TaxTMI Updates e-Newsletter
Sep 09,2022

Seizure and detention for non-compliance with e-way bill Part-B - technical glitch in e-way bill entry (vehicle number) and administrative clarification - absence of mens rea/intent to evade tax as defence to seizure, demand and penalty - relevance of clarificatory circulars and Ministry advisories to assessment of culpability - refund of amounts collected pursuant to quashed demand and penalty

Seizure and detention for non-compliance with e-way bill Part-B - technical glitch in e-way bill entry (vehicle number) and administrative clarification - absence of mens rea/intent to evade tax as defence to seizure, demand and penalty - Validity of the demand, penalty and seizure where Part B of the e way bill lacked the vehicle number due to a technical error and whether the impugned orders are sustainable in absence of intent to evade tax. - HELD THAT: - The court found that the sole ground for seizure and the consequent demand and penalty was non filling of Part B of the e way bill. The petitioner explained that the vehicle number (a Delhi registration) could not be entered in Part B on account of a technical glitch. That explanation is supported by departmental and Ministry clarificatory circulars which recognised problems in filling Part B and advised specific modes of entry; the Ministry circular also cautioned against invoking seizure powers for minor errors such as missing or incorrect vehicle digits. There was no allegation or finding that the goods were being transported without payment of tax or that the petitioner intended to evade duty. In these circumstances, and having regard to the departmental circulars and the judgment relied upon by the petitioner dealing with the same issue, the court concluded that prima facie no mens rea to evade tax could be inferred merely from the missing Part B entry caused by a technical glitch. Consequently the impugned demand/penalty order and the appellate order were unsustainable and were set aside.

Impugned order dated 18.04.2018 and appellate order dated 14.05.2019 set aside for the reasons stated; amounts collected pursuant to those orders to be refunded.

Final Conclusion: Writ petition allowed; the orders of demand/penalty and the appellate dismissal were set aside in view of the technical defect in Part B of the e way bill, lack of any finding of intent to evade tax, and supporting departmental/MoF circulars; respondents directed to refund the amounts collected within two months.

Reverse charge - payment of GST by recipient - refund of wrongly paid tax - input tax credit - sympathetic consideration of interest and penalty

Reverse charge - payment of GST by recipient - refund of wrongly paid tax - input tax credit - Relief in respect of GST amounts paid by the petitioner to Indian Railways instead of directly to CGST/SGST authorities and entitlement to input tax credit. - HELD THAT: - The Court found that the petitioner, a recipient of advertising services, had paid the CGST and SGST components to the Railways contrary to the statutory mechanism under the GST law where tax was shown payable on a reverse charge basis by the recipient. Respondent No.5 (Railways) admitted that the amounts had been paid to it and that those payments were erroneous. The Court directed Respondent No.5 to ensure that the amounts wrongly received from the petitioner are paid to the CGST and SGST authorities within two weeks so that the petitioner may be given input tax credit. The Court observed that the petitioner had not attempted to evade tax but had made an erroneous payment, and therefore ordered corrective transfer of the sums to the appropriate tax authorities. [Paras 7, 9, 10, 11, 13]

Respondent No.5 to cause the wrongly paid GST amounts to be paid to the CGST and SGST authorities within two weeks and, upon deposit, the CGST/SGST authorities will grant input tax credit to the petitioner.

Refund of wrongly paid tax - payment of GST by recipient - input tax credit - Procedure to be followed where electronic payment portal requires the recipient party to make the payment and direct deposit by Railways to authorities is not feasible. - HELD THAT: - After the order was dictated it was pointed out that GST payments are made electronically and the portal accepts payment only when made by the concerned taxpayer. In light of this administrative constraint the Court directed Respondent No.5 to pay the amounts to the petitioner within one week so that the petitioner can make the electronic payment to the CGST/SGST authorities. The petitioner was directed to effect the payment within one week after receiving the credit in its account. The CGST and SGST authorities were directed to open/provide the portal/link to the petitioner within one week to enable payment. The Court thereby provided a practical route to ensure the statutory authorities receive the tax and the petitioner obtains input tax credit. [Paras 15]

Respondent No.5 to pay the amounts to the petitioner within one week; petitioner to pay the CGST/SGST authorities within one week after receipt; CGST/SGST authorities to open the portal/link for the petitioner within one week.

Sympathetic consideration of interest and penalty - Entitlement to relief from interest and penalty in view of the erroneous payment. - HELD THAT: - The Court recorded that the petitioner had not attempted to evade tax but had made an honest mistake by paying the tax to the Railways. The Court expressed the hope that, given the unusual facts and circumstances, the CGST and SGST authorities would, unless there are other reasons, consider the petitioner sympathetically and not saddle it with interest or penalty. [Paras 10, 12]

The CGST and SGST authorities are urged to consider waiving interest and penalty in the petitioner's favour, having regard to the admitted erroneous payment and the factual circumstances.

Final Conclusion: The writ petition was disposed with directions that the amounts of CGST and SGST wrongly paid by the petitioner to the Railways be transferred to the respective tax authorities (or paid to the petitioner to enable electronic payment), input tax credit be allowed upon deposit, and the tax authorities be asked to consider waiver of interest and penalty in the unusual factual matrix; no order as to costs.

Requirement of e-way bill for intra-city movement - Scope and sufficiency of a show cause notice - Entitlement to refund where statutory exemption is applicable - Standard for judicial interference with appellate findings

Requirement of e-way bill for intra-city movement - Entitlement to refund where statutory exemption is applicable - Whether the Commissioner (Appeals) was justified in allowing the refund on the basis that the supplies to the respondents were intra-city (Surat to Surat) and thus exempt from e-way bill requirement under the impugned notification. - HELD THAT: - The appellate authority examined invoices produced during the appeal proceedings and found that the goods were supplied to the respondents at Surat and that the movement relied upon by the department fell within the scope of the notification dated 19.09.2018 which exempts generation of e-way bill for intra-city movement. The High Court observed that the appellate authority's factual finding that invoices and e-way bill material supported intra-city receipt was not shown to be perverse, arbitrary or illegal. The Court also noted that the show cause notice framed allegations only as to non-generation of e-way bills for receipt of supplies and that the Commissioner (Appeals) dealt with those allegations on the basis of the records before him.

Appellate order allowing refund on the ground of intra-city supply exempt from e-way bill requirement is upheld; no interference warranted.

Scope and sufficiency of a show cause notice - Whether the departmental order could be sustained on a basis not alleged in the show cause notice. - HELD THAT: - The Court reiterated settled authorities that a show cause notice must fairly and specifically set out the allegations so as to put the noticee on guard. The present show cause notice confined itself to the allegation that supplies were received without e-way bills. There was no allegation in the notice that the respondents had transported finished goods from Surat to Kanpur for export without e-way bills. Consequently, the Deputy Commissioner's order, insofar as it proceeded beyond the allegations in the show cause notice, could not be sustained.

Findings or actions going beyond the specific allegations in the show cause notice could not be sustained; the appellate authority correctly confined itself to the matters alleged and evidenced.

Standard for judicial interference with appellate findings - Whether the writ petition warranted interference with the Commissioner (Appeals) order on the departmental contention that the appellate authority was not the statutory tribunal or had erred in placing reliance on records. - HELD THAT: - The Court examined the record produced from the appellate proceedings and the supplementary affidavit filed by the department. The Court found prima facie contradiction in the department's supplementary affidavit and accepted the departmental explanation that the affidavit had been filed based on the copy of the memo of appeal served on the department. Absent any demonstration that the appellate authority's conclusions were perverse, arbitrary or illegal, the Court held that interference with the appellate decision was not justified. The Court also advised caution to the department in future affidavits but did not find that the appellate authority's institutional status or exercise of fact finding power warranted upset of its order on the present record.

Writ petition challenging the Commissioner (Appeals) order is dismissed for want of merit; no interference with appellate findings.

Final Conclusion: The writ petition challenging the appellate order dated 13.08.2021 is dismissed; the Commissioner (Appeals) order allowing the refund on the basis of intra-city supply and applicability of the e-way bill exemption is upheld and the departmental challenge does not warrant interference.

Validity of administrative guidelines/Office Memorandum on post-GST works contract valuation - Revision of Schedule of Rates to exclude pre-GST tax components - Limitation bar to restitution claims - Mandamus under Article 226-scope and limitations for monetary claims - Denial of judicial computation of disputed factual monetary claims in writ jurisdiction

Validity of administrative guidelines/Office Memorandum on post-GST works contract valuation - Revision of Schedule of Rates to exclude pre-GST tax components - The challenge to the Office Memorandum dated 10.12.2018 and the Revised Schedule of Rates-2014 was not maintainable on merits because the same had already been upheld by this Court in earlier decisions. - HELD THAT: - The Court noted that the Revised SoR-2014 was issued to arrive at GST-exclusive work values by excluding tax components that existed pre-GST and that the Office Memorandum of 10.12.2018 prescribed the manner of calculation in the transitional period. The Court relied on its prior reasoning in Harish Chandra Majhi v. State of Odisha and the order in All Orissa Contractors Association v. State of Odisha which had considered and upheld the Revised SoR and the Office Memorandum. Having perused those authorities and the guidelines, the learned counsel for the petitioner conceded the position and the Court accepted the opposite parties' submission that the earlier decisions set at rest the grounds of challenge to the impugned Memorandum and Revised SoR. [Paras 5, 6]

The challenge to the Office Memorandum dated 10.12.2018 and to the Revised SoR-2014 is rejected as lacking merit in view of earlier decisions upholding the impugned measures.

Limitation bar to restitution claims - The petitioner's claim for restitution of GST benefit is time-barred and therefore not maintainable. - HELD THAT: - The Court examined the agreements appended to the petition and noted the dates of completion of works in 2017. Relying on the principle applied in Chandra Sekhar Jena v. State of Odisha, where similar claims arising from pre-GST contracts were held to be time-barred, the Court found that the cause of action for restitution had become barred by limitation. Consequently, the petitioner cannot seek restitution of GST benefits at this stage. [Paras 7, 8]

The claim for restitution of GST benefit is barred by limitation and the writ petition is dismissed on that ground.

Mandamus under Article 226-scope and limitations for monetary claims - Denial of judicial computation of disputed factual monetary claims in writ jurisdiction - The High Court declined to exercise writ jurisdiction to compute or determine disputed factual monetary claims for GST reimbursement and left the petitioner to pursue appropriate remedies. - HELD THAT: - The Court observed that determining the quantum of GST liability or alleged amounts owed involves highly disputed questions of fact and is essentially a claim for money. It held that the power under Article 226 is not suited to undertake case-by-case computation of which components of work qualify for reimbursement of GST. The Court therefore refused to calculate or order restitution in the writ petition and directed the petitioner to pursue other appropriate remedies where factual and quantification issues can be ventilated and adjudicated. [Paras 9]

The Court will not exercise its writ jurisdiction to compute or adjudicate disputed factual monetary claims for GST; the petitioner may seek other remedies in accordance with law.

Final Conclusion: Writ petition dismissed: the impugned Office Memorandum and Revised SoR-2014 stand upheld in view of prior decisions; the petitioner's restitution claim is time-barred; and the Court declines to undertake factual/monetary computations in writ jurisdiction, leaving the petitioner to pursue alternate remedies.

Transitional credit under GST - Filing of Form GST TRAN-1/TRAN-2 - Extension of filing window by judicial direction - Verification of transitional credit claims by assessing officers - Reflection of allowed transitional credit in Electronic Credit Ledger - Obligation of GSTN to provide portal facility without technical glitches

Transitional credit under GST - Filing of Form GST TRAN-1/TRAN-2 - Extension of filing window by judicial direction - Petitioners are entitled to file or revise Form GST TRAN-1/TRAN-2 during the period directed by the Supreme Court to claim transitional credit. - HELD THAT: - The High Court accepted that the determinative question raised in these petitions has already been answered by the Supreme Court in Union of India v. Filco Trade Centre Pvt. Ltd. The Supreme Court directed GSTN to open a common portal for filing and revising TRAN-1 and TRAN-2 for the limited period from 01.09.2022 to 31.10.2022 and held that aggrieved registered assessees may file or revise the relevant forms irrespective of prior writ petitions or ITGRC decisions. The High Court applied those directions as governing law and disposed of the petitions accordingly.

Petitions disposed by directing compliance with the Supreme Court's order permitting filing/revision of TRAN-1/TRAN-2 during 01.09.2022-31.10.2022.

Verification of transitional credit claims by assessing officers - Reflection of allowed transitional credit in Electronic Credit Ledger - Obligation of GSTN to provide portal facility without technical glitches - Claims filed/revised in the permitted window are to be verified by the concerned officers within the time directed and, if allowed, reflected in the Electronic Credit Ledger; GSTN must ensure the portal functions without technical glitches. - HELD THAT: - Relying on the Supreme Court's directions, the High Court recorded that officers are to be given 90 days after the filing window to verify the veracity of transitional credit claims and pass appropriate orders on merits after granting reasonable opportunity to the parties. The Court also recorded the requirement that GSTN ensure absence of technical glitches during the filing period and that allowed transitional credit be reflected in the Electronic Credit Ledger. The High Court consequently disposed of the petitions in those terms.

Verification within 90 days, reflection of allowed credit in Electronic Credit Ledger, and obligation on GSTN to ensure portal functionality as per the Supreme Court's directions.

Final Conclusion: All captioned petitions disposed of by applying and implementing the Supreme Court's directions in Union of India v. Filco Trade Centre Pvt. Ltd., permitting filing/revision of TRAN-1/TRAN-2 during 01.09.2022-31.10.2022, directing GSTN to ensure portal functionality, granting officers 90 days for verification, and directing reflection of allowed transitional credit in the Electronic Credit Ledger; notices discharged and interim orders vacated.

