TaxTMI Updates e-Newsletter
Sep 11,2023

Summary order. Notice issued in the Special Leave Petition; counter affidavit directed to be filed within two weeks; parties directed to file a common indexed compilation of authorities and written submissions (nominated nodal counsel to prepare compilation) by 21 September 2023; ad interim stay granted on the impugned judgment and order of the Single Judge of the High Court of Karnataka; matter listed on 10 October 2023.

Provisional attachment ceasing after one year - effect of Section 83(2) of the CGST Act - obligation on banks not to interdict accounts upon expiry of provisional attachment - administrative procedure for intimating release/restoration under Board advisory

Provisional attachment ceasing after one year - effect of Section 83(2) of the CGST Act - Impugned communications issued under Section 83 of the CGST Act ceased to be operative after one year and the petitioner's challenge was therefore academic. - HELD THAT: - The Court noted that one year had elapsed since issuance of the provisional attachment communications and, in terms of Section 83(2) of the CGST Act, those orders no longer had effect. The Board's advisory of 02.09.2023 was relied upon to clarify administration of such situations, but the legal consequence remains that provisional attachments under Section 83 cease to operate after the statutory one-year period. Consequently, the petition attacking the impugned communications was rendered academic and required no further adjudication on their substantive validity. [Paras 4, 6]

The Court held that the impugned provisional attachment communications are no longer operative as one year has elapsed and the challenge is academic.

Obligation on banks not to interdict accounts upon expiry of provisional attachment - administrative procedure for intimating release/restoration under Board advisory - Banks shall not interdict operation of the bank accounts on account of the impugned communications, and the concerned officer must follow the Board's advisory procedure to intimate release/restoration. - HELD THAT: - Having concluded that the provisional attachments had ceased to have effect, the Court directed that the respondent banks should not continue to restrain operation of the accounts based on those communications. The Court further directed the concerned officer to follow the procedure set out in the Board advisory dated 02.09.2023, namely to communicate to the bank/authority particulars of the original provisional attachment order and reference Section 83(2) to indicate release/restoration, with a copy to the person concerned, to facilitate practical release and compliance. [Paras 5, 7]

Respondent banks were directed not to interdict the accounts and the concerned officer was directed to implement the Board advisory procedure for intimating release/restoration.

Final Conclusion: The petition was disposed of as academic because the provisional attachment orders under Section 83 had lapsed after one year; banks were directed not to interdict the accounts and the officer was directed to implement the Board advisory procedure for intimating release/restoration.

Cancellation of GST registration - principles of natural justice - personal hearing - remand for fresh consideration

Principles of natural justice - personal hearing - cancellation of GST registration - Impugned order cancelling the petitioner's GST registration was set aside on account of a breach of the principles of natural justice for failure to afford an opportunity of hearing. - HELD THAT: - The Court found that the petitioner's representative attended the Proper Officer's office at the appointed date and time and that the petitioner also communicated difficulties in uploading documents. The respondents did not seriously dispute the visit by the petitioner's son. In these circumstances the impugned cancellation was held to have been passed without affording the petitioner a fair opportunity to be heard, thereby violating the principles of natural justice. The Court therefore set aside the cancellation order and directed further proceedings in accordance with law. [Paras 11, 12]

Impugned cancellation order set aside for violation of natural justice; petitioner to be afforded an opportunity of hearing.

Remand for fresh consideration - cancellation of GST registration - Matter remanded to the Proper Officer for fresh consideration after affording the petitioner an opportunity to be heard, with an expedited timeline. - HELD THAT: - Having set aside the impugned order, the Court remitted the case to the Proper Officer to consider the allegations afresh and to decide the matter after hearing the petitioner and examining the documents sought. The Court directed that the proceedings be concluded expeditiously and preferably within four weeks from the date of the order. [Paras 12, 13]

Proceedings remanded to Proper Officer for fresh consideration after hearing the petitioner; directed to conclude preferably within four weeks.

Final Conclusion: Impugned order of cancellation of the petitioner's GST registration set aside for breach of natural justice; matter remanded to the Proper Officer for fresh consideration after affording a personal hearing, to be concluded expeditiously (preferably within four weeks).

Cancellation of GST registration with retrospective effect - non-filing of returns for continuous period of six months - closure or discontinuance of business as ground for cancellation - requirement of reasons for retrospective cancellation - department's power to recover tax, interest or penalty despite cancellation

Cancellation of GST registration with retrospective effect - non-filing of returns for continuous period of six months - requirement of reasons for retrospective cancellation - Cancellation of the petitioner's GST registration with retrospective effect to 01.07.2017 was not justified by the allegation of non-filing of returns for six months. - HELD THAT: - The Court examined the order of cancellation dated 15.03.2021 and found that it did not state any reasons for cancelling the petitioner's registration with retrospective effect from 01.07.2017. The only ground relied upon by the Proper Officer was non-filing of returns for a continuous period of six months, which the Court held was not a plausible basis for retrospective cancellation to 01.07.2017. Having regard to the absence of reasons in the impugned order and the limited nature of the allegation, the Court concluded that the retrospective cancellation could not be sustained. [Paras 7, 10, 11]

Impugned order cancelling registration retrospectively from 01.07.2017 set aside.

