envisaged a joint-venture for construction and marketing of residential flats. Paragraph 7 of that draft recorded the mode of payment - an upfront amount and subsequent post-dated cheques - and it was not disputed that the upfront payments (Rs. 3 crores and a further admitted payment on 05.04.2017) were made in contemplation of the Development Agreement. The court found that the payments were made while the Operational Creditor acted to provide infrastructure and manpower to execute the project, and therefore the payments were in furtherance of services envisaged under the proposed development agreement. Applying that factual matrix, the Tribunal concluded that the claim related to supply of goods/services and fell within the scope of an Operational Debt, supporting admission under the Code. [Paras 7, 13, 14, 15]

Payments made by the Operational Creditor in pursuance of the proposed Development Agreement amounted to an Operational Debt, and the Adjudicating Authority correctly treated the claim as operational in nature.

Falsity / fabrication of document relied upon as defence - Section 8 demand notice - Adjudicating Authority's admission of insolvency petition - Whether the Term-Sheet dated 25th April, 2017 relied upon by the Appellant established a different character of transaction (transfer/takeover) or was a valid defence, and whether the demand notice under Section 8 was served so as to vitiate admission of the Section 9 petition. - HELD THAT: - The Tribunal scrutinised the pleadings filed before the Adjudicating Authority and the documents on record. The Corporate Debtor's reply to the Section 9 application and an accompanying legal notice repeatedly referred to an Agreement to Sell dated 19.04.2017 and post-dated cheques, but made no contemporaneous mention of any Term-Sheet dated 25.04.2017. The Adjudicating Authority and this Tribunal observed that the Term-Sheet was produced for the first time in the appeal and found material inconsistencies; the Operational Creditor denied execution of the alleged agreements and contended the 25.04.2017 Term-Sheet was fabricated. Given the absence of the Term-Sheet from earlier pleadings and the contradictory record, the Tribunal accepted that the Term-Sheet could not be relied upon to change the character of the transaction. On service of the Section 8 demand notice, the court noted that evidence of service and the demand notice were placed on record in the Section 9 application; the submission that the notice was never served was rejected. [Paras 9, 11, 15]

The Term-Sheet dated 25th April, 2017 was not a reliable document to alter the nature of the transaction and was treated as fabricated; the contention of non-service of the Section 8 demand notice was rejected, and there was no error in admitting the Section 9 application.

Final Conclusion: The Tribunal dismissed the appeal and upheld the Adjudicating Authority's admission of the Section 9 application: the payments made in furtherance of the proposed Development Agreement constituted an Operational Debt, the Term-Sheet relied upon by the appellant was not accepted as a valid defence, and the demand notice was properly placed on record.

Jurisdiction of the Adjudicating Authority under Section 60(5)(b) for recovery of claims against sundry debtors - limits on NCLT/NCLAT jurisdiction where adjudication would short circuit judicial proceedings - liquidator's power and duty to institute or defend civil proceedings to recover dues - prohibition on bypassing other fora by invoking insolvency forum for disputes requiring evidence

Jurisdiction of the Adjudicating Authority under Section 60(5)(b) for recovery of claims against sundry debtors - limits on NCLT/NCLAT jurisdiction where adjudication would short circuit judicial proceedings - Whether the Adjudicating Authority could entertain and decide an application under Section 60(5)(b) for recovery of amounts alleged to be due to the corporate debtor from sundry debtors in summary proceedings filed by the liquidator. - HELD THAT: - The Tribunal held that Section 60(5) does not empower the Adjudicating Authority to determine disputed claims in summary proceedings so as to bypass ordinary judicial remedies. Applying the principles in Gujarat Urja Vikas Nigam Ltd. and Embassy Property Development Pvt. Ltd., the NCLT/NCLAT's jurisdiction is circumscribed by the need for a nexus with insolvency and by the supervisory, process driven role of the Adjudicating Authority; where adjudication of a claim requires calling for evidence and the resolution of factual disputes, resort to ordinary civil fora cannot be foreclosed. Permitting summary adjudication under Section 60(5)(b) in such circumstances would amount to short circuiting judicial proceedings, which the statutory scheme does not contemplate. [Paras 14, 15]

Applications by the liquidator seeking recovery of disputed amounts from sundry debtors could not be entertained under Section 60(5)(b) in summary proceedings; the Adjudicating Authority was justified in dismissing the applications as not maintainable.