Treatment or process on goods as supply of services - job work - services by way of job work in relation to printing - manufacturing services on physical inputs (goods) owned by others - classification under Chapter 48 - applicability of GST rate on job work

Treatment or process on goods as supply of services - job work - Whether the applicant's activities (printing, cutting, punching, lamination) on duplex board supplied by the customer are to be treated as supply of services and, if so, whether they constitute job work. - HELD THAT: - Entry No. 3 of Schedule II treats any treatment or process applied to another person's goods as a supply of services. The applicant carries out printing and ancillary processes on duplex board owned by its customers; thus these activities are supplies of services. The statutory definition of 'job work' in clause (68) of section 2 requires that the goods on which the treatment is undertaken belong to a registered person for the activity to qualify as job work. Consequently, where the customer is a registered person the activity qualifies as job work; where the customer is unregistered, the activity remains a treatment or process on another's goods but does not meet the statutory definition of 'job work'. [Paras 4]

The activities are supply of services; they qualify as 'job work' only when the goods belong to a registered person, and remain treatment or process on another's goods when the owner is unregistered.

Services by way of job work in relation to printing - manufacturing services on physical inputs (goods) owned by others - classification under Chapter 48 - applicability of GST rate on job work - The applicable GST rate on the applicant's services (printing of duplex board including cutting, punching and lamination) and whether the rate differs depending on whether the recipient is registered under the GST Act. - HELD THAT: - Notification No.11/2017-Central Tax (Rate) (entry no.26) prescribes rates for services by way of job work in relation to printing of goods falling under Chapter 48. Duplex board falls within Chapter 48 and is itself taxed at 12% (CGST 6% + SGST 6%) under the tariff entry. Entry no.26 contains sub-items which tax job work services relating to printing of Chapter 48 goods at an aggregate rate of 12% (CGST 6% + State GST 6%). The Authority examined the notification structure and the tariff classification of duplex board and concluded that whether the service is characterised as job work (owner registered) or as treatment/process on goods of an unregistered owner, the relevant sub-items (ia)(b) and (iia) under entry no.26 render the service taxable at 12%. The residual category attracting 18% is inapplicable as the activity is specifically covered by the entry for printing of Chapter 48 goods. [Paras 4]

Printing (with ancillary cutting, punching and lamination) on duplex board attracts GST at 12% (CGST 6% + WBGST 6%), irrespective of whether the recipient is registered under the GST Act.

Final Conclusion: Supply of services for printing on duplex board belonging to the recipient, including cutting, punching and lamination, is a supply of services and attracts GST at 12% (CGST 6% + WBGST 6%), irrespective of the registration status of the recipient.

Composite supply - exemption under entry 3A of Notification No. 12/2017-Central Tax (Rate) - value of supply including non-cash consideration - function entrusted under Article 243G/243W of the Constitution - job work rate of 5% under entry 26 of Notification No. 11/2017-Central Tax (Rate)

Composite supply - Whether the supply of milling, fortification and packing of wheat into atta by the applicant constitutes a composite supply with milling as the principal supply. - HELD THAT: - The Authority found on the facts of the empanelment agreement that the activities of crushing wheat, fortification and packing are interconnected and the supply of services by way of milling is the principal supply, thus bringing the transaction within the definition of composite supply under clause (30) of section 2 of the GST Act. The Authority relied on the terms of the agreement requiring milling, fortification and specified packing to conclude that the composite supply character is established. [Paras 4]

The supply qualifies as a composite supply with milling as the principal supply.

Function entrusted under Article 243G/243W of the Constitution - Whether the composite supply is provided to the State Government in relation to a function entrusted to a Panchayat or Municipality under Article 243G/243W. - HELD THAT: - The Authority noted that the contract and empanelment arise under governmental orders and guidelines for the Public Distribution System (PDS) and referred to para 3.1 of Circular No. 153/09/2021-GST which recognises Public Distribution as an activity listed in the 11th Schedule (entry 28) that may be entrusted to Panchayats. On that basis, the Authority concluded that the composite supply to the State Government is in relation to a function entrusted under Article 243G of the Constitution. [Paras 4]

The composite supply is in relation to a function entrusted to a Panchayat under Article 243G.

Value of supply including non-cash consideration - exemption under entry 3A of Notification No. 12/2017-Central Tax (Rate) - Whether the value of supply of goods in the composite supply exceeds 25% of the total value when both cash and non-cash consideration are included, so as to determine eligibility for exemption under entry 3A. - HELD THAT: - The Authority applied Rule 27(b) for supplies where consideration is not wholly in money and held that non-cash elements (by products and retained gunny bags) must be included at their known monetary equivalents. It accepted the applicant's documents and the Department memo as establishing the market values of by products and bags known at the time of supply. Having aggregated cash and non cash consideration, the Authority computed the value of goods (fortification and packing) as Rs.60 against a total composite value of Rs.278.72, i.e. approximately 21.52%, which is not more than 25%. On this basis the Authority held that the supply satisfies the conditions of entry 3A and is therefore exempt. [Paras 4]

The value of goods does not exceed 25% of the composite supply when non-cash consideration is included; the composite supply is eligible for exemption under serial 3A.

Final Conclusion: The Authority ruled that the applicant's composite supply of milling, fortification and packing of wheat supplied to the State Government for distribution under the Public Distribution System qualifies as a composite supply related to a function entrusted under Article 243G and, after including known non cash consideration, the value of goods is not more than 25% of the composite value; accordingly the supply is exempt under serial 3A of Notification No. 12/2017-Central Tax (Rate). No separate rate determination was required.

Composite supply - value of supply including non-monetary consideration - application of Rule 27(b) for consideration not wholly in money - exemption under Entry 3A of Notification No. 12/2017-Central Tax (Rate) for composite supply to Government where value of goods does not exceed 25% - public distribution as activity entrusted under the 11th Schedule (Article 243G/243W) - 5% GST as job-work rate if exemption under Entry 3A does not apply

Composite supply - public distribution as activity entrusted under the 11th Schedule (Article 243G/243W) - value of supply including non-monetary consideration - application of Rule 27(b) for consideration not wholly in money - exemption under Entry 3A of Notification No. 12/2017-Central Tax (Rate) for composite supply to Government where value of goods does not exceed 25% - Whether the supply by the applicant (milling, fortification and packing of wheat into atta for distribution under PDS) is an exempt composite supply under Entry 3A of Notification No.12/2017-CT(Rate), having regard to the nature of the supply and the value of goods component. - HELD THAT: - The activities undertaken-milling of wheat into atta, fortification by premixing micronutrients and packing into labelled poly-pouches-constitute a composite supply with milling (service) as the principal supply. The supply is made to the Food & Supplies Department for distribution under the Public Distribution System; public distribution figures in the 11th Schedule and therefore the supply is in relation to a function that may be entrusted under Article 243G/243W. Where consideration is not wholly in money, Rule 27 applies; clause (b) of Rule 27 permits valuation as the sum of the monetary consideration and an amount equivalent to known non-monetary consideration at the time of supply. The Department's memo (reproduced in the record) fixes the non-cash consideration-proceeds from retained by-products (bran and refraction) and retention of gunny bags-at Rs.124 per 100 kg. The applicant accepted the total value of supply of Rs.260.48 (cash plus the non-cash consideration) and the goods component (packing and, if treated as goods, fortification consumables) is Rs.60. On that basis the goods component amounts to 23.03% of the total value, which does not exceed 25%. In absence of cogent documentary evidence to the contrary, the Authority accepts the Rule 27(b) valuation approach and the Department's valuation of non-monetary consideration, and concludes that the goods component is under 25%, bringing the composite supply within Entry 3A and thus exempt from GST. The Authority rejected the revenue's contention that the parties should be treated as related persons so as to invoke a different valuation provision, observing that mere contractual conditions do not automatically render the parties related for subsection (1) valuation purposes.

The composite supply (milling, fortification and packing) to the State Government is eligible for exemption under Entry 3A of Notification No.12/2017-CT(Rate) because, applying Rule 27(b), the value of goods in the composite supply (23.03%) does not exceed 25% of the total value.

Final Conclusion: Value of supply includes both monetary consideration and known non-monetary consideration under Rule 27(b); on the facts and valuations on record the goods component is 23.03% of the composite supply value and the supply is therefore exempt under Entry 3A of Notification No.12/2017-CT(Rate).

Support services to agriculture, forestry, fishing, animal husbandry - Agricultural services - cultivation, planting and nurturing of fruit trees - Environmental protection services - plantation of mangrove seeds and seedlings - Classification under Notification No. 11/2017 - Central Tax (Rate) - Taxability: Nil rate for agricultural support services; 18% for other environmental protection services

Agricultural services - cultivation, planting and nurturing of fruit trees - Support services to agriculture, forestry, fishing, animal husbandry - Classification under Notification No. 11/2017 - Central Tax (Rate) - Whether supply of services for cultivation, planting and nurturing of fruit trees in marginalised communities falls under support services to agriculture attractable to Nil rate of GST under Notification No. 11/2017. - HELD THAT: - The Authority examined the nature and objective of the applicant's activities relating to fruit trees and found them to involve identification of land and beneficiaries, nursery operations, provision of saplings, pre-planting and planting works, ongoing agronomic support, irrigation arrangements and monitoring to ensure survival of trees. Horticulture, including cultivation of fruit crops, is covered within the concept of agriculture and agricultural operations. The described processes are directly related to production of agricultural produce and fall within the explanatory entries for support services to agriculture, forestry, fishing and animal husbandry in serial number 24 of Notification No. 11/2017, which covers services relating to cultivation and processes that do not alter the essential characteristics of agricultural produce. Applying those descriptions to the applicant's activities, the Authority concluded that the services are properly classified as support services to agriculture. [Paras 4]

Supply of services for cultivation, planting and nurturing of fruit trees is covered under serial number 24 (Heading 9986) of Notification No. 11/2017 and attracts Nil rate of GST.

Environmental protection services - plantation of mangrove seeds and seedlings - Classification under Notification No. 11/2017 - Central Tax (Rate) - Distinction between support services to agriculture and environmental protection services - Whether supply of services for plantation of mangrove seeds and seedlings in coastal areas is to be treated as support services to forestry/agriculture (Nil rate) or as environmental protection services (taxable at 18%). - HELD THAT: - The Authority considered the applicant's stated sole objective for mangrove plantation - enhancing biodiversity, re-establishing ecosystem function and protection from coastal erosion - and noted that these services are not provided for production of food, fibre, fuel, raw material or similar agricultural produce. While forestry is within the ambit of 'agriculture' in a broad sense, the specific character and objective of the applicant's mangrove activities were found to be environmental protection and reforestation aimed at ecological functions rather than production of agricultural produce for primary markets. Accordingly, the activities align with the description of 'other environmental protection services' under Heading 9994 (serial number 32) rather than the entries for support services to agriculture in Heading 9986. [Paras 4]

Supply of services for plantation of mangrove seeds and seedlings in coastal areas is covered under serial number 32 (Heading 9994) of Notification No. 11/2017 and attracts tax at 18% (CGST 9% + SGST 9% or IGST 18%).

Final Conclusion: The Authority ruled that (i) services for cultivation, planting and nurturing of fruit trees in marginalised communities are support services to agriculture (SAC 9986) and are Nil-rated under Notification No. 11/2017; and (ii) services for plantation of mangrove seeds and seedlings in coastal areas are classifiable as other environmental protection services (SAC 9994) and are taxable at 18% under Notification No. 11/2017.

Input tax credit - furtherance of business - blocked credits under Section 17(5) - personal consumption - gift / free samples - composite supply - food and beverages and outdoor catering exclusion - specific provision overriding general provision (non-obstante)

Input tax credit - blocked credits under Section 17(5) - personal consumption - gift / free samples - Availability of input tax credit on inputs/input services procured for promotional schemes and distributed as rewards to retailers. - HELD THAT: - Section 16 permits ITC where inputs are used or intended to be used in the course or furtherance of business, but Section 17(5) contains a non-obstante clause and specifically blocks ITC in certain cases. The Authority found that goods procured for distribution under the applicant's promotional schemes (laptop bag, sandwich maker, electric kettle, blanket, lunch box, mixer grinder etc.) are consumed personally by the recipients and thus fall within the prohibition in Section 17(5)(g). Further, such distributions are voluntary, without separate consideration and described in the scheme materials as 'Gift Option 1/2/3'; they are, therefore, analogous to gifts or free samples covered by Section 17(5)(h). As Section 17(5) is a specific provision overriding Section 16, ITC on such goods/services is disallowed even though procured in furtherance of business. [Paras 12]

Input tax credit on inputs/input services procured for and distributed under the promotional schemes is not available.

Input tax credit - composite supply - food and beverages and outdoor catering exclusion - Admissibility of input tax credit on GST charged by hotels (accommodation, conference venue, food & beverages) and on outside caterers for food provided at business conferences/meetings. - HELD THAT: - Section 17(5)(b) expressly excludes ITC in respect of food and beverages and outdoor catering, subject to a limited proviso that ITC is available where the inward supply of that category is used to make an outward taxable supply of the same category or forms part of a taxable composite/mixed supply. The applicant is a trader of animal health products and does not supply food or catering services; therefore the inward supplies of food and catering cannot be said to be used to make an outward supply of the same category. The Authority also distinguished precedents relied upon by the applicant where the taxpayer's outward supplies included event/ hospitality services; those facts are different and inapplicable here. Consequently, ITC on hotel charges (to the extent attributable to food/catering) and on outside caterers is not admissible. [Paras 13]

Input tax credit on GST charged by hotels (for accommodation bundle to the extent of food/catering) and on outside caterers for conferences/meetings is not available to the applicant.

Final Conclusion: The Authority answered both questions in the negative: ITC is not available on inputs/input services procured for distribution as promotional rewards (being gifts/personal consumption) and ITC is not available on food and catering supplies (including those supplied by hotels or outside caterers for business conferences) insofar as the applicant does not make outward supplies of the same category or use them as an element of a taxable composite/mixed supply.