Closure or discontinuance of business as ground for cancellation - department's power to recover tax, interest or penalty despite cancellation - Cancellation of the petitioner's GST registration shall take effect from 31.12.2019, the date claimed by the petitioner as discontinuance of business; this direction does not preclude departmental action to recover any tax, interest or penalty. - HELD THAT: - The petitioner had applied for cancellation effective 31.12.2019 on account of closure of business. The Court accepted that the petitioner had discontinued business w.e.f. that date and, in the exercise of its remedial power, directed that the cancellation shall take effect from 31.12.2019. The Court clarified that this direction is without prejudice to the department's right to initiate steps to recover any tax, interest or penalty found to be due on examination. [Paras 1, 6, 12, 13]

Registration cancellation ordered to take effect from 31.12.2019, subject to department's rights to recover dues.

Final Conclusion: The petition is allowed: the order of retrospective cancellation to 01.07.2017 is set aside and the petitioner's GST registration is cancelled with effect from 31.12.2019, without prejudice to any departmental action for recovery of tax, interest or penalty.

Revocation of cancellation of GST registration - condonation of delay - consideration on merits - withdrawal of appeal - physical verification/non-existence at premises - show cause notice

Revocation of cancellation of GST registration - condonation of delay - consideration on merits - withdrawal of appeal - Application for revocation of the petitioner's cancelled GST registration to be considered on merits and without being influenced by delay if procedural steps specified by the Court are complied with. - HELD THAT: - The Court accepted the respondent's concession that if the petitioner withdraws the pending appeal before the Appellate Authority and approaches the proper officer with an application for revocation of the cancellation, the proper officer should consider that application on merits. The petitioner's explanation for non-response to the show cause notice - that he was incapacitated by domestic bereavement and unable to attend to business or respond - was held to sufficiently explain the delay. The Court therefore directed that such an application, if filed within one week, shall be decided on merits within four weeks thereafter and that the proper officer shall decide uninfluenced by the question of delay. The direction is procedural and remits the substantive question of revocation to the proper officer for fresh consideration on the stated timeline. [Paras 8, 9, 10]

Petitioner to withdraw the pending appeal and may file an application for revocation of cancellation within one week; the proper officer shall decide that application on merits within four weeks and shall not be influenced by delay.

Final Conclusion: Writ petition disposed of by directing that upon withdrawal of the pending appeal and filing of an application for revocation within one week, the proper officer shall consider and decide the revocation application on merits within four weeks, uninfluenced by delay; exemption allowed in the connected application.

Cancellation of GST registration - show cause notice - registration obtained by fraud, wilful misstatement or suppression of facts - reasoned order - meaningful opportunity to reply / right to know allegations

Cancellation of GST registration - show cause notice - registration obtained by fraud, wilful misstatement or suppression of facts - reasoned order - meaningful opportunity to reply / right to know allegations - Validity of the impugned show cause notice and subsequent order cancelling the petitioner's GST registration where the SCN alleged registration was obtained by fraud, wilful misstatement or suppression of facts but did not specify particulars or reasons. - HELD THAT: - The Court found that the impugned cancellation order was not informed by any reason and the impugned show cause notice failed to indicate the specific nature of the alleged fraud, wilful misstatement or suppression of facts. Because the SCN did not state what was the fraud, which wilful misstatement was made or which material fact was suppressed, it was incapable of eliciting a meaningful response from the petitioner. The absence of particularised allegations and the lack of reasons in the order meant the petitioner was denied the opportunity to know and meet the case against it. For these reasons the Court concluded that the SCN and the cancellation order could not stand. [Paras 5, 9, 10]

Impugned show cause notice dated 30.06.2023 and order dated 08.08.2023 cancelling the petitioner's GST registration are set aside; petition allowed.

Final Conclusion: The Court allowed the petition, setting aside the impugned show cause notice and the cancellation order because the SCN lacked particularised allegations and the order was not informed by reasons, thereby denying the petitioner a meaningful opportunity to reply.

Cancellation of registration - show cause notice - reasoned order - revocation of cancellation - limitation/condonation - change of place of business and inability to file amendment due to cancellation - assessment of tax liability and discrepancies in returns not a ground for cancellation - restoration of GST registration subject to lawful action

Show cause notice - reasoned order - cancellation of registration - The order cancelling the petitioner's GST registration and the Show Cause Notice leading to it are unsustainable for want of adequate reasons. - HELD THAT: - The Show Cause Notice merely stated 'Discrepancies noticed while conduct of Physical Verification' and was too cryptic to elicit a meaningful response. The cancellation order that followed was not informed by reason. The Court held that neither the Show Cause Notice nor the cancellation order could be sustained where specific grounds were not disclosed to permit a proper response, and accordingly set aside the cancellation on that basis. [Paras 4, 6, 8]

The cancellation order dated 22.07.2022 and the underlying Show Cause Notice are unsustainable for want of adequate reasons.