Liquidator's power and duty to institute or defend civil proceedings to recover dues - prohibition on bypassing other fora by invoking insolvency forum for disputes requiring evidence - Whether the liquidator was obliged or competent to pursue recovery through the Adjudicating Authority rather than by initiating civil proceedings or other appropriate remedies. - HELD THAT: - The Tribunal noted that the Code and the Regulations (including the liquidator's power to institute or defend suits) envisage that where recovery requires full adjudication of disputed facts, the liquidator may and should institute appropriate civil or other proceedings rather than seek summary relief under Section 60(5). The factual disputes pleaded by the sundry debtors (including claims of deficient supply and set offs) demonstrated that adjudication would require evidence, and therefore the remedy sought before the NCLT was inappropriate. The decision in Devmata Exim was distinguished on facts where goods were accepted and sold; that factual matrix was absent here. [Paras 11, 12, 15, 16]

The liquidator is not precluded from pursuing recovery by instituting civil proceedings or other appropriate actions; the Adjudicating Authority should not be used to bypass fora where factual adjudication is necessary.

Final Conclusion: The Appeals are dismissed. The Adjudicating Authority did not err in holding the liquidator's recovery applications as not maintainable under Section 60(5)(b); disputed claims requiring evidence must be pursued by appropriate civil or other proceedings rather than by summary adjudication before the insolvency forum.

Summary order. Civil Appeal dismissed; delay condoned.

Extended period of limitation - reverse charge liability for service tax - bona fide belief and revenue neutrality - cenvat credit and effect on mens rea - sustainability of penalty

Extended period of limitation - reverse charge liability for service tax - bona fide belief and revenue neutrality - cenvat credit and effect on mens rea - Whether the extended period of limitation could be invoked to demand service tax on reverse charge basis for the period in question where the appellant had a bona fide belief that no tax was payable and had shown the liability in its balance sheet, with availability of cenvat credit making the position revenue neutral. - HELD THAT: - The Tribunal found no dispute on the substantive liability for service tax on reverse charge basis from the persons located abroad; the sole question was the invocability of the extended period. The appellant had bona fide doubts at the material time about reverse charge liability and had in earlier years paid service tax on similar services; for the disputed period the appellant showed the liability in its balance sheet and ultimately paid the tax and interest. In these circumstances, and because sales commission services were ordinarily admissible to the manufacturer as cenvat credit creating a revenue neutral situation, the Tribunal held that malafide intention or deliberate concealment could not be attributed to the appellant. Reliance on precedents distinguishing cases where liability was not disclosed in returns was noted, but the factual matrix here-disclosure in balance sheet and revenue neutrality-distinguished those decisions. Applying these principles the extended period of limitation was held not invocable in the facts of this case and the demand for the longer period was set aside. [Paras 5]

Extended period of limitation cannot be invoked for the disputed period; demand for service tax for the extended period is set aside.

Sustainability of penalty - cenvat credit and effect on mens rea - Whether the penalties imposed under the service tax regime are sustainable in view of the Tribunal's conclusion on extended limitation and revenue neutrality. - HELD THAT: - Given the conclusion that the extended period was not invocable because there was no mala fide intention (the appellant had shown the liability and the position was revenue neutral due to admissible cenvat credit), the Tribunal held that penalties imposed under the circumstances were not sustainable. The Tribunal followed earlier reasoning in which penalties were set aside where there was no gain and no malafide in non-payment, and where judicial authorities had exonerated liability to penalty in comparable factual matrices. [Paras 5, 6]

Penalties imposed for the extended period are not sustainable and are set aside.

Final Conclusion: The appeal is allowed: the demand for service tax for the extended period (w.e.f. 18.04.2006) is set aside on the facts of bona fide belief, disclosure in the balance sheet and revenue neutrality through admissible cenvat credit; consequential penalties are also set aside.