Functions entrusted to a Panchayat under Article 243G and to a Municipality under Article 243W of the Constitution - pure services (excluding works contract service or other composite supplies involving supply of any goods) - exemption under Notification No. 12/2017-Central Tax (Rate) (Sl. No. 3) - supply to a Government / local authority (including through subcontracting) for purpose of entry No. 3

Functions entrusted to a Panchayat under Article 243G and to a Municipality under Article 243W of the Constitution - Whether the DPR/Beneficiary Document Preparation and Project Management Consultancy/Supervision services rendered to SUDA/under PMAY are activities in relation to functions entrusted to Panchayats/Municipalities under Article 243G/243W of the Constitution. - HELD THAT: - The Authority examined SUDA's constitutional and institutional position, SUDA's Memorandum of Association and government orders showing SUDA to be the state nodal agency for PMAY and part of the State Government. The functions listed in the Eleventh and Twelfth Schedules (e.g., slum improvement, urban planning, poverty alleviation, regulation of land use) and the stated objectives of PMAY overlap with the scope of the services contracted (preparation of DPR, beneficiary identification/validation, MIS, architectural/engineering designs, supervision, monitoring and quality control). On that basis the Authority concluded that the consultancy services rendered under the contract with SUDA and for PMAY are in relation to functions entrusted to Municipalities/Panchayats under Article 243W/243G respectively. [Paras 15, 18]

The services are in relation to functions entrusted to Municipalities under Article 243W and to Panchayats under Article 243G of the Constitution.

Pure services (excluding works contract service or other composite supplies involving supply of any goods) - exemption under Notification No. 12/2017-Central Tax (Rate) (Sl. No. 3) - supply to a Government / local authority (including through subcontracting) for purpose of entry No. 3 - Whether those services qualify as 'pure services' and are exempt under Sl. No. 3 of Notification No. 12/2017-CT (Rate), including where the services are provided by a subcontractor to the main contractor engaged by SUDA. - HELD THAT: - The Authority analysed the contractual scope of work (DPR preparation and comprehensive PMC duties: surveys, documentation, MIS, designs, approvals assistance, on-site supervision, certification of progress and reporting) and held these to be 'pure services' not amounting to works contract or composite supplies involving supply of goods. The Authority further observed that the exemption entry requires the services to be provided to Central/State/Local Government or a governmental authority but does not mandate direct supply to the authority; consequently services supplied to SUDA via a main contractor (i.e., by a subcontractor) fall within the entry. Reliance was placed on prior AAR/AAAR decisions and statutory construction principles endorsing a project-centric reading where applicable. [Paras 20, 24, 25]

The services qualify as 'pure services' and, when supplied to SUDA/for PMAY (including through subcontracting), are exempt under Sl. No. 3 of Notification No. 12/2017-Central Tax (Rate).

Final Conclusion: Both questions answered in the affirmative: the applicant's DPR and PMC/supervision services for SUDA under PMAY relate to functions entrusted to Panchayats/Municipalities under Articles 243G/243W; such services qualify as 'pure services' and are exempt from GST under Sl. No. 3 of Notification No. 12/2017-Central Tax (Rate), including where rendered by a subcontractor; the ruling is confined to the jurisdiction of the Authority for Advance Ruling, Uttar Pradesh.

Revision under Section 264 of the Income Tax Act - Right to withdraw pending proceedings - Maintainability of revision where remedy of appeal exists - Revisional authority's duty to consider withdrawal application before deciding on merits

Revision under Section 264 of the Income Tax Act - Revisional authority's duty to consider withdrawal application before deciding on merits - Right to withdraw pending proceedings - Whether the revisional authority erred in refusing to allow the petitioners' application to withdraw the revision and proceeding to decide the revision on merits. - HELD THAT: - The Court noted that Section 264 confers an extraordinary revisional remedy in addition to appeals and that an aggrieved person who initiates proceedings ordinarily has the right to withdraw them while pending, subject to cogent reasons for refusing withdrawal. Petitioners filed a revision under Section 264 within the statutory period and thereafter, while the revision was pending, moved an application to withdraw the revision. The revisional authority rejected the withdrawal application and proceeded to decide the revision on merits by relying on the Bombay High Court decision in Simplex Enterprises. The High Court observed that the right of withdrawal is absolute unless cogent reasons exist to decline it and that the revisional authority, having been presented with an express prayer to withdraw, should have considered that prayer instead of foreclosing other remedies by adjudicating the revision on merits without first addressing withdrawal. Consequently the impugned order was set aside and the matter remanded for reconsideration of the withdrawal application. [Paras 8, 9]

Impugned order set aside; matter remitted to revisional authority to re-consider the withdrawal application filed on 07.10.2019.

Maintainability of revision where remedy of appeal exists - Revision under Section 264 of the Income Tax Act - Whether the Bombay High Court decision in Simplex Enterprises compelled rejection of the withdrawal application in the present facts or justified deciding the revision on merits. - HELD THAT: - The Court examined the reliance placed on Simplex Enterprises and found that that decision arose from a distinct factual matrix in which the assessee had not cooperated in assessment proceedings and no withdrawal application had been made, facts materially different from the present case where cooperation is not disputed and an express withdrawal was filed. Therefore Simplex Enterprises was inapplicable to justify refusal of the withdrawal or to validate deciding the revision on merits in the present proceedings. The High Court left open to the revisional authority the discretion to accept or refuse withdrawal if cogent reasons exist, but held that reliance on Simplex Enterprises did not, on the facts before it, justify the impugned action. [Paras 8, 9]

Revisional authority's reliance on Simplex Enterprises rejected as inapplicable; withdrawal application must be re-considered afresh.

Final Conclusion: The impugned order dated 10.10.2019 is set aside and the matter is remanded to the revisional authority to re-consider the petitioners' withdrawal application filed on 07.10.2019; the High Court made no finding on the merits of the withdrawal and left it open to the revisional authority to allow or refuse withdrawal for cogent reasons, directing compliance within 60 days.

Condonation of delay - notice under Section 148 issued to deceased assessee void ab initio - assessment passed against deceased person set aside - proceed under amended Section 148A against legal representative - legal representative of the deceased

Condonation of delay - Application for condonation of 91 days' delay in filing the intra-court appeal - HELD THAT: - The court perused the affidavit supporting the application for condonation and found that sufficient cause was shown for the delay in preferring the appeal. On that basis the application for condonation was allowed and the delay in filing the appeal was condoned.

Delay of 91 days condoned and GA 1 of 2022 allowed.

Notice under Section 148 issued to deceased assessee void ab initio - legal representative of the deceased - Validity of the notice dated 13th April, 2021 under Section 148 issued in the name of a deceased assessee - HELD THAT: - Relying upon settled precedents, the court held that a notice under Section 148 issued upon a deceased assessee is void ab initio. The writ petition impugned such a notice dated 13th April, 2021 relating to assessment year 2014-15; having been issued in the name of a dead person, the notice could not sustain and had to be set aside. The Court recognised that the department had received the legal heir certificate and other documents when assessment was taken up, but this did not cure the fundamental defect in issuance of the notice in the name of the deceased.

The notice under Section 148 dated 13th April, 2021 issued to the deceased assessee is set aside.

Assessment passed against deceased person set aside - proceed under amended Section 148A against legal representative - Validity of the consequential assessment order dated 25th March, 2022 and the course to be followed thereafter - HELD THAT: - Having found the initiating notice void, the court concluded that the consequential assessment order dated 25th March, 2022 passed pursuant to that notice was also liable to be set aside. However, the court granted the revenue liberty to proceed afresh in accordance with the amended statutory regime, namely under Section 148A, by taking action against the legal representative of the deceased assessee who had produced the legal heir certificate and related documents. The matter was therefore remanded to the Assessing Officer to proceed in accordance with law under the amended provision.

Assessment order dated 25th March, 2022 set aside; matter remitted to the Assessing Officer to proceed under the amended Section 148A against the legal representative.

Final Conclusion: The appeal is allowed: the delay in filing it is condoned, the Section 148 notice dated 13th April, 2021 issued to a deceased assessee and the consequential assessment order dated 25th March, 2022 are set aside; the Assessing Officer is granted liberty to proceed afresh under the amended Section 148A against the legal representative, and the stay application is closed.

Penalty under section 271(1)(c) for furnishing inaccurate particulars of income or concealment - making of an unsustainable claim not amounting to concealment or furnishing inaccurate particulars - deletion of penalty consequent to allowance of quantum appeal - precedential effect and impact of a pending Special Leave Petition on deletion of penalty

Deletion of penalty consequent to allowance of quantum appeal - precedential effect and impact of a pending Special Leave Petition on deletion of penalty - Legality of ITAT's deletion of the penalty levied under section 271(1)(c) after allowing the assessee's quantum appeal despite a related Supreme Court SLP being pending. - HELD THAT: - The Tribunal deleted the penalty because it had allowed the assessee's quantum appeal and reversed the CIT(A)'s order. The revenue argued that deletion was impermissible since the Supreme Court was reconsidering the precedents relied upon (S.A. Builders) by entertaining related SLPs. The High Court held that the pendency of an SLP revisiting the law did not, by itself, sustain a substantial question of law warranting interference. The determinative consideration was that the penalty had been imposed solely because the deduction was disallowed, and the Tribunal's factual and legal conclusion in the quantum appeal removed the basis on which the penalty survived. Consequently, no separate legal ground arose to upset the Tribunal's deletion of the penalty. [Paras 7, 8, 11, 12]

The ITAT's deletion of the penalty was not erroneous and is upheld.

Penalty under section 271(1)(c) for furnishing inaccurate particulars of income or concealment - making of an unsustainable claim not amounting to concealment or furnishing inaccurate particulars - Whether claiming a deduction which is ultimately disallowed, i.e. an unsustainable claim, attracts penalty under section 271(1)(c). - HELD THAT: - The High Court applied the ratio of Reliance Petroproducts, holding that merely making a claim which is not accepted by the Revenue does not, by itself, attract penalty under section 271(1)(c). The Court reasoned that if every unsuccessful claim invited penalty, that would subvert the legislative intent; penal consequences require concealment or furnishing of inaccurate particulars beyond a bona fide though unsustainable claim. In the present case the penalty proceedings were initiated only because the deduction was disallowed, and therefore the penalty could not be sustained under the cited principle. [Paras 10, 11, 12]

Mere assertion of a claim later disallowed does not constitute concealment or furnishing inaccurate particulars under section 271(1)(c); penalty cannot be sustained on that basis.

Final Conclusion: The appeal is dismissed; the Tribunal's deletion of the penalty under section 271(1)(c) is upheld, the decision being consistent with the principle that an unsustainable claim does not automatically attract penalty, and the pendency of related SLPs did not establish a substantial question of law warranting interference.

Reopening of assessment beyond four years - Sanction requirement under section 151(1) - Validity of notice issued under section 148 - Effect of Taxation and other Laws (Relaxation of Certain Provisions) Act, 2020 on limitation for reopening - Non-amendment of outer limitation and sanction provisions

Reopening of assessment beyond four years - Sanction requirement under section 151(1) - Validity of notice issued under section 148 - Effect of Taxation and other Laws (Relaxation of Certain Provisions) Act, 2020 on limitation for reopening - Notice dated 26th March, 2021 under section 148 for Assessment Year 2015-16 was without jurisdiction and is quashed for want of proper sanction under section 151(1). - HELD THAT: - The Court found that the notice purports to reopen the assessment for AY 2015-16 on 26th March, 2021, which is beyond four years from the end of the relevant assessment year. For a reopening beyond four years, section 151(1) requires satisfaction by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner. The satisfaction recorded by Range 3(3), Mumbai (a Joint Commissioner) corresponds to section 151(2) and is confined to reopenings within four years; it is therefore inadequate for a reopening beyond four years. The Court observed that the Revenue's reliance on the Relaxation Act, 2020 to treat the reopening as within four years does not alter that the provisions prescribing the outer limits in section 149 or the sanctioning authority in section 151 were not amended to validate a reopening beyond four years with a Joint Commissioner's satisfaction. Applying these principles and following the Court's earlier decision in JM Financial & Investment Consultancy Services (supra), the notice issued without the requisite sanction was held to be without jurisdiction and liable to be quashed. [Paras 2, 5, 6]

Notice dated 26th March, 2021 under section 148 for AY 2015-16 quashed for lack of lawful sanction under section 151(1); consequential orders set aside.

Final Conclusion: Writ petition allowed; reopening notice dated 26/3/2021 (and consequential orders) quashed for want of valid sanction under section 151(1); no costs.

Reopening of assessment - notice under section 148 - jurisdiction to reopen under section 147 - sanction under section 151(1) - reasons for reopening - application of section 45(4) versus section 45(1) - assessment in name of non-existent assessee - valuation for capital gains computation - remand for fresh consideration

Reopening of assessment - notice under section 148 - jurisdiction to reopen under section 147 - sanction under section 151(1) - reasons for reopening - Validity of the notice issued under section 148 and the jurisdictional prerequisites for reopening the assessment - HELD THAT: - The Court held that the question whether issuance of a notice under section 148 is a jurisdictional issue is one of law and can be raised at any stage. The Tribunal had recorded that the assessee did not challenge the reopening earlier because ITAT in the first round granted full relief; however, the High Court found that the jurisdictional issue requires reconsideration by the ITAT. Consequently the matter relating to validity of the section 148 notice - including whether mandatory conditions under section 147 existed, whether sanction under section 151(1) was required and obtained, and whether the reasons recorded were adequate - is to be re-examined by the Tribunal on remand. [Paras 12, 14]

Jurisdictional validity of the section 148 notice not finally upheld; remitted to the ITAT for fresh consideration.

Application of section 45(4) versus section 45(1) - Whether the transfer of assets should be taxed under section 45(4) or section 45(1) and related computation of capital gains - HELD THAT: - Questions concerning the characterisation of the transactions and the consequent applicability of section 45(4) as opposed to section 45(1), and the computation of capital gains, are matters on the merits. Having regard to the authorities cited and the earlier disposition, the High Court concluded that these merits issues require fresh consideration by the ITAT in the light of the jurisdictional determination and the remand principles established in SHREE CHAMUNDI MOPEDS LTD. v. CHURCH OF SOUTH INDIA TRUST ASSOCIATION. The Tribunal's previous failure to address valuation and related computation in the second round necessitates reconsideration. [Paras 15, 17]

Merits issues on applicability of section 45(4) and computation of capital gains remitted to the ITAT for fresh adjudication.