Revocation of cancellation - limitation/condonation - change of place of business and inability to file amendment due to cancellation - Rejection of the petitioner's application for revocation of cancellation could not be sustained on the grounds relied upon by the authorities, including a one-day delay and non-declaration of a shifted place of business where cancellation itself had disabled filing of amendment. - HELD THAT: - The Appellate Authority upheld rejection partly on a one-day delay and on the ground that the petitioner was operating from an address not declared as an additional place of business. The Court accepted the petitioner's explanation that the registration was cancelled before the shift and that a cancelled registration disables filing of amendment forms; consequently inability to file the requisite form after cancellation cannot validly serve as a ground to refuse restoration, particularly where the cancellation itself lacked reasons. The petitioner's point that the revocation application was within thirty days counting the cancellation date was accepted. [Paras 16, 19, 20, 21, 22]

The rejection of the revocation application on the cited grounds (one-day delay and failure to record shifted address) is unsustainable.

Assessment of tax liability and discrepancies in returns not a ground for cancellation - cancellation of registration - Alleged discrepancies in tax returns or tax liability for specified financial years cannot, by themselves, justify cancellation of GST registration without following appropriate assessment or adjudicatory process. - HELD THAT: - The authorities relied on discrepancies in returns for FY 2018-19, 2019-20 and 2020-21 as a reason for rejecting revocation and for penal measures. The Court held that if there is reason to believe tax liability has not been truly disclosed, the consequence is to proceed in accordance with law for assessment or other appropriate proceedings, but such discrepancies alone do not warrant cancellation of registration without due process. The appropriate course would have been to call upon the petitioner to correctly disclose particulars while the registration was active; no such opportunity was given. [Paras 12, 23, 24, 25]

Discrepancies in the tax returns for the noted years do not constitute a lawful basis for cancellation of registration in the absence of proper proceedings.

Restoration of GST registration - restoration of GST registration subject to lawful action - The petitioner's GST registration is to be restored forthwith, subject to the respondents' right to take further lawful action. - HELD THAT: - Having found the initial cancellation unsustainable and the grounds for rejecting revocation inadequate, the Court ordered immediate restoration of the petitioner's GST registration. The respondents were, however, left free to take such steps as they may be entitled to under law after giving the petitioner an opportunity and while preserving the petitioner's right to contest any such proceedings. [Paras 26, 27, 28]

Registration is restored forthwith; respondents may take further lawful steps if necessary, subject to the petitioner's right to contest.

Final Conclusion: The petition is allowed: the cancellation order and subsequent orders rejecting revocation are set aside; the petitioner's GST registration is restored forthwith, without prejudice to the respondents' power to initiate further proceedings in accordance with law and the petitioner's right to contest them.

Input Tax Credit entitlement on stock on conversion from composition to normal scheme - Condonation of delay in filing Form ITC-01 due to technical portal glitches - Section 18(1)(c) SGST Act - claim of ITC on switching schemes - Rule 40(1)(b) compliance for ITC-01 - Equitable relief by writ of mandamus to permit filing of statutory form

Input Tax Credit entitlement on stock on conversion from composition to normal scheme - Section 18(1)(c) SGST Act - claim of ITC on switching schemes - Rule 40(1)(b) compliance for ITC-01 - Condonation of delay in filing Form ITC-01 due to technical portal glitches - Equitable relief by writ of mandamus to permit filing of statutory form - Petitioner's entitlement to avail input tax credit on stock on conversion from composition to normal scheme and entitlement to be permitted to file Form ITC-01 despite delay caused by technical glitches. - HELD THAT: - The petitioner, a proprietorship firm which migrated from the Composition Scheme to the normal scheme, contended that it was entitled to claim ITC on inputs, semi-finished/finished goods and capital goods held on the date of withdrawal and to furnish Form ITC-01 within the statutory period, having complied with the requirements of Rule 40(1)(b). Owing to technical defects on the GST portal the petitioner was unable to upload Form ITC-01 within the prescribed time. The Court, noting that the petitioner's factual position is on parity with earlier decisions of the Gujarat High Court granting similar reliefs and that no contrary authority was placed before it, held that equitable relief by way of permitting the petitioner to upload Form ITC-01 should be granted. The Court directed the respondents to do the needful to enable the petitioner to claim ITC under the statutory provision relied upon, treating the portal failure as the cause of delay and ordering that the petitioner be permitted to upload the statement within a limited time-frame. The order is founded on the petitioner's compliance with the procedural requirement and the absence of opposing precedent before the Court.

Writ petition allowed; respondents directed to permit the petitioner to upload Form ITC-01 and enable claim of Input Tax Credit, condoning the delay caused by technical portal glitches, to be completed within four weeks of service of the certified copy of the order.