Rendition of service - Point of Taxation - applicable rate of service tax - supplementary invoice - continuing liability versus taxable event

Rendition of service - applicable rate of service tax - supplementary invoice - Point of Taxation - Whether service tax on supplementary invoices raised after upward revision of rate is to be charged at the rate prevailing on issuance of supplementary invoice or at the rate prevailing on the date of rendition of the underlying service. - HELD THAT: - The Tribunal held that the taxable event for service tax is the rendition of the service and not the later issuance of a supplementary invoice or receipt of payment. Applying the principle that the rate of tax relevant is the rate on the date the service was rendered, the Tribunal observed that the services in dispute were rendered during FY 2010-11 and FY 2011-12 when the applicable rate was 10%. The increase in rate to 12% effective 01.04.2012 did not affect services already rendered before that date. The Point of Taxation Rules, 2011 define the "Point of Taxation" as the time when a service shall be deemed to have been provided, and the Tribunal followed the ratio of the Hon'ble Supreme Court in Association of Leasing & Financial Service Companies v. Union of India to conclude that issuance of supplementary invoices in July 2012 could not change the rate applicable to services rendered earlier. Consequently, the demand based on taxing the supplementary invoices at 12% was set aside. [Paras 6, 7]

Demand for service tax at the increased rate was quashed; services rendered in FY 2010-11 and FY 2011-12 are taxable at 10%, and the impugned orders are set aside with consequential relief.

Final Conclusion: Appeal allowed: supplementary invoices raised after 01.04.2012 cannot attract the higher rate where the underlying services were rendered prior to 01.04.2012; service tax on the services in question is payable at 10% for the stated financial years and the departmental demand is set aside.

Interest on delayed refund of pre-deposit - Application of un-amended Section 35FF to deposits made prior to 6.8.2014 - Meaning of "communication of the order of the appellate authority" - Remand for computation of interest

Application of un-amended Section 35FF to deposits made prior to 6.8.2014 - Interest on delayed refund of pre-deposit - Proviso preserving pre-amendment regime - Pre-deposit made on 25.6.2014 is governed by the un-amended Section 35FF and interest is payable only where refund is not granted within three months from communication of the appellate order. - HELD THAT: - Section 35FF, as it stood between 10.5.2008 and 6.8.2014, provided for payment of interest only if the refund was not made within three months from the date of communication of the appellate authority's order; the amendment effected after 6.8.2014 made interest payable from the date of payment until refund. The amended provision contains an express proviso that amounts deposited under Section 35F prior to commencement of the Finance (No.2) Act, 2014 shall continue to be governed by the pre-amendment Section 35FF. The appellant's pre-deposit on 25.6.2014 therefore falls squarely within the pre-amendment regime and is not entitled to interest from the date of payment; interest accrues only if the refund was not sanctioned within three months from the communication of the appellate order. [Paras 6, 7, 9]

Interest on the pre-deposit of 25.6.2014 is governed by the un-amended Section 35FF and is payable only for delay beyond three months from communication of the appellate order.

Meaning of "communication of the order of the appellate authority" - Interest on delayed refund of pre-deposit - Deemed communication on pronouncement to departmental representative - Communication of the appellate order is not to be equated with physical receipt of the copy; when an order is pronounced before the Tribunal with departmental representation, the order is deemed communicated to the concerned authority for the purpose of the three-month period. - HELD THAT: - The statute prescribes interest computation from the expiry of three months from 'communication of the order of the appellate authority.' The Tribunal held that 'communication' cannot be construed narrowly as physical receipt of the copy by the adjudicating authority. Where the order is pronounced and the Department is represented by its authorised representative, the communication is deemed to have occurred and the three-month period begins to run from that point. The department cannot rely on delay in internal receipt as defeating the statutory timeline for sanctioning refunds. [Paras 10]

The three-month period for triggering interest runs from communication of the appellate order as deemed upon its pronouncement to the Department's representative, not from later physical receipt by the Commissionerate.

Remand for computation of interest - Interest on delayed refund of pre-deposit - The matter is remanded to the Adjudicating Authority to calculate and pay interest for delay beyond three months from communication of the Tribunal's final order until actual refund, and to pay the calculated amount within two months. - HELD THAT: - Having determined that the pre-deposit is governed by the un-amended Section 35FF and that communication is deemed on pronouncement, the Tribunal modified the impugned order to the extent of directing calculation of interest from the expiry of three months after the final order dated 19.02.2020 until the date of refund. The adjudicating authority is directed to compute the interest on these terms and disburse the amount within two months from the Tribunal's order. [Paras 10]

The appeal is partly allowed; the matter is remanded for computation and payment of interest for the period after three months from 19.02.2020 until refund, to be paid within two months.