Assessment in name of non-existent assessee - Validity of assessing the partnership firm after it had been converted into a company - HELD THAT: - The Court noted the contention that the partnership had been converted into a company under Part IX of the Companies Act and that notices ought to have been issued to the successor company. The High Court observed that this aspect was raised in submissions but declined to decide it on merits in this remand order. The question is left open for the ITAT to consider on remand together with other jurisdictional and substantive issues. [Paras 16]

Question left open for consideration by the ITAT on remand; not decided on merits by this Court.

Valuation for capital gains computation - Whether the Tribunal considered and decided the valuation adopted by the Assessing Officer for computing capital gains - HELD THAT: - The High Court observed that the impugned order did not record any finding by the Tribunal on the valuation issue. Given that valuation affects the computation of capital gains and that this aspect was earlier directed to be considered after remand, the Court remanded the valuation question to the ITAT for fresh consideration in the course of its reconsideration of the merits. [Paras 17]

Valuation issue remitted to the ITAT for fresh consideration.

Final Conclusion: Appeal allowed; the ITAT order dated 08.06.2016 is set aside and the matter is remitted to the ITAT for expeditious fresh consideration of the jurisdictional validity of the section 148 notice, the merits issues concerning applicability of section 45(4) and computation of capital gains (including valuation), and related contentions including assessment in the name of the erstwhile partnership; liberty reserved to raise merit questions after the ITAT's determination.

Revisional jurisdiction under Section 263 - Requirement of a reasoned order for assumption of jurisdiction - Substance over form - Genuineness of long term capital gains - Doctrine of preponderance of probabilities - Addition under Section 68 for unexplained credits

Revisional jurisdiction under Section 263 - Requirement of a reasoned order for assumption of jurisdiction - Substance over form - Genuineness of long term capital gains - Doctrine of preponderance of probabilities - Addition under Section 68 for unexplained credits - Whether the Tribunal erred in quashing the Commissioner's order passed under Section 263 which set aside the assessing officer's order accepting the claim of long term capital gains. - HELD THAT: - The High Court held that the appeal is covered by this Court's earlier decision in Principal Commissioner of Income Tax vs. Swati Bajaj, where it was held that the validity of invoking Section 263 must be judged on the content and reasoning of the Commissioner's order rather than on the mechanical use of statutory phrases. The Court accepted that the Commissioner had formed a prima facie view that the assessing officer had not conducted the statutory enquiry properly and had explained why the enquiry was insufficient. The Tribunal's conclusion that one cannot presume every claimant was party to manipulation was rejected as a misappreciation of the surrounding circumstances. The Court endorsed the approach that where investigations disclose manipulative practices affecting share prices, the assessing officer was obliged to call upon the assessee to justify the genuineness of claimed LTCG; absent satisfactory explanation, inference and additions under Section 68 are permissible. The Court applied the doctrine of substance over form and preponderance of probabilities to uphold the Commissioner's reasoned exercise of revisional jurisdiction, noting that the Tribunal failed to take full account of the totality of circumstances revealed by investigations and thus erred in interfering with the Section 263 order.

The Tribunal's order quashing the Commissioner's order under Section 263 is set aside; the Commissioner's order stands restored and the appeal by the revenue is allowed.

Final Conclusion: The High Court allowed the revenue's appeal, holding that the Commissioner validly exercised revisional jurisdiction under Section 263 by reasoned order; the Tribunal erred in interfering, and the Commissioner's order restoring the assessment stands restored for AY 2015-2016.

Most Appropriate Method - Comparable Uncontrolled Price (CUP) method - Resale Price Method (RPM) - Transactional Net Margin Method (TNMM) - Berry Ratio - Arm's Length Price - Provision for warranty-deductibility based on historical trend and scientific basis - Employees' contribution to PF & ESI-deductibility under section 36(1)(va) - Remand for reconsideration

Most Appropriate Method - Comparable Uncontrolled Price (CUP) method - Resale Price Method (RPM) - Transactional Net Margin Method (TNMM) - Berry Ratio - Arm's Length Price - Appropriateness of TNMM with Berry Ratio as the most appropriate method to benchmark import transactions from Associated Enterprises; whether CUP or RPM should be applied. - HELD THAT: - The Tribunal examined the reasons given by the TPO/DRP for rejecting the assessee's CUP benchmarking and for selecting TNMM with Berry Ratio as the PLI. The assessee produced third party import data obtained from Customs and a transaction wise comparison asserting that its AE import prices were at arm's length; the TPO/DRP summarily rejected the CUP submissions without adequately explaining why CUP was unsuitable in the present facts. The assessee also advanced RPM as the appropriate alternative given its distributorship/trading activity and predominant revenue from resale of UPS and accessories. The Tribunal found the TPO's factual basis for rejecting RPM (the claim that over 50% of purchases were domestic) unsupported by evidence on record. On TNMM and Berry Ratio, the Tribunal accepted that Berry Ratio is applicable only where operating expenses (not cost of goods) primarily determine profitability (for example, in stripped down or limited risk distributors). Here the assessee's main expense is purchase of finished goods from AEs and operating expenses are relatively small, so Berry Ratio is not an appropriate profitability indicator. Concluding that the TPO erred both in rejecting CUP without reason and in adopting TNMM with Berry Ratio on inappropriate footing, the Tribunal directed that the matter be remitted to the TPO to reconsider and apply either CUP (as relied on by the assessee) or RPM (as alternatively claimed), and determine the arm's length price in accordance with the Tribunal's guidance. [Paras 6, 7, 8, 9]

TNMM with Berry Ratio cannot be applied as the most appropriate method on the facts; the issue is set aside to the TPO to reconsider and determine ALP by applying either CUP or RPM.

Provision for warranty-deductibility based on historical trend and scientific basis - Allowability of provision for warranty expenses claimed by the assessee for assessment year 2011-12. - HELD THAT: - The assessee claimed a provision for warranty based on historical trend and past experience and relied on the Supreme Court decision in M/s. Rotork Controls India (P) Ltd. v. CIT that a scientifically based provision founded on past experience is deductible. The Assessing Officer disallowed the provision on the ground that the assessee did not explain the basis or computation. The Tribunal found the facts disputed and concluded that the question requires further examination: if the assessee can demonstrate that the provision was computed on a historical and scientific basis, the disallowance should not stand. Accordingly the Tribunal remitted the issue to the Assessing Officer for fresh consideration in the light of the Supreme Court authority and the material to be produced by the assessee. [Paras 10, 11]

Issue remitted to the Assessing Officer to examine the basis and computation of the warranty provision and decide in accordance with the Supreme Court precedent if the assessee substantiates a historical/scientific basis.

Employees' contribution to PF & ESI-deductibility under section 36(1)(va) - Disallowance of employees' contribution to Provident Fund and ESI under section 36(1)(va) read with clause corresponding to 2(24)(x) for assessment year 2010-11. - HELD THAT: - Having regard to a coordinate bench decision of the Tribunal (Adyar Ananda Bhavan Sweets India Ltd.) and the prospective nature of the Finance Act, 2021 amendment, the Tribunal held that belated payments of employees' contribution to PF and ESI, if remitted on or before the due date for filing the return of income under section 139(1), are allowable as a deduction under section 36(1)(va). The Tribunal directed the Assessing Officer to verify the dates of remittance and, where remittance was on or before the return filing due date, to delete the disallowance. [Paras 12]

If PF and ESI employee contributions were remitted on or before the due date for filing the return under section 139(1), the disallowance under section 36(1)(va) is to be deleted; Assessing Officer to verify and act accordingly.

Final Conclusion: For AYs 2010-11 and 2011-12 the Tribunal set aside the transfer pricing benchmarking issue to the TPO to reconsider application of CUP or RPM (rejecting TNMM with Berry Ratio on these facts), remitted the warranty provision disallowance for fresh examination by the Assessing Officer in light of the Supreme Court authority, and directed verification of PF/ESI remittance dates with deletion of the disallowance where remittance was on or before the due date for filing the return under section 139(1). Appeals allowed for statistical purposes.

Penalty under Section 271(1)(c) of the Income Tax Act - Concealment of particulars of income - Furnishing inaccurate particulars of income - Requirement to specify which limb of Section 271(1)(c) the penalty is initiated under in the penalty notice - Validity of penalty notice where multiple defaults are alleged

Penalty under Section 271(1)(c) of the Income Tax Act - Requirement to specify which limb of Section 271(1)(c) the penalty is initiated under in the penalty notice - Validity of penalty notice where multiple defaults are alleged - Whether the penalty under Section 271(1)(c) could be sustained where the assessing officer's notice and proceedings did not specify which limb of the provision-concealment of particulars of income or furnishing inaccurate particulars-was being proceeded with, particularly when additions were made on multiple issues. - HELD THAT: - The Tribunal examined the notice form and the assessment record and found the notice to be in a proforma with blanked columns, charging the assessee both with having "concealed the particulars of your income" and having "furnished inaccurate particulars of such income." Section 271(1)(c) contemplates two distinct defaults: concealment of particulars of income, and furnishing inaccurate particulars of income. The Assessing Officer cannot validly treat the two limbs as a composite single default for which a common charge, without specifying the particular limb, is framed and conveyed to the assessee. The Bench observed that if the AO intended to proceed on both limbs separately, the notice must clearly indicate the specific limb applicable to each alleged default; otherwise the notice is vitiated. The Tribunal applied and followed the ratio of the jurisdictional High Court in the Sahara India Life Insurance Co. Ltd. decision, which held that a notice under Section 271(1)(c) is bad in law if it does not specify which limb of the section the penalty proceedings have been initiated under, and observed that earlier conflicting views (including reliance placed on Sundaram Finance Ltd.) do not override the binding effect of the jurisdictional High Court decision. Having found that the impugned notice did not specify the applicable limb(s) in conformity with the assessment findings, the Tribunal concluded there was no error in the CIT(A)'s deletion of the penalty and no ground to interfere with that conclusion. [Paras 8, 9, 10, 11, 12]

The Tribunal upheld the CIT(A)'s deletion of the penalty as the penalty notice was vitiated for failing to specify which limb of Section 271(1)(c) the proceedings were initiated under; Revenue's appeal dismissed.

Final Conclusion: The appeal by the Revenue is dismissed: the penalty imposed under Section 271(1)(c) for assessment year 2008-09 was correctly deleted by the CIT(A) because the penalty notice failed to specify the particular limb of Section 271(1)(c) on which proceedings were initiated, rendering the notice invalid.

Tax deduction at source - disallowance under section 40(a)(i) - deemed to accrue or arise in India - retrospective amendment and impossibility to deduct TDS - allowability of expenditure under section 37 - Lex Non Cogit ad Impossibilia

Tax deduction at source - disallowance under section 40(a)(i) - retrospective amendment and impossibility to deduct TDS - Whether the assessee was liable to deduct tax at source and liable to disallowance under section 40(a)(i) for payments to its overseas associate enterprise for AY 2008-2009. - HELD THAT: - The Tribunal examined the law as it stood for AY 2008-2009 and applied the Supreme Court's test in Ishikawajima-Harima that fees become taxable under section 9(1)(vii) only where services are rendered in India or have such a territorial nexus. The Explanation substituted by Finance Act, 2010 (made retrospective) expanded the deeming provision but could not be invoked to create a retrospective obligation on the payer to deduct tax at source when that obligation did not exist at the time of payment. Reliance was placed on subsequent authoritative decisions including Engineering Analysis Centre of Excellence (supra) and the line of precedents and principles that a retrospective statutory amendment cannot impose an impossible retrospective obligation to deduct TDS. Applying these principles to the facts, the Tribunal held that the substituted Explanation of 2010 does not apply to impose a TDS obligation on the assessee for payments made in AY 2008-2009; consequently disallowance under section 40(a)(i) could not be sustained insofar as it rested on non-deduction of tax at source. [Paras 11, 14, 15, 16, 22]

The disallowance under section 40(a)(i) cannot be sustained because the assessee was not liable to deduct tax at source at the relevant time; appeal partly allowed on this ground.

Allowability of expenditure under section 37 - Whether the Tribunal was required to enquire into or decide the allowability of the expenditure under section 37(1) of the Income-tax Act. - HELD THAT: - The Tribunal construed the High Court's remand direction and the record to conclude that the remand was confined to reconsideration of the s.40(a)(i)/TDS issue. The lower authorities had invoked section 40(a)(i), which presupposes that expenditures were otherwise found to be allowable; neither the Assessing Officer nor the CIT(A) had disputed allowability under section 37(1). Consequently, the Revenue cannot, before the Tribunal, convert the appeal into a fresh challenge on allowability under section 37(1) so as to make out a new case; doing so would impermissibly expand the subject-matter and amount to a review of a position previously taken. The Tribunal therefore declined to embark upon a fresh adjudication under section 37(1). [Paras 23, 24, 25, 26]

Tribunal will not adjudicate allowability under section 37(1); Revenue is not permitted to raise a new case on section 37 before the Tribunal in these proceedings.

Deemed to accrue or arise in India - Whether the question of whether the payments to the overseas AE constituted income 'deemed to accrue or arise in India' was finally adjudicated. - HELD THAT: - The Tribunal expressly held that having concluded the assessee was not obliged to deduct tax at source for AY 2008-2009, it did not decide the separate contention whether the payments constituted income deemed to accrue or arise in India under section 9(1)(vii). That question remains undecided in these proceedings and was left open. [Paras 22]

Question whether the payments are income deemed to accrue or arise in India is left open (not adjudicated).

Final Conclusion: For AY 2008-2009 the Tribunal held that the assessee was not obliged to deduct tax at source at the relevant time and consequently the disallowance under section 40(a)(i) could not be sustained; the appeal is partly allowed. The Tribunal refused to entertain a fresh challenge on allowability under section 37(1), and the separate question whether the payments are income deemed to accrue or arise in India is left open.