Final Conclusion: The High Court allowed the writ petition and directed the respondents to permit the petitioner to upload Form ITC-01 and claim the Input Tax Credit, condoning the delay attributable to portal technicalities, to be effected within four weeks from service of the certified copy of this order.

Refund of Input Tax Credit - zero rated supplies - correlation of input tax credit with export supplies - duty to consider and weigh documentary evidence - requirement to record reasons when rejecting refund claims - remand for fresh consideration on merits

Correlation of input tax credit with export supplies - refund of Input Tax Credit - duty to consider and weigh documentary evidence - requirement to record reasons when rejecting refund claims - Whether the Appellate Authority properly rejected the petitioner's refund claim for ITC relating to exported sugar without considering and recording reasons in respect of the documentary material produced by the petitioner - HELD THAT: - The Court found that the Adjudicating Authority and the Appellate Authority did not examine or record reasons in relation to the invoices and other documentary material filed by the petitioner to demonstrate that the input supplies for which ITC refund was claimed were directly correlated to export of sugar. The impugned order rejected the refund claim on the ground that correlation between inputs and the export of sugar was not established, but neither the Order in Original nor the impugned order engage with the specific invoices and sample documents submitted by the petitioner or explain why such material was insufficient. Given the statutory entitlement to claim refund of ITC for zero rated supplies, the authorities were obliged to consider the evidence on record and, if they concluded that the documents did not establish the claimed correlation, to state reasons for that conclusion. In these circumstances the Court set aside the impugned order and restored the petitioner's appeal for fresh adjudication on merits by the Appellate Authority, directing that the material relied upon by the petitioner be examined and that reasons be recorded if the material is found not to establish the claimed correlation. [Paras 11, 12]

Impugned order set aside and the petitioner's appeal restored to the Appellate Authority for fresh consideration on merits; Appellate Authority to examine the petitioner's documentary material and record reasons if it concludes no correlation exists.

Final Conclusion: The impugned appellate order rejecting the refund claim is set aside and the appeal is restored to the Appellate Authority for reconsideration on merits; the Appellate Authority must examine the invoices and other documents relied upon by the petitioner and, if it does not accept the claimed correlation between inputs and export of sugar, record reasons for such conclusion.

Violation of principles of natural justice - ex parte assessment - quashing and remand of assessment and appellate orders - pre-deposit as condition for entertainment of appeal - prohibition on coercive steps during pendency - directions to pass a speaking order

Violation of principles of natural justice - ex parte assessment - quashing and remand of assessment and appellate orders - Impugned ex parte assessment order, summary demand (Form DRC-07) and appellate order were legally unsustainable and liable to be set aside. - HELD THAT: - The Court found that the assessment and appellate orders were ex parte and did not afford the petitioner sufficient time or a fair opportunity to be heard, thereby infringing the principles of natural justice. The orders also failed to furnish decipherable reasons explaining how the amount due was determined. For these defects, the Court held the impugned orders to be bad in law and quashed them, while leaving factual and legal issues open for fresh adjudication by the assessing authority. [Paras 4, 7, 8]

Impugned orders dated February 8, 2021 and November 16, 2022, the summary demand in Form GST DRC-07 dated February 8, 2021 and the notice dated November 3, 2022 are quashed and set aside; matters remanded for fresh decision.

Pre-deposit as condition for entertainment of appeal - deposit and refund mechanism - prohibition on coercive steps during pendency - de-freezing of bank accounts - Conditions relating to deposit, provisional measures and protection against coercive action during pendency were regulated by court directions. - HELD THAT: - The Court accepted that the petitioner had deposited ten per cent as the pre-deposit where applicable and directed that, if not already deposited, the petitioner must deposit the required ten per cent before the next date and further undertake to deposit an additional ten per cent within four weeks. The Court ordered that if any deposit ultimately proved to be in excess, it shall be refunded within two months of the assessing officer's order. The Court also directed immediate de-freezing/de-attaching of the petitioner's bank account(s), if attached in relation to the challenged proceedings, and restrained the revenue from taking coercive steps during the pendency of the fresh proceedings. [Paras 8]

Petitioner to ensure required deposits; immediate de-freezing of bank accounts if attached; no coercive steps to be taken during pendency; refund mechanism directed if deposit is found excessive.

Quashing and remand of assessment and appellate orders - directions to pass a speaking order - opportunity to place documents and hearing - Proceedings remitted to the assessing authority to decide the matter afresh on merits after complying with principles of natural justice and passing a speaking order within a stipulated time. - HELD THAT: - The Court directed the assessing authority to afford the petitioner an opportunity of hearing, permit filing of essential documents and materials, and decide the case on merits. The assessing authority was directed to pass a fresh, speaking order assigning reasons and to do so expeditiously, preferably within two months from the petitioner's appearance. Liberty was reserved to the parties to challenge the fresh order by appropriate remedies. [Paras 8]

Matter remitted to assessing authority for fresh adjudication on merits after complying with natural justice; fresh speaking order to be passed expeditiously, preferably within two months.