Final Conclusion: The Tribunal held that the appellant's pre-deposit of 25.6.2014 is governed by the un-amended Section 35FF (pre-6.8.2014), entitling interest only where refund was not made within three months from communication of the appellate order; communication is deemed on pronouncement where the Department is represented; the matter is remanded to the adjudicating authority to compute and pay interest for the period after three months from 19.02.2020 until actual refund, to be paid within two months.

Refund of duty on goods returned to factory under Section 173L - market value test and clause (v) - Market value of returned goods (not ex duty value) - Treatment of returned goods as scrap for valuation - Alleged violation of principles of natural justice for non supply of market survey report

Treatment of returned goods as scrap for valuation - Refund of duty on goods returned to factory under Section 173L - market value test and clause (v) - The Department's valuation of the returned goods as scrap at Rs.8 to 10 per kg and consequent denial of refund under Section 173L(v) is sustainable. - HELD THAT: - After opportunity to the assessee, the Deputy Commissioner relied upon the market survey report and other material on record to value the returned goods as scrap at Rs.8 to 10 per kg. No cogent evidence was led by the assessee to establish a higher market value of the returned goods; the invoices produced for the secondary market did not suffice to displace the departmental finding. The value of returned goods depends on the extent of defects and requires evidence for each consignment, which the assessee failed to produce. As the value so determined was, in the opinion of the collector, less than the duty originally paid, denial of refund falls squarely within clause (v) of Section 173L. Concurrent findings by the adjudicating authority, the Tribunal and the High Court on valuation were not interfered with. [Paras 3, 5]

Valuation as scrap at Rs.8 to 10 per kg upheld and refund rightly denied under Section 173L(v).

Alleged violation of principles of natural justice for non supply of market survey report - The contention of breach of natural justice for non supply of the market survey report was not tenable in the circumstances and could not be raised at the High Court for the first time. - HELD THAT: - The assessee participated in proceedings before the Deputy Commissioner, did not request a copy of the market survey report, did not seek cross examination on it, and did not raise non supply of the report before the Tribunal. Having failed to challenge or seek particulars at the adjudicatory stage, the assessee could not raise the grievance belatedly before the High Court. The High Court therefore correctly treated the valuation as a question of fact determined after providing opportunity to the assessee. [Paras 3]

Complaint of non supply of market survey report and breach of natural justice rejected as not raised earlier and without substance.

Market value of returned goods (not ex duty value) - Refund of duty on goods returned to factory under Section 173L - market value test and clause (v) - The returned goods cannot be valued for refund purposes by reference to their raw material or ex duty value; the statutory test is the market value of the excisable goods. - HELD THAT: - Section 173L and its Explanation to clause (v) require that 'value' means the market value of the excisable goods and not the ex duty value. The Court rejected the assessee's submission that returned goods reusable as raw material should be valued by reference to raw material value, holding that no statutory provision supports such a treatment and that the statutory criterion is market value of the goods at return. [Paras 4]

Submission to value returned goods as raw material rejected; market value of excisable goods is the relevant criterion under Section 173L.

Final Conclusion: Concurrent factual findings on valuation were upheld; the refund claim was rightly denied under Section 173L(v) because the market value of the returned goods, determined after providing opportunity and supported by the market survey, was found to be less than the duty originally paid. The appeal is dismissed with no order as to costs.

CENVAT credit entitlement based on duty-paid import - Admissibility of bill of entry under Rule 9(1)(c) of the Cenvat Credit Rules, 2004 - Transfer memo not being a document enumerated in Rule 9 - Distinction between cases where no supporting document is produced and where bill of entry is produced - Reliance on Union of India v. Marmagoa Steel Limited as precedent

CENVAT credit entitlement based on duty-paid import - Admissibility of bill of entry under Rule 9(1)(c) of the Cenvat Credit Rules, 2004 - Transfer memo not being a document enumerated in Rule 9 - Assessee entitled to avail CENVAT credit where bill of entry showing import and duty paid was produced, notwithstanding that internal "transfer memo" used to record diversion to a particular factory is not listed in Rule 9. - HELD THAT: - The Court found that the import of manganese ore, the bill of entry and proof of payment of duty were produced and were not disputed by the department. Rule 9(1)(c) expressly recognises the bill of entry as an approved document for availing CENVAT credit. The department's denial was founded solely on the fact that a transfer memo (not enumerated in Rule 9) recorded diversion of part of the imported goods to one unit. Where the basic statutory and documentary prerequisites for credit (import, payment of duty and bill of entry) are satisfied, the mere existence of an internal transfer memo cannot be the sole basis to deny credit. The Tribunal correctly held that the assessee was entitled to take credit on the basis of the bill of entry evidencing duty-paid import and utilization in manufacture.