Service tax collected in fiduciary capacity - inclusion of service tax in gross receipts for presumptive taxation under section 44BBA - presumptive taxation of non-resident airlines - non-obstante clause and its scope in special presumptive provisions - distinction between amounts received and income arising to the assessee

Service tax collected in fiduciary capacity - inclusion of service tax in gross receipts for presumptive taxation under section 44BBA - distinction between amounts received and income arising to the assessee - Service tax collected by the assessee cannot be included in the gross receipts for computing deemed income under section 44BBA - HELD THAT: - The Tribunal found that section 44BBA deems five per cent of the aggregate of amounts paid or payable/received or deemed to be received on account of carriage to be the profits of a non-resident airline. The phraseology of section 44BBA(2) is qualified by the words 'on account of the carriage of passengers...', and therefore only amounts which are paid for the service provided by the assessee fall within the aggregate. The service tax component is a statutory levy collected by the assessee for and on behalf of the Central Government and does not carry any element of profit; the assessee merely acts as a collection agent and deposits the tax into the Government treasury. The Tribunal agreed with the view of the CIT(A), relied on the Delhi High Court decision in Mitchell Drilling (which addressed an analogous question under section 44BB), and noted CBDT clarifications treating service tax as not partaking the nature of the recipient's income. The Supreme Court decision in Sedco Forex (concerning commercial mobilization fees) was distinguished on facts because mobilization fees arose from commercial terms and could contain a profit element, whereas service tax is a statutory pass-through. On this basis the addition made by the AO including service tax in the turnover under section 44BBA was held unsustainable and directed to be deleted. [Paras 6, 9, 11]

The service tax collected by the assessee is not includible in the gross receipts for computing presumptive income under section 44BBA and the addition made by the AO is deleted.

Final Conclusion: The revenue's appeal is dismissed; service tax collected by the assessee is excluded from gross receipts for the purpose of computing deemed income under section 44BBA for A.Y. 2015-16.

Registration under section 12A/12AA - place of profit / undue benefit under section 13 - genuineness of books of account and cash payments - MoU and charitable activity as defined under section 2(15) - registration of lease under the Registration Act and applicability of Stamp law - verification and appreciation of facts on remand

Place of profit / undue benefit under section 13 - registration under section 12A/12AA - Whether the payments to the President and the Treasurer constitute undue benefit / place of profit disentitling the assessee to registration under section 12A/12AA - HELD THAT: - The Tribunal found that the learned CIT(E) denied registration on the ground that the President and Treasurer were given undue benefit in breach of section 13. The assessee explained that these persons are qualified professionals managing multiple centres and that remuneration is commensurate with market rates and duties. The Tribunal held that these factual contentions were not properly appreciated by the CIT(E) and that the question of undue advantage requires verification and proper appraisal of facts by the assessing authority. Consequently the matter was not finally adjudicated on merits by the Tribunal and requires fresh consideration by the PCIT after affording opportunity to the assessee. [Paras 20]

Remanded to the PCIT for fresh decision after verification and hearing; not finally decided on merits by the Tribunal.

Genuineness of books of account and cash payments - registration under section 12A/12AA - Whether the cash withdrawals, advances and vouchers relied upon by the assessee substantiate the genuineness of its books and expenditures for purposes of registration under section 12A/12AA - HELD THAT: - The CIT(E) doubted the genuineness of books because of cash transactions, undocumented advances and apparent inconsistencies. The assessee contended cash withdrawals were used for salaries and expenses within permissible limits under section 40A(3) and that an advance entry was a typographical error. The Tribunal found merit in the assessee's explanations and held that these factual disputes were not properly appreciated by the CIT(E). The Tribunal directed a fresh verification and appraisal of the documents and explanations by the PCIT with an opportunity of being heard to the assessee. [Paras 20]

Remanded to the PCIT for fresh verification and decision after affording the assessee an opportunity of hearing.

MoU and charitable activity as defined under section 2(15) - registration under section 12A/12AA - Whether execution of MoUs with other entities and similarity of activities/address with a partnership firm render the assessee's activities non charitable (contractual) for the purpose of section 2(15) and thereby disentitle it to registration under section 12A/12AA - HELD THAT: - The CIT(E) observed that the assessee entered into MoUs with business entities and that the partnership firm carried on similar skill development activities from the same address, leading to doubts about the genuineness and charitable character of the assessee's activities. The assessee explained that MoUs were for eligibility to implement government schemes, that the projects are executed by the assessee, and that shared premises were for economic/resource reasons. The Tribunal concluded that these are factual matters requiring further enquiry and proper appreciation by the PCIT and not fit for final disposal on the record before the Tribunal. [Paras 20]

Remanded to the PCIT for fresh examination of the nature of MoUs, the activities and address sharing, and for adjudication in accordance with law after hearing the assessee.

Registration of lease under the Registration Act and applicability of Stamp law - registration under section 12A/12AA - Whether the existence of an unregistered lease deed for office premises constitutes a bar to grant of registration under section 12A/12AA - HELD THAT: - The CIT(E) relied upon the unregistered five year lease deed to find non compliance with the Registration Act and Stamp Act and to deny registration. The assessee submitted the lease was notarised, accepted by government departments and project approvals followed. The Tribunal observed that this factual and legal interplay was not properly appreciated by the CIT(E) and that the matter requires reconsideration by the PCIT with appropriate verification and hearing of the assessee. [Paras 20]

Remanded to the PCIT to examine the legal and factual consequences of the unregistered lease deed and decide afresh after affording an opportunity to the assessee.

Final Conclusion: The Tribunal allowed the appeal for statistical purposes and directed that the matters be remitted to the PCIT for fresh decision in accordance with law after giving the assessee an opportunity of being heard; the Tribunal did not finally decide the merits of the contested factual and documentary issues.

Allowability of employees' contribution to provident fund and ESI as deduction - payment made before the due date of furnishing return under section 139(1) - application and temporality of amendments by Finance Act, 2021 to section 36(1)(va) and section 43B - clarificatory versus substantive (retrospective versus prospective) character of tax amendments - principle against retrospectivity of legislation

Allowability of employees' contribution to provident fund and ESI as deduction - payment made before the due date of furnishing return under section 139(1) - application and temporality of amendments by Finance Act, 2021 to section 36(1)(va) and section 43B - Deduction of employees' contribution to PF and ESI is allowable for A.Y. 2020-2021 where the contribution was paid before the due date of filing the return under section 139(1), and the Finance Act, 2021 amendments do not apply to the assessment year under consideration. - HELD THAT: - The Tribunal followed the binding view of the jurisdictional High Court in Essae Teraoka Pvt. Ltd. that the expression 'contribution' in the Provident Fund scheme encompasses the employees' share and, where such contribution is paid before the due date of filing the return under section 139(1), deduction is allowable. The Tribunal noted earlier consistent Tribunal orders on identical facts (including M/s. Shakuntala Agarbathi Company) and held that the amendments introduced by the Finance Act, 2021 to section 36(1)(va) and section 43B alter the pre-existing position of law and are not clarificatory so as to operate retrospectively. Reliance on the decision in CIT v. Gold Coin Health Food Pvt. Ltd. was found distinguishable because that case concerned a different statutory and factual context and involved an amendment characterized as declaratory of an existing interpretation; here, the legislature expressly provided effect from 01.04.2021 and the settled principle against retrospectivity applies. The Tribunal applied principles from higher authorities on retrospectivity (including Vatika Township) to conclude that the Finance Act, 2021 explanations operate prospectively from A.Y. 2021-22 onwards and therefore do not affect A.Y. 2020-2021. On these grounds the disallowance for late remittance of employees' contribution was deleted. [Paras 7]

Disallowance of employees' contribution to PF and ESI for A.Y. 2020-2021 deleted; deduction allowed as payment was made before the due date of filing return.

Final Conclusion: The Tribunal allowed the appeal, holding that employees' contribution to PF/ESI paid before the due date of filing the return for A.Y. 2020-2021 is deductible and that the Finance Act, 2021 amendments do not apply to the assessment year under consideration; the assessing officer's disallowance is set aside.

Allowability of depreciation on intangible assets under section 32(1)(ii) - distinction between expansion/extension of existing business and commencement of a new business for revenue/capital characterisation - allowability of business expenditure under section 37(1) notwithstanding non realisation of corresponding income - application of matching principle and treatment of provisions/claims pending acceptance - treatment of prior period income where corresponding deduction was surrendered in earlier year by revised return - treatment of opening/closing stock following assessment adjustment in previous year - allowability of contributions to abandonment/site restoration fund as business expenditure - transfer pricing benchmarking of interest on intra group loans using LIBOR/CUP and appropriate credit rating

Allowability of depreciation on intangible assets under section 32(1)(ii) - treatment of payment for acquisition of participating interests as licences/intangible commercial rights - Whether acquisition cost of participating interests in various blocks qualifies as intangible assets eligible for depreciation under section 32(1)(ii). - HELD THAT: - Assessing Officer disallowed depreciation treating 'licences' in section 32(1)(ii) as limited to intellectual property. The CIT(A) followed earlier coordinate ITAT decisions in the assessee's own case (AY 2002-03 and subsequent years) holding that the participating right is a commercial right/license and thus an intangible asset falling within section 32(1)(ii). The Tribunal noted that earlier Tribunal decisions in the assessee's case and the dismissal of Revenue's challenge by the High Court bind the Revenue and found no infirmity in the CIT(A)'s application of that ratio to AY 2007-08. The Tribunal accordingly upheld the deletion of the disallowance. [Paras 5, 6, 10]

Deletion of disallowance of depreciation on acquisition cost of participating interests upheld in favour of the assessee.

Distinction between expansion/extension of existing business and commencement of a new business for revenue/capital characterisation - allowability of depreciation on support equipment - Whether depreciation on support equipments used in projects where commercial production had not yet commenced is allowable as revenue deduction. - HELD THAT: - AO treated each block as a distinct new business and disallowed depreciation; CIT(A) observed that the assessee's activity of acquiring participating interests is an expansion/extension of the existing hydrocarbon exploration business and the support equipments are owned and used for business. CIT(A) relied on consistency of earlier allowances and authorities holding that expenses for expansion of existing business are revenue in nature. The Tribunal agreed that facts and law were unchanged from earlier years where depreciation had been allowed and upheld the CIT(A)'s deletion of the disallowance. [Paras 11, 12, 15]

Disallowance of depreciation on support equipment deleted; claim allowed.

Application of matching principle and treatment of provisions/claims pending acceptance - recognition of revenue vs provision for claimed costs under EPC contract - Whether amounts relating to additional costs/claims under the Sudan EPC contract should be treated as income in AY 2007-08 or expenditure in AY 2006-07, and whether the AO's addition for AY 2007-08 is sustainable. - HELD THAT: - AO added amounts on the basis that revenue had accrued; CIT(A) held the matter pertained to AY 2006-07 and deleted the addition as being double addition. ITAT's earlier decision for AY 2006-07 examined whether liabilities had arisen and, on facts, upheld deletion of the income addition while disallowing certain provisions where liabilities had not crystallised. The Tribunal observed that the aspect has been dealt with by ITAT for AY 2006-07 and directed the AO to consider the issue afresh in light of that ITAT order, effectively remitting factual and consequential aspects for verification. [Paras 16, 18, 19, 21]

Issue remitted to AO for fresh consideration in light of the ITAT order for AY 2006-07; deletion for AY 2007-08 set aside to permit verification/implementation of earlier ratio.

Allowability of business expenditure under section 37(1) notwithstanding non realisation of corresponding income - pre acquisition expenses and evaluation costs for bidding/submitting tenders - Whether pre acquisition/evaluation expenses incurred in acquisition and pre bid phases are revenue deductions under section 37 or governed exclusively by the special scheme under section 42. - HELD THAT: - AO treated the pre acquisition expenses as being governed by section 42 and disallowed them; CIT(A) relied on earlier ITAT decisions in the assessee's own case and case law (including Essar and Kesoram principles) holding that such evaluation, tender and bid related expenses incurred in the normal course of an established exploration business are revenue in nature and allowable under section 37. The Tribunal found the issue covered by coordinate decisions and upheld the CIT(A)'s deletion of the disallowance. [Paras 22, 23, 24, 27]

Disallowance of pre acquisition expenses deleted; expenses held revenue and allowable under section 37.

Allowability of depreciation on plant & equipment (UPS) under section 32(1)(ii) - Whether depreciation on UPS is allowable at the rate claimed by the assessee (30% accepted in earlier decisions) or should be restricted. - HELD THAT: - CIT(A) followed earlier High Court and Tribunal decisions in the assessee's case and other authorities holding depreciation on UPS at the relevant rate. The Tribunal found the issue covered in favour of the assessee by precedent and earlier assessment years and upheld the CIT(A)'s deletion of the disallowance. [Paras 28, 30, 31]

Disallowance of depreciation on UPS deleted; depreciation claim allowed.

Allowability of exploration expenditure under section 37(1) - effect of non award of development contract and pending declaration of commerciality - Whether expenses incurred on exploration activities under a service contract where development service contract and declaration of commerciality were pending are deductible under section 37. - HELD THAT: - AO characterized the expenditures as capital or premature and disallowed them invoking matching principles; CIT(A) applied settled authorities that allow expenditure if wholly and exclusively for business purpose even if associated income accrues later. The Tribunal agreed that the expenditure was incurred wholly and exclusively for business and upheld the CIT(A)'s order deleting the addition, rejecting Revenue's reliance on section 42 and Enron without factual applicability. [Paras 32, 33, 34, 37]

Disallowance deleted; exploration expenses under the service contract allowed as revenue deduction.

Treatment of prior period income where corresponding deduction was surrendered by revised return - Whether prior period income arising from writeback should be taxed in AY 2007-08 where the assessee reduced its earlier deduction by filing a revised return for AY 2006-07. - HELD THAT: - CIT(A) found that the assessee had filed revised return and computation for AY 2006-07 reducing the section 42 claim and that the AO had accepted the revision in that assessment; therefore the writeback recorded in AY 2007-08 did not represent taxable income. Revenue only sought verification but did not point to infirmity in CIT(A)'s factual finding. The Tribunal declined to remit and upheld CIT(A)'s deletion of the addition. [Paras 38, 40, 43]

Addition for prior period income deleted; CIT(A)'s finding that revised return had been filed and accepted upheld.

Treatment of opening/closing stock following assessment adjustment in previous year - Whether the revised closing stock value of AY 2008-09 (as assessed) should be adopted as opening stock for AY 2009-10, with consequential relief. - HELD THAT: - Assessee had sought consequential adjustment; CIT(A) found merit in the submission and directed AO to allow the benefit of revised opening stock in AY 2009-10. Revenue sought remand on factual verification but the Tribunal observed that CIT(A) had already directed AO to consider the claim and dismissed Revenue's ground. [Paras 44, 45, 46]

CIT(A)'s direction to allow revised opening stock consequentially in AY 2009-10 upheld; Revenue's challenge dismissed.