Final Conclusion: The High Court quashed the ex parte assessment, demand, appellate order and notice for F. Y. 2019-2020 on grounds of breach of natural justice and inadequate reasons; directed deposits and provisional protections including de-freezing of bank accounts and restraint on coercive action; and remitted the matter to the assessing authority to decide afresh on merits after affording opportunity of hearing and passing a speaking order within a stipulated timeframe.

Application of income by charitable trusts - violation of section 13(1)(c) - advances to related trusts by a trust - infructuous ground/dismissal as infructuous - reading of order under section 254(1)

Advances to related trusts by a trust - violation of section 13(1)(c) - infructuous ground/dismissal as infructuous - Whether the Revenue's Ground No.6 concerning advances made by the assessee trust to other trusts (where trustees were common) required adjudication as a contravention of section 13(1)(c) and warranted addition - HELD THAT: - The Tribunal noted that the Assessing Officer discussed alleged contravention of section 13(1)(c) in the assessment order with reference to advances totaling about Rs.2.12 crore, but ultimately did not make any addition in the computation of total income on that basis. The assessee challenged such observations before the CIT(A) seeking expunction of irrelevant remarks, and the Revenue pursued the matter before the Tribunal. On scrutiny of the assessment record and the computation, the parties (including the Department) accepted that no addition was in fact made by the AO in respect of those advances. Given that the AO had not quantified or directed any addition for the alleged contravention, the Tribunal held that the grievance raised in Ground No.6 did not call for substantive adjudication and was therefore infructuous. The Tribunal directed that the earlier order under section 254(1) be read in light of this conclusion. [Paras 6, 7]

Ground No.6 dismissed as infructuous because the AO made no addition for the alleged contravention of section 13(1)(c), and no adjudication on merits was required.

Final Conclusion: The Revenue's appeal is partly allowed; Ground No.6 is dismissed as infructuous since the Assessing Officer did not make any addition in respect of the advances, and the order under section 254(1) is to be read accordingly.

Settlement under the Direct Tax Vivad Se Vishwas Act, 2020 - Order for Full and Final Settlement of Tax Arrear - infructuousness of petition due to settlement - disposal of petition as infructuous

HELD THAT: - Learned counsel for the respondent submitted that the respondent had availed the benefit under the Direct Tax Vivad Se Vishwas Act, 2020 and the Rules thereunder and placed on record a copy of the Order for Full and Final Settlement of Tax Arrear dated 02.02.2022. The Court recorded this development and held that, in view of the settlement under the Act and the production of the settlement order, the controversy raised in the special leave petition is rendered infructuous. No adjudication on the merits of the original dispute was undertaken because the statutory settlement resolves the subject matter of the petition.

Special leave petition disposed of as infructuous; pending applications, if any, also disposed of.

Final Conclusion: The petition was disposed of as infructuous following the respondent's settlement under the Direct Tax Vivad Se Vishwas Act, 2020 and production of the settlement order; all pending applications stand disposed of.

Prohibition on double taxation of the same income - finality of Settlement Commission proceedings - addition under Section 68 for unexplained share capital

Prohibition on double taxation of the same income - finality of Settlement Commission proceedings - addition under Section 68 for unexplained share capital - Whether the same undisclosed income, having been offered to tax and settled in the hands of the flagship company before the Settlement Commission, could be again taxed as share capital in the hands of the respondent companies. - HELD THAT: - The Assessing Officer relied on a statement recorded under search proceedings to treat investment in share capital of the respondents as accommodation entries and made additions under Section 68. The flagship company, however, had admitted and offered the undisclosed income before the Settlement Commission and the Settlement Commission, after quantification, accepted and settled that income; the settlement order was not challenged and has attained finality. The flagship company had specifically pleaded and the Settlement Commission record reflects that the undisclosed income was applied as share capital in the group entities and that there were no other undisclosed applications. Given that the income was already subjected to tax through the Settlement Commission proceedings, subjecting the same money to tax again in the hands of the respondent companies would result in double taxation, which is impermissible. The Court relied on established principles that income cannot be taxed twice unless expressly provided otherwise and on precedent where additions have been telescoped or barred where earlier years had borne tax on the same income. In these circumstances the Tribunal was right to set aside the additions and consequential commission charge, since the material showed the income had already been taxed in the flagship company and the settlement had attained finality. [Paras 20, 21]

The question is answered against the revenue: the amount already taxed in the hands of the flagship company before the Settlement Commission cannot be taxed again as share capital in the hands of the respondent companies.

Final Conclusion: Appeals allowed; additions in respect of the share capital (and consequential commission) cannot be sustained as the undisclosed income has been settled and taxed in the hands of the flagship company and the Settlement Commission's order has attained finality.