Credit allowed; Tribunal's allowance of CENVAT credit based on bill of entry upheld.

Reliance on Union of India v. Marmagoa Steel Limited as precedent - Distinction from Principal Commissioner of Customs, Central Excise & Service Tax, Meerut v. BSNL Limited - Appropriate application of precedent where supporting document is produced - The Tribunal rightly applied Marmagoa Steel and correctly distinguished BSNL Limited; BSNL was inapplicable because there no supporting document was produced whereas here bill of entry and duty payment were on record. - HELD THAT: - The Court observed that Marmagoa Steel supports allowance of credit where documentary proof of import and duty payment exists and was relied upon by the Tribunal. The BSNL decision relied upon by the revenue was factually distinguishable because, in BSNL, no document had been produced to substantiate the claim, leading to remand. Therefore, the Tribunal's application of Marmagoa Steel and rejection of the revenue's reliance on BSNL was justified.

Tribunal's reliance on Marmagoa Steel affirmed and BSNL distinguished; revenue's contention rejected.

Final Conclusion: The appeal by the revenue is dismissed; the Tribunal's order allowing CENVAT credit on the basis of the bill of entry and its reliance on Marmagoa Steel are upheld, and the substantial questions are answered against the revenue.

Cenvat credit on inputs used for generation of electricity for captive use - availability of Cenvat credit where electricity is supplied free to sister unit having separate central excise registration - distinction between sale of electricity and captive transfer to related unit for Cenvat purposes - interpretation of "input" under the Cenvat Credit Rules

Cenvat credit on inputs used for generation of electricity for captive use - availability of Cenvat credit where electricity is supplied free to sister unit having separate central excise registration - interpretation of "input" under the Cenvat Credit Rules - Whether the respondent is entitled to Cenvat credit on inputs and input services used in generation of electricity which was transferred free of cost to its sister unit having a separate central excise registration for the period December 2011 to March 2016. - HELD THAT: - The Tribunal examined the definition of "input" in the Cenvat Credit Rules and the Revenue's contention that credit is admissible only where the inputs/input services are used in manufacture of dutiable goods by the same registered unit. It noted that the respondent had reversed credit to the extent electricity was sold to external parties but had supplied part of the electricity free to its sister unit. The Tribunal considered precedent, including a High Court decision in Shree Cements Ltd. and earlier Tribunal benches in Sanghi Industries, Bilag Industries and Hindustan Zinc Ltd., which permitted Cenvat credit in similar circumstances. Distinguishing the facts of Maruti Suzuki (where excess electricity was sold for consideration), the Tribunal accepted that supply free of cost to a sister unit for use in manufacture does not disentitle the transferor unit from credit on inputs used to generate that electricity. Applying these authorities and reasoning, the Tribunal found no basis to take a contrary view and held that the respondent was entitled to Cenvat credit to the extent inputs/input services were used for production of electricity transferred free to its sister unit. [Paras 12, 13]

Entitlement to Cenvat credit upheld for inputs/input services used in generation of electricity supplied free to the sister unit; Revenue's demand rejected.

Final Conclusion: The Revenue's appeal is dismissed; the order of the Commissioner (Appeals) reducing the proportionate recovery was upheld and the respondent is entitled to Cenvat credit for inputs/input services used in generation of electricity transferred free to its sister unit for the period December 2011 to March 2016.

Interpretation of para 2A of Notification No.39/2001-CE - availability of CENVAT credit - strict compliance of conditions of exemption notification - purpose and anti-abuse object of credit-utilisation condition

Interpretation of para 2A of Notification No.39/2001-CE - availability of CENVAT credit - purpose and anti-abuse object of credit-utilisation condition - Whether the phrase "whole of the CENVAT credit available to him" in para 2A means CENVAT credit actually taken and reflected in the assessee's credit account, or it includes credit which the assessee could have taken but voluntarily did not take - HELD THAT: - The Tribunal held that the restriction in para 2A was enacted to prevent misuse by accumulating unutilised credit and availing disproportionate benefit later; it was not intended to penalise a manufacturer who had not taken CENVAT credit at all. The meaning of "credit available" is the CENVAT credit taken and available in the CENVAT account, not hypothetical credit which the assessee could have taken but chose not to. The appellant's unavailing of CENVAT credit did not increase the quantum of refund admissible under the notification, and therefore no abuse or accumulation could arise in the facts of this case. The Board's DOF clarification was noted as supporting the objective of preventing accumulation, while also indicating that complete rejection of claims was not intended in cases where credit had not been taken and any inadvertent credit should be reversed. Applying this interpretation to the facts, the Tribunal found no basis for rejecting the re-credit claims solely because the appellant did not take CENVAT credit on inputs or capital goods.