Allowability of contributions to abandonment/site restoration fund as business expenditure - Whether contributions to the abandonment (site restoration) account and related interest/FX restatement amounts are deductible in AY 2009-10. - HELD THAT: - AO treated deposits as provisional and not deductible; CIT(A) admitted additional evidence, examined PSA terms, found contributions were mandated, non reclaimable by the assessee and created an asset in the balance sheet which was charged through depletion; CIT(A) held the payments were incurred for business purposes and allowed deduction under section 37. The Tribunal found CIT(A)'s reasoning cogent and upheld the deletion of the disallowance. [Paras 50, 52, 54, 57]

Contribution to abandonment account and related items held deductible; disallowance deleted.

Transfer pricing benchmarking of interest on intra group loans using LIBOR/CUP and appropriate credit rating - comparability of loan tenor and use of contemporaneous comparable transactions - Whether the TPO's transfer pricing adjustments to interest on various intra group loans (AYs 2011-12, 2013-14 and 2014-15) were justified. - HELD THAT: - For AY 2011-12 (loan to ONGC Caspian) the TPO used non comparable long term loans and assigned an inappropriate low credit rating; CIT(A) accepted assessee's CUP/LIBOR based benchmarking and additional LoanConnector analysis and deleted the adjustment; Tribunal upheld CIT(A). For AY 2013-14 and 2014-15 (loans to Jarpeno, ONGC (BTC), ONGC Nile Ganga) CIT(A) followed earlier years' consistent findings, accepted the assessee's credit rating analyses (Moody's RiskCalc) and directed benchmarking at appropriate LIBOR plus spreads (e.g., LIBOR + 3% for high rating, LIBOR + 4% for ONGC (BTC), 6 month LIBOR basis), rejecting TPO's use of SBI spreads; Tribunal upheld these orders as reasonable and consistent with precedents (including Cotton Naturals). [Paras 67, 72, 76, 79, 82]

Transfer pricing adjustments set aside in the assessee's favour; CIT(A) orders deleting or moderating TPO adjustments upheld and AO/TPO directed to benchmark using the specified LIBOR based spreads and credit ratings.

Final Conclusion: The Tribunal dismisses the Revenue's appeals and upholds the CIT(A)'s orders largely in favour of the assessee: depreciation on acquisition cost of participating interests and on support equipment is allowable; pre acquisition and exploration expenses and contribution to abandonment fund are deductible; prior period income addition and UPS depreciation disallowance are deleted; transfer pricing adjustments in respect of intra group loans for the specified assessment years are set aside and the AO/TPO directed to apply the CIT(A)'s benchmarking directions. One matter (claim/adjustment relating to the Sudan EPC contract) is remitted to the AO for fresh consideration in light of the earlier ITAT order for AY 2006 07.

Levy of fee u/s 234E - intimation issued under section 200A/206CB - temporal applicability of statutory amendment w.e.f. 01.06.2015 - non applicability of amendment to TDS statements filed up to 31.03.2015 - cancellation of fee levied under section 234E

Levy of fee u/s 234E - intimation issued under section 200A/206CB - temporal applicability of statutory amendment w.e.f. 01.06.2015 - non applicability of amendment to TDS statements filed up to 31.03.2015 - Fee under section 234E cannot be levied by way of intimation under section 200A/206CB in respect of TDS statements for the period up to 31.03.2015 (Assessment Year 2013-14) because the enabling provision in section 200A was inserted only w.e.f. 01.06.2015. - HELD THAT: - The Tribunal noted that prior to the amendment inserting the enabling clause in section 200A w.e.f. 01.06.2015 there was no provision to raise demand by way of intimation under section 200A/206CB for the levy of fee under section 234E. For TDS statements filed for periods up to 31.03.2015 the statutory machinery to impose the late filing fee through the processing/intimation route did not exist. The Tribunal followed earlier coordinated and Bench decisions which reached the same conclusion and held that the amendment could not be given retrospective effect to validate intimation based levies made for periods before 01.06.2015. In consequence, the CIT(A)'s confirmation of the fee was reversed and the fee levied under section 234E was cancelled.

The levy of fee under section 234E as raised by intimation under section 200A/206CB for Assessment Year 2013-14 is cancelled and the order of the CIT(A) is reversed.

Final Conclusion: Appeal allowed; the late filing fee under section 234E, as imposed by intimation under section 200A/206CB in respect of TDS statements for the period up to 31.03.2015 (AY 2013-14), is quashed because the enabling amendment to section 200A took effect only from 01.06.2015.

Deduction under section 80IB(10) - single plot versus multiple plots - parity of reasoning with precedent in assessee's own case - entitlement to deduction on identical facts

Deduction under section 80IB(10) - single plot versus multiple plots - parity of reasoning with precedent in assessee's own case - Whether the assessee was entitled to claim deduction under section 80IB(10) for the assessment years 2014-15 and 2015-16 on the basis that multiple projects completed on the land constituted a single plot fulfilling the one-acre requirement. - HELD THAT: - The Tribunal found that the facts and circumstances of the years under appeal are identical to those in the assessee's own earlier matters (A.Ys. 2011-12 to 2013-14) where the Tribunal had held that reservation-induced division and architect's numbering did not alter the character of the original plot and that the conditions of section 80IB(10) were satisfied. The assessing officer's disallowance was contrasted with the CIT(A)'s allowance which followed the prior Tribunal decision. The Departmental Representative conceded that the issue was covered in favour of the assessee. Respectfully following the Tribunal's earlier categorical finding that the statutory conditions for deduction were fulfilled and that requisite evidence was furnished, the Tribunal sustained the CIT(A)'s allowance of the deduction for the years under consideration. [Paras 4, 5, 6]

The claim of deduction under section 80IB(10) is allowable for A.Y. 2014-15 and 2015-16, the Revenue's appeals are dismissed.

Final Conclusion: Following the Tribunal's earlier decision in the assessee's own case and on the same set of facts and reasoning, the allowance of deduction under section 80IB(10) was upheld and both Revenue appeals for A.Y. 2014-15 and 2015-16 were dismissed.

Advance licence conditions and non-transferability - utilisation of duty-free imports for fulfilment of export obligation - confiscation of goods under customs law - duty, interest and penalty for misuse of advance licence facility - remand for fresh decision where appellate forum failed to consider material findings

Remand for fresh decision where appellate forum failed to consider material findings - advance licence conditions and non-transferability - Whether the order of the CESTAT could be sustained where it allowed the appeal solely on the basis that export obligations were fulfilled without addressing the Original Authority's findings regarding breach of advance licence conditions and misuse of duty free imports. - HELD THAT: - The Court found that the Tribunal allowed the appeal only on the ground that the respondent had fulfilled export obligations, but did not deal with the Original Authority's detailed findings concerning the manner in which goods imported under advance licences and exemption notifications were allegedly dealt with contrary to express conditions. Those findings related to alleged transfer/sale of imported materials, non utilisation in manufacture of export products, and the respondent's reliance on locally procured materials to meet export obligations - issues bearing directly on confiscation, duty liability, penalty and interest. Because the Tribunal did not address these determinative findings or their legal consequences in the context of the authorities and precedents relied upon by the Original Authority, the appellate order could not be sustained and required reconsideration by the Tribunal. [Paras 10]

The CESTAT order is set aside and the matter is remanded to the Tribunal for fresh consideration.

Utilisation of duty-free imports for fulfilment of export obligation - duty, interest and penalty for misuse of advance licence facility - confiscation of goods under customs law - Whether the questions of fulfilment of export obligations, liability for customs duty, interest and penalty, and confiscation should be re-opened and examined by the Tribunal. - HELD THAT: - The Court did not decide the merits of whether the respondent in fact breached the advance licence conditions or whether confiscation, duty, penalty and interest were rightly imposed. Instead, having identified that the Tribunal did not adjudicate the Original Authority's findings on how the imported materials were used or disposed of (and the legal impact of those findings), the Court directed that these issues be re-examined by the Tribunal. The scope of re-examination includes the Original Authority's factual and legal conclusions regarding non utilisation, transfer/sale of duty free imports, application of exemption notifications and resultant consequences under the Customs Act and related rules. [Paras 6, 7, 10]

These issues are remanded to the Tribunal for fresh adjudication; no merits determination is made by this Court.

Final Conclusion: The CESTAT order dated 9 April 2019 is set aside and the matter is remitted to the Tribunal to decide afresh (including consideration of the Original Authority's findings on use/disposal of imported duty free materials and the consequences thereof) within four months.

Limitation for issuance of show cause notice under Customs Broker Licensing Regulations - treatment of subsequent show cause notice as an offence report for licensing proceedings - duty to comply with Know Your Customer obligations of a customs broker - requirement of material evidencing clearance of multiple shipping bills to establish conduct of a customs house agent

Limitation for issuance of show cause notice under Customs Broker Licensing Regulations - treatment of subsequent show cause notice as an offence report for licensing proceedings - Validity of revocation proceedings where the Department treated the show cause notice dated 22.10.2019 as the offence report and issued a show cause dated 24.01.2020 under the 2018 Regulations. - HELD THAT: - The Tribunal held that the Department erred in treating the show cause notice dated 22.10.2019 (issued under the Customs Act) as an offence report for the purposes of initiating revocation proceedings under the Customs Broker Licensing Regulations, 2018. The 22.10.2019 show cause arose out of an earlier offence report dated 16.02.2015 (DRI investigation). Once the 2019 notice is seen to spring from the 2015 offence report, the 24.01.2020 notice could not be treated as a fresh initiation that restarts the limitation clock. The consequence is that the revocation proceedings were time-barred in law when treated in that manner and therefore unsustainable. [Paras 16, 17, 18, 19]

Revocation proceedings instituted by treating the 22.10.2019 show cause as the offence report were time-barred and could not sustain the revocation order.

Requirement of material evidencing clearance of multiple shipping bills to establish conduct of a customs house agent - duty to comply with Know Your Customer obligations of a customs broker - Whether the appellant could be treated as having acted as customs house agent for multiple exporters when on record it had filed only one shipping bill, and whether that supported revocation. - HELD THAT: - The Tribunal noted, and the Department did not dispute, that the appellant had filed only one Shipping Bill (No. 5199084 dated 25.09.2014 for M/s. Dwarka Trading Company), which was already the subject of earlier proceedings quashed by the Delhi High Court. No other shipping bills attributable to the appellant were pointed out. In the absence of material showing that the appellant had cleared consignments for the other alleged dummy exporters or otherwise acted as their customs broker, the premise for revocation (that the appellant acted as CHA for those exports) was unsupported. This factual deficiency reinforced the conclusion that the revocation order could not be sustained. [Paras 20, 21]

Because only one shipping bill on record related to the appellant (already set aside), there was insufficient material to treat the appellant as CHA for the other alleged exports; the revocation therefore could not be upheld.

Final Conclusion: The revocation order dated 30.09.2020 is set aside: the licensing proceedings were legally infirm because the Department wrongly treated the 22.10.2019 show cause as an offence report (making the 24.01.2020 notice time barred), and there was insufficient material that the appellant had acted as customs house agent for the other alleged exports.

Tariff classification of imported goods - classification of TV tuners as parts for computers under heading 8473 - reception apparatus for television - binding effect and limits of Central Board of Excise & Customs circulars issued under section 151A - precedent value of Tribunal decisions in classification disputes

Tariff classification of imported goods - classification of TV tuners as parts for computers under heading 8473 - reception apparatus for television - precedent value of Tribunal decisions in classification disputes - Classification of the imported 'TV tuners' for the period between 2006-07 and 2010-11 - HELD THAT: - The Tribunal examined whether the imported items described as 'TV tuners' are to be treated as 'reception apparatus for television' falling under heading 8528 or as parts principally for use with computers and hence classifiable under heading 8473. The adjudicating authority had relied on Explanatory Notes to heading 8528 and on note (2) to section XVI, and placed weight on a CBEC circular. The Tribunal held that the correct approach is to follow the Tribunal's earlier decision in Compuage Infocom Ltd (Chennai) which determined that parts principally for use with computers should be classified under the appropriate tariff item within heading 8473. Applying that precedent and the determinative reasoning contained therein, the impugned order reclassifying the goods to heading 8528 was set aside and the appeal of the importer was allowed. [Paras 5, 6]

The 'TV tuners' are to be classified under the appropriate tariff item within heading 8473 and the impugned reclassification to heading 8528 is set aside; the assessee's appeal is allowed.

Binding effect and limits of Central Board of Excise & Customs circulars issued under section 151A - tariff classification of imported goods - Validity and weight of reliance on the CBEC circular dated 11th November 2011 in adjudicating classification - HELD THAT: - The Tribunal noted that while CBEC may issue circulars under section 151A for uniformity, the proviso to that authority prevents directing officers to make a particular assessment or dispose of a particular case in a particular manner and prohibits instructions that would interfere with the appellate discretion of Commissioners (Appeals). The impugned order's near-exclusive reliance on the circular was found impermissible because such reliance effectively binds original authorities while allowing appellate authorities to take varying stands, creating uncertainty for importers. Consequently, reliance on the circular by the adjudicating authority was rejected. [Paras 5]

The CBEC circular could not be treated as determinative or binding on classification in the manner adopted by the adjudicating authority; reliance thereon was rejected.

Penalty and mandatory penalty under Customs Act - Whether mandatory penalty under section 114A should be imposed on the importer - HELD THAT: - Revenue's appeal seeking imposition of a mandatory penalty under section 114A was considered in light of the Tribunal's decision on classification and the rejection of the impugned order. Having set aside the reclassification and allowed the importer's appeal, the Tribunal found no basis to sustain Revenue's contention for mandatory penalty under section 114A. [Paras 2, 6]

Revenue's appeal for imposition of mandatory penalty under section 114A is dismissed.

Final Conclusion: Impugned order of the Commissioner of Customs (Import) is set aside; the assessee's appeal is allowed on classification grounds and the Revenue's appeal for imposition of mandatory penalty under section 114A is dismissed.