Violation of principles of natural justice - Failure to consider representation/reply - Denial of reasonable opportunity to be heard - Standard Operating Procedure dated 19.11.2020 - response time under Section 142(1) - Remand for fresh hearing and issuance of fresh notices under Section 142(1)

Failure to consider representation/reply - Violation of principles of natural justice - Impugned assessment and consequential orders were vitiated because the Assessing Officer failed to notice or consider the email reply dated 20.07.2022 and proceeded to pass draft and final assessment orders on the premise that no reply had been filed. - HELD THAT: - The Court found on the material on record that the petitioner had sent an email dated 20.07.2022 which stated that earlier notices were not received, requested an extension until 05.08.2022 and disclosed material facts relevant to the assessment. Notwithstanding this, the Assessing Officer recorded in the draft assessment order dated 26.07.2022 and the final order dated 10.09.2022 that no reply had been filed. This omission amounted to non-application of mind and a breach of the requirement to consider the petitioner's representation, thereby infringing principles of natural justice. For these reasons the impugned draft assessment orders, final assessment orders and consequential demand notices could not be sustained and were set aside, with the matters remanded for fresh consideration after affording a fair hearing. [Paras 5, 7, 10]

Assessments and consequential demand notices set aside insofar as they proceeded without considering the petitioner's email reply; matter remanded to Assessing Officer for fresh adjudication after affording hearing.

Denial of reasonable opportunity to be heard - Standard Operating Procedure dated 19.11.2020 - response time under Section 142(1) - Notice dated 12.07.2022 under Section 142(1) was vitiated for affording an inadequate response time (approximately three days), contrary to the expectation under the CBDT Standard Operating Procedure that normally 15 days be given. - HELD THAT: - The Court observed that the notice dated 12.07.2022 required production by 15.07.2022, effectively allowing only about three days to respond. Such a short timeline was held to be an abrogation of jus naturale and inconsistent with clause B(1) of the CBDT's SOP dated 19.11.2020 which contemplates a normal response period of 15 days for notices under Section 142. Because the notice did not afford a reasonable opportunity to respond, the consequential draft and final assessments and demand notices were vitiated. The Court therefore set aside those orders and directed that fresh notices be issued and a fair hearing afforded. [Paras 5, 8, 10]

Notice under Section 142(1) held vitiated for inadequate response time; consequential orders set aside and remanded for issuance of fresh notice and affording of fair hearing.

Final Conclusion: All challenged draft and final assessment orders, demand notices and penalty orders are set aside and the matters are remanded to the Assessing Officer with directions to issue fresh notices under Section 142(1) and afford the petitioner a fair hearing in accordance with law.

Comparability analysis under Rule 10B(2)(a) - transfer pricing comparable selection - functional comparability (KPO v. BPO) - appellate interference with factual appreciation - substantial question of law

Comparability analysis under Rule 10B(2)(a) - functional comparability (KPO v. BPO) - transfer pricing comparable selection - appellate interference with factual appreciation - Exclusion by the Tribunal of Acropetal Technologies Ltd., BNR Udyog Ltd., and Informed Technologies India Ltd. from the final set of comparables for benchmarking the assessee's international transactions was justified and not liable to be set aside. - HELD THAT: - The Tribunal examined whether the three companies provided services functionally comparable to the assessee's ITES/BPO activities. Applying the requirement in Rule 10B(2)(a) to consider the nature of services, the Tribunal found Acropetal and Informed Technologies to be KPOs engaged in knowledge intensive services (medical/financial research and EMR related activities), and BNR to be engaged in medical transcription services; these activities were held to be functionally dissimilar to the routine transaction processing/BPO services of the assessee. Although the TPO had analysed operating margins (noting an exceptional margin for BNR in the year in issue), the Court accepted that fluctuation in margin was not the sole or principal ground for exclusion; rather, the difference in the nature of services rendered was the determinative factor. The High Court observed that the Tribunal carried out an appreciation of the material placed before it and reached a definitive factual conclusion on comparability; such factual appreciation does not raise a substantial question of law warranting interference. [Paras 37, 38, 39, 40, 41]

Tribunal's exclusion of the three comparables upheld; no substantial question of law arises and the Revenue's appeal is dismissed.

Final Conclusion: The High Court dismissed the Revenue's appeal against the Tribunal's order for AY 2012-13, holding that the Tribunal correctly excluded the three challenged comparables on the basis of functional dissimilarity under the comparability criteria and that no substantial question of law warranted interference.