Para 2A must be read as referring to CENVAT credit actually taken and standing in the assessee's credit account; credit which the assessee could have taken but did not is not "available" for the purpose of para 2A.

Strict compliance of conditions of exemption notification - interpretation of para 2A of Notification No.39/2001-CE - Whether the Deputy Commissioner and Commissioner (Appeals) were justified in rejecting the appellant's re-credit claims for April 2008 to February 2010 on the ground that the appellant had not first utilised CENVAT credit - HELD THAT: - Applying the construction of para 2A adopted by the Tribunal, the rejection of the re-credit claims solely because the appellant did not avail CENVAT credit was without basis. The material before the Tribunal showed that the quantum of refund would not have differed had the appellant availed the credit, and no accumulation or misuse of credit was demonstrated. The earlier departmental decisions and precedents emphasising strict compliance were considered, but the Tribunal concluded that, on the facts, non-availment did not amount to violation attracting denial of the exemption. Consequently, the impugned rejections were held to be unsustainable.

The rejection of the appellant's re-credit claims for the period April, 2008 to February, 2010 on the ground of non-utilisation of CENVAT credit was not justified; the appeals are allowed.

Final Conclusion: The Tribunal construed para 2A of Notification No.39/2001-CE to mean that only CENVAT credit actually taken and reflected in the assessee's credit account is "available" for the purpose of the condition; credit which an assessee could have taken but did not is not "available". Applying that interpretation, the Deputy Commissioner's and Commissioner (Appeals)'s rejections of the appellant's re-credit claims for April, 2008 to February, 2010 were without basis and the appeals were allowed.

Entitlement to exemption under area based notification - commencement of commercial production - slump sale and transfer of benefit - relocation/change of ownership and effect of CBEC circulars - demand under Section 11A(4) and interest under Section 11AA - penalty under Rule 26 of the Central Excise Rules, 2002

Commencement of commercial production - entitlement to exemption under area based notification - Balaji had commenced commercial production on or before 31.03.2010 and was entitled to the exemption - HELD THAT: - The Tribunal examined documentary material including DIC declarations, date of purchase of machinery and raw material (29.03.2010), absence of electricity connection until 24.04.2010, use of a hired generator, timing and quantum of sales in 2010 and the first sale invoice. It rejected the appellant's contention that full installation, trials and commercial production were completed within 24 hours of purchase, finding it improbable on the materials and the DIC declaration which indicated a later commencement. The Tribunal held that the invoice(s) issued at the relevant time reflected trial or limited production and not commercial production as required by the notification. On these factual and documentary foundations, the Tribunal concluded that commercial production had not commenced by 31.03.2010 and therefore Balaji was not entitled to claim the area-based exemption for the cutoff date. [Paras 23, 24, 25, 26, 31]

Balaji had not commenced commercial production by 31.03.2010 and was not entitled to the exemption under Notification No. 49/2003-CE.

Slump sale and transfer of benefit - relocation/change of ownership and effect of CBEC circulars - demand under Section 11A(4) and interest under Section 11AA - Whether the slump sale, subsequent relocation and MOU between units validly transferred entitlement to exemption so as to permit the assessee to claim benefit beyond its original ten-year period - HELD THAT: - The Tribunal analysed the nature and effect of the slump sale and subsequent conduct. It found that the buyer (assessee) purchased Balaji, shifted the unit to its own premises, disposed of the machinery acquired, discontinued the manufacture of cartons (Balaji's product), and entered into an MOU between two nominal units of the same legal entity under which the assessee effectively leased its own plant to itself. The Tribunal held that these steps were a device to transfer and extend the exemption benefit to the assessee's pharmaceutical manufacture beyond the ten-year limit already availed by the assessee. It considered CBEC circulars relied upon by the appellant and observed that those circulars do not assist where the transaction's net effect is to enable extension of an exemption already exhausted by the same legal entity. On this basis the Tribunal upheld the denial of exemption and the demand of duty with interest under the cited provisions. [Paras 29, 30, 31, 32]

The slump sale, relocation and the MOU operated as a stratagem to transfer and extend the exhausted exemption; denial of exemption and confirmation of duty and interest under Section 11A(4) and Section 11AA are upheld.