Initiation of CIRP under Section 7 of the IBC - corporate guarantor - corporate debtor - financial creditor - default - coextensive liability of guarantor

Initiation of CIRP under Section 7 of the IBC - corporate guarantor - corporate debtor - financial creditor - coextensive liability of guarantor - Whether a financial creditor can initiate CIRP under Section 7 of the IBC against a corporate person who furnished guarantee for loans advanced to a principal borrower who is not a corporate person, and whether such guarantor becomes a corporate debtor on default. - HELD THAT: - The Court held that a financial creditor may initiate CIRP under Section 7 against a corporate person who has furnished a guarantee for a loan to a principal borrower even if the principal borrower is not a corporate person. A guarantee gives rise to a liability which, upon default by the principal borrower, becomes a "debt" and, where the guarantor is a corporate person, it metamorphoses into the status of a corporate debtor within the meaning of Section 3(8) IBC. The Court applied the reasoning in Laxmi Pat Surana, observing that the expression "financial debt" in Section 5(8) and the definitions of "claim" and "debt" in the Code encompass liabilities arising from guarantees, and that the guarantor's obligation is coextensive and coterminous with that of the principal borrower. The 2018 amendment inserting the definition of "corporate guarantor" (Section 5(5A)) and related amendments were held not to exclude a corporate guarantor from being treated as a corporate debtor for the purposes of initiating CIRP under Section 7 where default has occurred. Consequently, the Appellate Authority correctly treated Maharaja Theme Parks and Resorts as a corporate debtor liable to CIRP on the guarantee-triggered default, and there was no requirement to first proceed against the principal borrower. [Paras 13, 16, 17, 18]

The appeal is dismissed; CIRP could be validly initiated under Section 7 against the corporate guarantor and the concurrent orders admitting CIRP are upheld.

Final Conclusion: The Supreme Court dismissed the appeal, holding that a corporate person who furnishes a guarantee for a loan becomes a corporate debtor on default by the principal borrower, and a financial creditor may initiate CIRP under Section 7 against such corporate guarantor; the NCLT and NCLAT concurrent findings are affirmed.

Pre-existing dispute as a bar to a petition under Section 9 of the Insolvency and Bankruptcy Code, 2016 - quality dispute and consequential deductions - approbation and reprobation - communication of dispute under Section 5(6) - dismissal of application for prosecution/sanction under section 340 of the Code of Criminal Procedure

Pre-existing dispute as a bar to a petition under Section 9 of the Insolvency and Bankruptcy Code, 2016 - communication of dispute under Section 5(6) - quality dispute and consequential deductions - Existence of a pre-existing dispute between the parties and its effect on the maintainability of the Company Petition filed under Section 9 of the Code. - HELD THAT: - The Tribunal found that the Corporate Debtor raised contemporaneous complaints regarding quality, weight shortages and deductions in multiple emails and GRNs, and thereafter effected payments reflecting partial settlements and specific deductions. The Operational Creditor both relied on and disavowed emails addressed to the same addressee, a conduct characterised as approbation and reprobation. The record therefore discloses a pre-existing dispute about quality and amounts payable which was not a mere bare denial of liability but supported by documentary evidence (emails, GRNs, laboratory test references and payment records). In view of these findings the petition under Section 9 could not be admitted as the existence of pre-existing disputes falls within the ambit of Section 5(6) and bars initiation of the CIRP on the present pleadings and documents. [Paras 21, 22, 23, 24, 25]

Company Petition CP (IB) No. 373/KB/2018 rejected on account of existence of pre-existing disputes regarding quality, weight and payments.

Dismissal of application for prosecution/sanction under section 340 of the Code of Criminal Procedure - approbation and reprobation - Maintainability and merit of I.A. (IB) No. 1078/KB/2019 seeking sanction to prosecute directors of the Operational Creditor for alleged perjury. - HELD THAT: - The Tribunal examined the assertions relied upon by the Corporate Debtor and the rejoinder by the Operational Creditor. The Tribunal observed lack of cogent documentary foundation for the allegations that would warrant criminal sanction under section 340 Cr.P.C. and noted contradictions in the Corporate Debtor's own material. There was no basis to grant the extraordinary reliefs sought for prosecution or to impose the conditions prayed for. Accordingly the interlocutory application seeking sanction for prosecution was dismissed, with liberty to the applicant to pursue other remedies available in law. [Paras 26, 27]

I.A. (IB) No. 1078/KB/2019 dismissed; no sanction granted for prosecution of the directors of the Operational Creditor.

Final Conclusion: The Company Petition under Section 9 of the Insolvency and Bankruptcy Code, 2016 (CP (IB) No. 373/KB/2018) is dismissed on the ground of pre-existing disputes concerning quality, weight and payments; the related interlocutory application for sanction to prosecute directors (I.A. (IB) No. 1078/KB/2019) is also dismissed, with the applicant at liberty to pursue other legal remedies.

Operational debt - demand notice in Form 3 under the Code - undisputed operational debt - limitation for filing Section 9 application - admission and initiation of Corporate Insolvency Resolution Process - appointment of Interim Resolution Professional - moratorium under the Code

Demand notice in Form 3 under the Code - service of notice - The demand notice dated 26.11.2019 was duly served on the corporate debtor. - HELD THAT: - The petitioner produced registered postal receipts and tracking reports showing delivery of the demand notice at the corporate debtor's Chennai office. The Adjudicating Authority examined the postal and tracking evidence and recorded that the demand notice sent to the Chennai office was received on 03.12.2019. On this basis the Authority held that the statutory demand notice requirement had been satisfied. [Paras 5, 8]

Demand notice held to be properly served.

Operational debt - undisputed operational debt - The operational debt claimed by the petitioner was proved and not disputed by the corporate debtor. - HELD THAT: - The petitioner furnished account statements and a calculation of unpaid wages and other dues totalling the claimed amount. The corporate debtor did not deny the transactions or the liability; rather it admitted the default and sought initiation of CIRP in the interest of stakeholders, attributing its inability to pay to losses including those due to COVID-19. The Authority found that the petitioner had established the debt and default and that the amount was not contested by the respondent. [Paras 3, 6, 9, 11, 12]

Claimed operational debt proved and admitted; debt held undisputed.

Limitation for filing Section 9 application - The Section 9 petition was filed within the period of limitation as recorded in the petition. - HELD THAT: - The Authority noted the date of default as 01.11.2017 and the filing of the application on 24.12.2019. On examination of the record the Adjudicating Authority concluded that the application was within limitation and therefore maintainable. [Paras 4, 10]

Application held to be filed within limitation.

Admission and initiation of Corporate Insolvency Resolution Process - The petition under Section 9 was admitted and CIRP was initiated against the corporate debtor. - HELD THAT: - Having found that statutory pre-conditions were satisfied - proper service of demand notice, proved and undisputed operational debt above the prescribed threshold, and filing within limitation - the Authority concluded that the requirements of Section 9(5)(i) were met. Consequently, the petition was admitted and the Corporate Insolvency Resolution Process directed to be initiated. [Paras 11, 12, 14]

Petition admitted and CIRP ordered to be initiated.

Appointment of Interim Resolution Professional - An Interim Resolution Professional was appointed and directed to perform statutory duties in relation to the CIRP. - HELD THAT: - The petitioner did not propose an IRP in Form 5, Part III. The Authority appointed Mr. Krishan Vrind Jain from the IBBI list and directed him to perform the duties and exercise powers conferred by the Code, to prepare inventory of assets, cause public announcement, collate claims, constitute the Committee of Creditors and file periodic reports, with the term and conduct to be in accordance with the Code and regulations. [Paras 13, 18]

Mr. Krishan Vrind Jain appointed as Interim Resolution Professional with directions for conduct of CIRP.

Moratorium under the Code - Moratorium was declared with effect from the date of the order until completion of CIRP or further order. - HELD THAT: - On admission of the petition and initiation of CIRP, the Authority imposed the moratorium in terms of the Code, enjoining suspension of suits, execution proceedings, transfer or disposal of assets, enforcement of security interests and recovery of property occupied by the corporate debtor, and clarified continuance of supply of essential goods or services as provided by the Code and relevant rules. The moratorium was directed to remain in force until completion of the resolution process or further order. [Paras 15, 16, 17]

Moratorium directed to operate from the date of the order until completion of CIRP or further order.

Final Conclusion: The Adjudicating Authority held that the petitioner satisfied the statutory requirements for a Section 9 petition: the demand notice was duly served, the operational debt was proved and remained undisputed, the petition was within limitation and complete; accordingly the petition was admitted, CIRP was initiated, an Interim Resolution Professional was appointed and moratorium imposed.

Admission of personal guarantor to Insolvency Resolution Process - Appointment and duties of Resolution Professional - Moratorium on legal actions - Invitation and registration of creditor claims - Preparation and submission of repayment plan - Meeting of creditors and consideration of repayment plan - Recording of default and evidence of personal guarantee

Admission of personal guarantor to Insolvency Resolution Process - Recording of default and evidence of personal guarantee - Admission of the Petition filed under Section 95 of the Code against the Personal Guarantor and initiation of Insolvency Resolution Process - HELD THAT: - The Tribunal considered the report filed by the Resolution Professional under Section 99 of the Code and the documents on record, including the loan application, loan agreement, security documentation, the personal guarantee executed by the respondent, the recording of default on NeSL and the admitted claim in liquidation. The report recorded the corporate debtor's prior CIRP and liquidation, existence of charge and guarantee, non-payment in response to the Demand Notice and absence of any reply from the respondent. On these materials and in view of the Resolution Professional's recommendation, the Petition under Section 95 was held to be maintainable and was admitted under Section 100, thereby initiating the Insolvency Resolution Process against the Personal Guarantor. [Paras 2, 4, 5, 10]

CP(IB)-71(ND)/2022 filed under Section 95(1) is admitted and the Insolvency Resolution Process is initiated against the Personal Guarantor, Mr. Vivek Prakash.

Moratorium on legal actions - Declaration and temporal scope of the moratorium consequent to admission - HELD THAT: - Upon admission under Section 100, the Tribunal declared the moratorium operative from the date of this order and specified that it shall cease at the end of 180 days as provided under the Code. The order records the substantive effects of the moratorium, namely stay of pending legal actions in respect of any debt, prohibition on initiation of legal proceedings by creditors, restrictions on transfer or encumbrance of the debtor's assets and the exception for transactions notified by the Central Government in consultation with regulators. [Paras 5]

A moratorium commences from the date of admission and shall remain in effect for 180 days with the stated prohibitions and exceptions.

Appointment and duties of Resolution Professional - Invitation and registration of creditor claims - Appointment of the Resolution Professional and directions for public notice and claim registration - HELD THAT: - The Tribunal noted that the Resolution Professional proposed by the creditor had been appointed earlier and had filed the report under Section 99. The Resolution Professional was directed to cause publication of a public notice on behalf of the Adjudicating Authority within seven days of uploading the order, inviting claims from all creditors to be registered within 21 days as required by the Code. The notice content and manner of publication (one English and one vernacular newspaper having wide circulation in the State of the debtor's residence) were specified, and procedural directions were given for supplying copies to the Registry for website posting and physical affixation. [Paras 2, 6]

The nominated Resolution Professional is directed to publish the public notice and invite creditors to register claims in accordance with the Code and the directions in the order.

Preparation and submission of repayment plan - Meeting of creditors and consideration of repayment plan - Obligations to prepare list of creditors, formulate a repayment plan and conduct creditor meeting as per the Code - HELD THAT: - The Tribunal directed the Resolution Professional to prepare the list of creditors within 30 days of the notice and required the debtor, in consultation with the Resolution Professional, to prepare a repayment plan under the statutory scheme. Timelines were specified: the Resolution Professional must submit the repayment plan with his report within 21 days from the last date of submission of claims. The order also prescribes the procedure to be followed if a meeting of creditors is to be summoned, including the notice period (not less than 14 days and not more than 28 days) and compliance with the applicable sections of the Code governing meetings, voting and report submission. [Paras 7, 8, 9]

The Resolution Professional shall prepare the creditors' list, facilitate preparation and submission of the repayment plan within the prescribed timelines and, if required, convene and report on the meeting of creditors in accordance with the Code.

Final Conclusion: The petition under Section 95(1) is admitted; insolvency resolution proceedings and a moratorium for 180 days are ordered against the personal guarantor, the nominated Resolution Professional is confirmed and directed to publish the requisite public notice, invite and register claims, prepare the creditors' list, and oversee preparation, submission and creditor consideration of a repayment plan in accordance with the Code.

No shipping-bill-wise restriction for claiming rebate - rebate of service tax on specified services used for export of goods - minimum refund threshold under Paragraph 3(j) of the Notification - requirement of specified services being used beyond the place of manufacture/place of removal

No shipping-bill-wise restriction for claiming rebate - rebate of service tax on specified services used for export of goods - Whether the Notification permits aggregation of more than one shipping bill in a single refund claim or requires claims to be filed shipping bill wise. - HELD THAT: - The Tribunal referred to the language of the Notification and Form A-1 and held that a claim may contain one or more shipping bills and there is no restriction on the number of shipping bills covered by a single claim. The requirement is that details of each shipping bill, the goods exported and the specified services used must be furnished; Para 3 requires the total service tax claimed to be shown and expressed as a percentage of total FOB value, which indicates that computation need not be shipping bill specific when multiple shipping bills are involved. Consequently, there is no obligation to determine FOB value shipping-bill wise for application of the formula under Para 1(c) or Para 3, and rebate may be claimed for multiple shipping bills in one claim. [Paras 6, 7]

Issue decided in favour of the Appellants; rebate claims need not be filed shipping bill wise and multiple shipping bills can be covered in a single claim provided requisite details are furnished.

Minimum refund threshold under Paragraph 3(j) of the Notification - Whether refund claims below the minimum amount specified in Paragraph 3(j) are allowable. - HELD THAT: - The Tribunal found that the Commissioner (Appeals) correctly interpreted Paragraph 3(j) of the Notification which disallows refund claims below the stipulated minimum. The Tribunal affirmed the Commissioner's interpretation and decision on this point. [Paras 8]

Issue decided in favour of the Revenue; refund claims below the threshold in Paragraph 3(j) cannot be allowed.