Validity of reassessment under Section 147 of the Income Tax Act - Service of notice under Section 148 of the Income Tax Act - Effect of returned postal cover with endorsement and reissue of notice - Ex parte assessment under Section 144 of the Income Tax Act - Entertaining statutory appeal despite delay where condoned by administrative direction

Service of notice under Section 148 of the Income Tax Act - Effect of returned postal cover with endorsement and reissue of notice - Whether notice under Section 148 was validly issued and served so as to sustain the reassessment passed ex parte under Section 144 read with Section 147. - HELD THAT: - The Court found that notice purportedly issued on 29.03.2019 (sent 30.03.2019) is supported by an entry in the postal register and that the unserved cover was returned by the postal authorities on 13.04.2019 with an endorsement by the postal authority showing the new address; on these facts service was treated as complete. The assessing officer, by way of abundant caution, reissued the notice on 31.07.2019 which was also received (receipt recorded for one A. Lakshmi), but the Court held that the second service was immaterial because the initial service steps were sufficient. Further, subsequent summons and the final hearing notice were served and received by the petitioner, who did not file a return for AY 2012 13 nor respond to the notices. On this basis the Court found no infirmity in the procedure adopted by the officer or in the service of the notice and sustained the reassessment and ex parte order.

Notice under Section 148 was validly issued and service was effective; no fault found in the reassessment or ex parte order.

Entertaining statutory appeal despite delay where condoned by administrative direction - Whether the petitioner should be permitted time to file the statutory appeal notwithstanding delay. - HELD THAT: - Although the writ petition challenging the assessment was dismissed, the Court granted the petitioner two weeks' time to file the statutory appeal and directed that if the appeal is filed within that period the Registry of the first Appellate Authority shall entertain it without reference to limitation, subject to compliance with other requirements. Interim protection granted during the writ proceedings was vacated.

Petitioner granted two weeks to file appeal; Registry to entertain appeal filed within that period without reference to limitation; interim protection vacated.

Final Conclusion: Writ petition dismissed. The reassessment and ex parte order stand as not vitiated by defect in service; petitioner granted two weeks to file the statutory appeal which shall be entertained by the first appellate authority without reference to limitation if filed within that time; interim protection vacated.

Application of the first proviso to Section 50C(1) regarding valuation on the date of agreement - determination of full value of consideration by reference to stamp valuation authority's value - effect of agreement to sell and receipt of consideration in an earlier financial year on computation of long term capital gain - rectification of assessment under section 154

Application of the first proviso to Section 50C(1) regarding valuation on the date of agreement - determination of full value of consideration by reference to stamp valuation authority's value - effect of agreement to sell and receipt of consideration in an earlier financial year on computation of long term capital gain - Whether the value assessable by the stamp valuation authority on the date of the agreement to sell (06.03.2014) governs the computation of full value of consideration for Section 50C(1) despite registration occurring later - HELD THAT: - The Tribunal upheld the CIT(A)'s conclusion that the first proviso to Section 50C(1) applies where the date of the agreement fixing the amount of consideration and the date of registration are not the same. The record showed an agreement to sell dated 06.03.2014, and the assessee received the entire sale consideration by cheque before 31.03.2014. The AO, during remand, did not dispute the genuineness or contents of the agreement. In these circumstances, the value adopted or assessable by the stamp valuation authority on the date of the agreement is to be taken for computing full value of consideration for the transfer under Section 50C, and therefore the CIT(A)'s reliance on the stamp valuation as at the agreement date was held to be correct. [Paras 10, 11]

The CIT(A)'s application of the first proviso to Section 50C(1) to take the stamp valuation on the date of the agreement was upheld.

Rectification of assessment under section 154 - Whether the AO's rectification of the assessment order under section 154 by substituting the higher FMV (as per stamp valuation) was sustainable in view of the proviso to Section 50C(1) - HELD THAT: - The AO had invoked section 154 to correct the assessment after noting that the sale deed disclosed a higher fair market value than the sale consideration adopted in the original assessment. The Tribunal found that because the first proviso to Section 50C(1) mandated use of the stamp valuation as at the agreement date and the agreement and receipt of consideration in the earlier year were not disputed, the rectification insofar as it sought to give effect to Section 50C read with its proviso was not tenable to the extent it displaced the correct legal position adopted by the CIT(A). Consequently, the CIT(A)'s order setting aside the AO's recast (and applying the proviso) was sustained. [Paras 10, 11]

The rectification under section 154 could not prevail over the correct application of the first proviso to Section 50C(1); the CIT(A)'s order was affirmed.

Final Conclusion: The Tribunal dismissed the revenue's appeal and upheld the CIT(A)'s view that, in the facts of the case, the first proviso to Section 50C(1) applies so that the stamp valuation as at the date of the agreement (06.03.2014) governs the computation of full value of consideration for the transfer; the AO's rectification under section 154 was not sustained to the extent contrary to that view.