Penalty under Rule 26 of the Central Excise Rules, 2002 - Whether penalties imposed on the individual appellants under Rule 26 are sustainable - HELD THAT: - The Tribunal considered the role of the individuals in executing the slump sale agreement and the MOU which facilitated the assessee's claim of exemption. Finding that the individuals (including the Managing Director and Plant Head) were aware of and concerned with the documents and arrangements that enabled the ineligible claim, the Tribunal held that they had abetted the wrongful claim and therefore attracted liability under Rule 26. The Tribunal found no reason to interfere with the penalties imposed on them. [Paras 33, 34, 35]

Penalties imposed on the individual appellants under Rule 26 are sustained.

Final Conclusion: All three appeals are dismissed. The Tribunal upholds the denial of exemption under Notification No. 49/2003-CE, confirms the demand of duty for the period 20.04.2016 to 30.06.2017 with applicable interest, and affirms the penalties imposed on the individual appellants under Rule 26 of the Central Excise Rules, 2002.

Presumption under Section 139 of the Negotiable Instruments Act - reverse onus clause and standard of rebuttal by preponderance of probabilities - signed blank cheque attracting presumption of liability - admissibility and materiality of hand-writing expert opinion

Presumption under Section 139 of the Negotiable Instruments Act - reverse onus clause and standard of rebuttal by preponderance of probabilities - signed blank cheque attracting presumption of liability - Legal effect of signing and handing over a cheque and the standard required to rebut the statutory presumption under Section 139. - HELD THAT: - The Court held that when a drawer signs a cheque and hands it over to the payee, Section 139 raises a rebuttable presumption that the cheque was issued for discharge of a debt or liability. The presumption operates as a reverse onus provision, and the accused must adduce evidence to rebut it. The standard for rebuttal is that of a preponderance of probabilities: the accused must raise a probable defence which creates doubts about the existence of a legally enforceable debt or liability. The fact that particulars on a cheque were filled in by a person other than the drawer does not, by itself, discharge this burden. Reliance on prior decisions was affirmed to the effect that a signed blank cheque voluntarily handed over remains subject to the presumption unless the accused meets the requisite standard to rebut it. [Paras 4, 13, 15, 16, 17]

The presumption under Section 139 stands and is rebuttable on the basis of preponderance of probabilities; signing and handing over a cheque (including a signed blank cheque) gives rise to liability unless the drawer adduces evidence sufficient to raise a probable defence.

Admissibility and materiality of hand-writing expert opinion - presumption under Section 139 of the Negotiable Instruments Act - Whether a hand-writing expert's opinion as to who filled in the particulars on the cheque is material and whether the High Court was justified in permitting the respondents to engage a hand-writing expert. - HELD THAT: - The Court concluded that an expert opinion limited to authorship of the filled-in particulars is immaterial to the determinative question under Section 139 - namely whether the cheque was issued towards discharge of a debt or liability. Since the statutory presumption arises from the act of signing and handing over the cheque, proof that another person filled in the details does not negate the presumption. Consequently, permitting the respondents to adduce a hand-writing expert report on authorship would not assist in rebutting the statutory presumption. The Single Judge's order allowing the engagement of a hand-writing expert was therefore set aside and the report already obtained directed not to be taken into consideration at trial. The dismissal of the application for examination by a government hand-writing expert by the Trial Judge was effectively upheld by this outcome. [Paras 4, 9, 17, 19, 20]

Hand-writing expert evidence as to who filled the cheque particulars is immaterial to the Section 139 presumption; the High Court's permission to engage a hand-writing expert was set aside and the report shall not be considered at trial; the application for such examination is dismissed.

Final Conclusion: The appeal is allowed: the presumption under Section 139 applies to a signed (including signed blank) cheque and is rebuttable on preponderance of probabilities; hand-writing expert opinion on authorship of the filled-in particulars is immaterial to that presumption and the High Court's order permitting such expert evidence has been set aside, with the report excluded from trial.