Requirement of specified services being used beyond the place of manufacture/place of removal - rebate of service tax on specified services used for export of goods - Whether service of pre-inspection carried out inside the manufacturer's plant qualifies as a specified service eligible for refund under the Notification. - HELD THAT: - Relying on earlier Tribunal orders and the Notification as amended, the Tribunal held that 'specified services' means taxable services that have been used beyond the factory or any other place or premises of production or manufacture of the said goods. Services provided within the manufacturer's premises do not qualify as used beyond the place of removal and therefore are not eligible. The Tribunal applied this principle to conclude that pre-inspection inside the plant did not satisfy the requirement and the appellants were not entitled to refund on that basis. [Paras 5, 9]

Issue decided in favour of the Appellants insofar as the Tribunal reiterated the legal test that only services used beyond the place of manufacture qualify; pre-inspection within the plant does not meet that requirement and is not eligible.

Final Conclusion: The Tribunal allowed the appeals overall: it held that rebate claims may aggregate multiple shipping bills in one claim and reiterated that only services used beyond the place of manufacture qualify as specified services for refund; however, the Tribunal upheld the Commissioner (Appeals) on the interpretation of Paragraph 3(j) disallowing refunds below the stipulated minimum, and disposed of the appeals accordingly.

Requirement to decide appeals on merits under Section 35C(1) of the Central Excise Act - Violation of principles of natural justice by non-service of notice - Remand for fresh adjudication - Waiver of interest - Costs for delayed prosecution

Requirement to decide appeals on merits under Section 35C(1) of the Central Excise Act - Violation of principles of natural justice by non-service of notice - Remand for fresh adjudication - Whether the CESTAT could dismiss the appellant's service-tax appeal for non-prosecution when the notice was returned unserved and the matter had not been heard on merits, and what relief follows. - HELD THAT: - The Court found that Section 35C(1) requires the Appellate Tribunal to pass an order on the appeal by confirming, modifying or annulling the decision appealed against or remanding the matter; it does not permit dismissal of an appeal for default of appearance where the appeal itself has not been decided on merits. The CESTAT's Final Order dismissing the appeal for non-prosecution, recorded as caused by the hearing notice being returned unserved, and the subsequent Restoration-Dismissal Order similarly passed without affording the petitioner an opportunity to be heard, were contrary to the legal requirement to decide the appeal on its merits. The Court noted that the notices were sent to an address different from that provided for service in the Restoration Application and that the Tribunal did not take adequate steps to ensure proper service on a large, readily-locatable corporate appellant. Applying the principles in Balaji Steel and related authorities, the Court concluded that the Tribunal erred in law and hence the impugned orders could not be sustained. [Paras 6, 7, 8]

Orders dated 16.10.2014 and 13.11.2019 are set aside and the CESTAT is directed to decide the petitioner's appeal on merits after affording an opportunity of being heard.

Waiver of interest - Costs for delayed prosecution - Whether the petitioner may claim interest for the period the appeal lay pending and what costs ought be imposed given the petitioner's delay in prosecuting the appeal and restoration application. - HELD THAT: - Counsel for the petitioner obtained instructions and the petitioner consented not to pursue any claim for interest for the period between filing of the appeal (28.07.2014/09.09.2014) and the Restoration-Dismissal Order (13.11.2019). The Court accepted that the petitioner had not acted with alacrity in pursuing the proceedings and, while granting relief by setting aside the impugned orders and remanding the matter for decision on merits, considered it appropriate to impose a cost to reflect the petitioner's lack of diligence. The cost is directed to be paid to the Bar Council of Delhi-Indigent & Disabled Lawyers Account within two weeks of receipt of the judgment. [Paras 5, 8]

Petitioner shall not press for interest for the specified period by consent; petitioner to pay costs of Rs.20,000 to the specified Bar Council fund within two weeks.

Final Conclusion: The petition is allowed: the CESTAT's orders of 16.10.2014 and 13.11.2019 are set aside and the matter is remitted to the CESTAT to decide the appeal on merits after affording an opportunity of hearing; the petitioner has agreed not to claim interest for the period in question and is ordered to pay costs as directed.

Adjudication within a reasonable time - principles of natural justice - stale show-cause notices - duty to inform when proceedings are kept in abeyance / transferred to call book - prejudice from inordinate delay - writ jurisdiction under Article 226 for violation of natural justice

Stale show-cause notices - adjudication within a reasonable time - prejudice from inordinate delay - principles of natural justice - duty to inform when proceedings are kept in abeyance / transferred to call book - writ jurisdiction under Article 226 for violation of natural justice - Whether adjudication of show-cause notices issued in 2008-2009 after a delay of about 13 years, without informing the petitioner that the notices had been kept in abeyance/ transferred to call book, offended principles of natural justice and justified quashing of the notices and consequential order by writ jurisdiction. - HELD THAT: - The Court held that even where no statutory time-limit exists, show-cause notices must be adjudicated within a reasonable time and revenue authorities must act diligently. Where notices are kept in abeyance (transferred to call book) the authority has a duty to inform the answering party so that evidence may be preserved and the party can contest the abeyance. Failure to inform the party, coupled with adjudication after an inordinate delay for which the answering party is not responsible, impinges on procedural fairness and violates principles of natural justice. A delay of thirteen years in the present facts defeated the purpose of issuing show-cause notices; the petitioner was justified in believing the matters were abandoned, relevant records had become untraceable and witnesses unavailable, and grave prejudice had resulted. The authority's failure to produce or explain reliance on any circular said to justify transfer to call book, and its failure to consider the petitioner's submissions and binding decisions of this Court, evidenced dereliction of duty. Such a violation of natural justice is amenable to challenge by writ under Article 226 and need not be relegated to the alternate statutory appeal remedy. [Paras 11, 12]

The adjudication initiated after about thirteen years without informing the petitioner that the notices were kept in abeyance violated principles of natural justice; the impugned show-cause notices and the consequential order are quashed.

Final Conclusion: Writ petition allowed; impugned show-cause notices and the impugned adjudication order set aside on grounds of inordinate delay, failure to inform transfer to call book, resultant prejudice and breach of principles of natural justice.

Secured creditor - security interest - statutory charge / first charge on property - priority of distribution under Section 53 - resolution plan compliance with Section 30(2) - adjudicating authority's duty under Section 31 - time limits for submission of claims are directory - power to set aside a resolution plan not conforming to statutory requirements

Secured creditor - security interest - statutory charge / first charge on property - The Sales Tax Department (State) is a secured creditor under the IBC by virtue of the statutory first charge created under Section 48 of the GVAT Act. - HELD THAT: - The Court holds that the definition of secured creditor under the IBC (Section 3(30)) and the definition of security interest (Section 3(31)) are wide enough to include rights and charges created by operation of law. The statutory first charge under Section 48 of the GVAT Act constitutes a security interest and therefore the State falls within the definition of a secured creditor under the Code. The IBC's definition does not exclude governmental or statutory authorities from secured creditor status. [Paras 30, 31, 56, 57]

State is a secured creditor under the IBC by reason of the statutory first charge under the GVAT Act.

Priority of distribution under Section 53 - statutory charge / first charge on property - Section 53 of the IBC does not negate or override the operation of the statutory first charge under Section 48 of the GVAT Act; debts secured by such charge fall to be treated in the order of priority provided by Section 53. - HELD THAT: - Though Section 53 contains a non-obstante clause, the Court finds Section 48 of the GVAT Act is not inconsistent with Section 53. Under Section 53(1)(b)(ii), debts owed to a secured creditor (including the State under GVAT Act) rank equally with specified debts and are to be distributed in accordance with the statutory order of priority. Hence, Section 53 does not operate to extinguish or render nugatory the statutory charge; rather, the secured status and priority under the IBC apply to such statutory charges. [Paras 55, 56]

Section 48 GVAT Act and Section 53 IBC operate compatibly; statutory first charge is to be recognised and given priority as per Section 53.

Time limits for submission of claims are directory - resolution plan compliance with Section 30(2) - Delay in filing a claim cannot be the sole basis for rejecting a statutory creditor's claim; the time frames in the Regulations are directory and the Resolution Professional and Adjudicating Authority must ensure statutory dues are considered so that a resolution plan meets Section 30(2) requirements. - HELD THAT: - The Court reiterates that the Regulations and timelines under the IBC, including those for submission of claims, are to be read in the context of the Code and have been held to be directory. The RP's duty is to receive, verify and collate claims and the Adjudicating Authority must satisfy itself under Section 31(1) that the resolution plan conforms to the requirements of Section 30(2), including adequate provision for operational creditors not less than what would be received on liquidation under Section 53. Accordingly, mere belated filing cannot alone justify exclusion of statutory dues where the plan fails to provide for them as required by statute. [Paras 40, 41, 45, 46, 58]

Belated claim is not an automatic ground for rejection; RP and Adjudicating Authority must ensure statutory dues are provided for in accordance with Section 30(2) and Section 53.

Resolution plan compliance with Section 30(2) - adjudicating authority's duty under Section 31 - power to set aside a resolution plan not conforming to statutory requirements - The resolution plan approved by the CoC and sanctioned by the Adjudicating Authority was set aside because it failed to meet the statutory requirements and did not provide for the statutory dues; the matter is remitted for fresh consideration. - HELD THAT: - Section 31(1) mandates that the Adjudicating Authority approve only those resolution plans that satisfy the requirements of Section 30(2). If a resolution plan ignores statutory dues or otherwise is not in conformity with the IBC and the Regulations, the Adjudicating Authority is obliged to reject it. Applying these principles, the Court found that the impugned resolution plan did not adequately provide for the State's statutory dues and therefore cannot bind the State; the impugned orders were set aside and the Resolution Professional is directed to consider a fresh resolution plan in light of the observations made. [Paras 46, 48, 51, 52, 59]

Impugned resolution plan set aside; matter remanded for fresh consideration so that statutory dues are provided for in conformity with the IBC.

Final Conclusion: The appeals are allowed: the Sales Tax Department is a secured creditor by virtue of the statutory first charge under Section 48 GVAT Act; Section 53 IBC does not negate that charge but prescribes the order of priority for distribution; delay in filing claims is not an automatic bar; the resolution plan and impugned orders are set aside and the Resolution Professional is directed to consider a fresh resolution plan in accordance with the IBC and this judgment.

Power of attorney holder prosecuting and deposing in NI Act complaint - examination of witness by commission under Section 284 CrPC - requirement of personal knowledge of SPA holder to testify - discretion of Magistrate to permit deposition by affidavit and to convert trial into summons trial - judicial scrutiny of validity and scope of special power of attorney

Power of attorney holder prosecuting and deposing in NI Act complaint - requirement of personal knowledge of SPA holder to testify - Validity of permitting the SPA holder to prosecute the complaint and to file evidence on affidavit without the complainant personally being produced before the Magistrate. - HELD THAT: - The Court examined the competency of a power of attorney holder to conduct prosecution and give evidence in a complaint under Section 138 of the Negotiable Instruments Act in light of settled principles that the SPA holder may depose or verify the complaint only if he/she witnessed the transaction or possesses specific knowledge of it, and that such knowledge ought to be expressly asserted in the complaint. The High Court observed that the trial Court may examine the facts surrounding the SPA and its scope at the appropriate stage. While the impugned orders permitting the SPA holder to continue prosecuting were set aside only insofar as they precluded examination of the complainant by commission, the Court left intact the trial Court's earlier view allowing the SPA holder to continue with the trial and directed that the trial Court is at liberty to determine whether the SPA filed conforms to law. [Paras 18, 24, 26]

The SPA holder is permitted to continue with the trial, but the trial Court may, at an appropriate stage, examine and decide the legality and scope of the SPA and whether the SPA holder has requisite personal knowledge to be examined as a witness.

Examination of witness by commission under Section 284 CrPC - discretion of Magistrate to permit deposition by affidavit and to convert trial into summons trial - Whether the complainant, who is infirm and unable to attend Court, ought to be cross examined by appointment of a Commission under Section 284 CrPC rather than by permitting her son (SPA holder) to lead evidence in her place without a Commission. - HELD THAT: - The Court recognised that where a witness is unable to attend Court due to infirmity or other reasonable cause, Section 284 CrPC empowers the Court to dispense with personal attendance and issue a commission for examination of the witness to meet the ends of justice. The High Court held that in the facts of this case - the complainant being an elderly person with serious medical ailments and having filed an SPA shortly before the listed date - the appropriate course is for the learned Magistrate to consider appointment of a Commission for her cross examination upon an application being filed. Consequently, the impugned orders dated 03.03.2022 and 19.05.2022 were set aside to the limited extent of directing that the complainant may be cross examined through a Commission under Section 284 CrPC and that the learned Magistrate shall proceed in accordance with law on such application. [Paras 20, 21, 23, 24, 25]

Impugned orders set aside partially; the trial Court is to consider and, upon application, appoint a Commission under Section 284 CrPC for cross examination of the complainant.

Judicial scrutiny of validity and scope of special power of attorney - Extent of appellate interference and directions to the trial Court regarding further conduct of trial and determination of SPA validity. - HELD THAT: - The High Court exercised supervisory jurisdiction to direct the trial Court to proceed in accordance with law. It clarified that the trial Court remains free to examine the legality and scope of the SPA and decide whether the SPA authorises the holder to lead evidence, and to do so at an appropriate stage. The Court also directed expedition of the trial and cautioned against unnecessary adjournments or imposition of costs, without finally adjudicating the substantive merits of the complaint or precluding factual inquiries by the trial Court. [Paras 25, 26, 27]

Trial Court to expeditiously continue the trial, determine the validity and scope of the SPA at the appropriate stage, and proceed to appoint a Commission for cross examination of the complainant upon an application.

Final Conclusion: The petition is allowed insofar as the impugned orders are set aside to the extent that the complainant shall, upon application, be cross examined through a Commission under Section 284 CrPC; the SPA holder may continue with the trial, and the trial Court is directed to examine the legality and scope of the SPA at an appropriate stage and to expeditiously conclude the trial.