Requirement to quote Document Identification Number (DIN) in the body of communication - CBDT Circular No. 19/2019 - exceptional manual issuance and regularisation within fifteen working days - treatment of non-conforming communication as invalid and 'non est' - admission of additional ground raising pure question of law

Requirement to quote Document Identification Number (DIN) in the body of communication - exceptional manual issuance and regularisation within fifteen working days - treatment of non-conforming communication as invalid and 'non est' - CBDT Circular No. 19/2019 - Validity of assessment order dated 30.12.2019 in absence of a DIN and non-compliance with CBDT Circular No. 19/2019 - HELD THAT: - The Tribunal found that the impugned assessment order did not quote any computer generated DIN in its body and there was no recorded reason on file justifying manual issuance as required by para 3 of CBDT Circular No. 19/2019. The Revenue's production of an intimation dated 31.12.2019 was held not to be the DIN for the assessment order; the PDF and scanned copies sent to the assessee likewise did not contain the DIN. The subsequent letter purporting to communicate a DIN dated 24.01.2020 was beyond the fifteen working days permitted by the Circular for regularisation and the procedural safeguards in para 2 and para 3 were therefore not complied with. Para 4 of the Circular mandates that any communication not conforming to paras 2 and 3 shall be treated as invalid and deemed never to have been issued. Applying these provisions, and having regard to the decision of the Delhi High Court in Brandix Mauritius Holdings Ltd., the Tribunal concluded that the assessment order must be treated as invalid and non est. As the additional ground raised a pure question of law arising on the material on record, it was admitted and decided accordingly; the appeal was allowed without adjudication on the merits of the assessment. [Paras 12, 13, 14, 15, 16]

The impugned assessment order dated 30.12.2019 is invalid and 'non est' for non compliance with CBDT Circular No. 19/2019; the additional legal ground is allowed and the appeal is allowed without deciding the merits.

Final Conclusion: The Tribunal allowed the appeal on the sole ground that the assessment order dated 30.12.2019 was issued without quoting a DIN and without complying with the regularisation procedure in CBDT Circular No. 19/2019, and accordingly treated the order as invalid and 'non est', without adjudicating the merits.

Validity of penalty when foundational assessment order is set aside - Principle that penalty cannot stand independently of an invalid assessment - Cancellation of penalty consequent to quashing or setting aside of assessment - Effect of restoration of assessment to file on consequential penalty proceedings

Validity of penalty when foundational assessment order is set aside - Principle that penalty cannot stand independently of an invalid assessment - Whether the penalty imposed under section 271(1)(c) could be sustained after the assessment order under section 143(3), which formed its foundation, was set aside by the Tribunal - HELD THAT: - The Tribunal noted that the quantum appeal in ITA No.262/RPR/2022 for AY 2015-16 was restored to the file of the Assessing Officer by a coordinate Bench of the Tribunal. Applying the binding principle in K.C. Builders v. ACIT that a penalty levied on the basis of an assessment order which has been finally set aside cannot survive independently, the Tribunal held that the penalty order passed by the AO under section 271(1)(c) and affirmed by the CIT(A) had lost its foundation. In view of the restoration of the assessment for fresh framing and the Tribunal's direction, the levy of penalty could not be sustained without the foundational assessment order remaining in force; accordingly, both the AO's and CIT(A)'s penalty orders were set aside. The Tribunal therefore cancelled the penalty without entering into merits of concealment, since the basis for the penalty had been removed by the setting aside of the assessment. [Paras 7]

Penalty under section 271(1)(c) cancelled as it could not stand independently after the assessment order under section 143(3) was set aside; orders of AO and CIT(A) on penalty set aside.

Final Conclusion: The appeal is allowed: the penalty levied under section 271(1)(c) and sustained by the CIT(A) is cancelled because the assessment order under section 143(3), which provided the basis for the penalty, was set aside and the matter restored to the file of the Assessing Officer for fresh framing.

Notice under section 143(2) and validity of assessment in view of service of statutory notice - depreciation - electricity installations as integral part of plant and machinery - addition for unexplained sundry creditors - onus of proof and verification of genuineness - use of confirmations and subsequent payments as evidence to establish genuineness of creditors

Notice under section 143(2) and validity of assessment in view of service of statutory notice - principles of natural justice - service of statutory notice - Assessment order challenged as void for non-service of notice under section 143(2) was held valid as notice was issued and served and the assessee participated in proceedings. - HELD THAT: - The Assessing Officer recorded that notice under section 143(2) was issued on 08.04.2016 and duly served; subsequent statutory notices under section 142(1) were also issued and the authorised representative of the assessee attended and filed material. The assessee did not place any contrary material on record to rebut the factual finding of service and participation. In these circumstances the Tribunal found no infirmity in the orders below and affirmed the assessment as valid, dismissing the ground alleging lack of service or breach of natural justice. [Paras 8]

Ground alleging invalidity of assessment for non-service of notice is dismissed; assessment affirmed.

Depreciation - electricity installations as integral part of plant and machinery - classification of assets for rate of depreciation - Claim for depreciation on electricity installation as part of plant and machinery was rejected for want of supporting evidence that the installations formed an integral part of plant and machinery. - HELD THAT: - The assessee asserted that electricity installations were integral to plant and machinery and therefore entitled to depreciation accordingly. The authorities below disallowed the claim, treating the installations as distinct assets attracting a different rate. The assessee failed to bring any evidence to substantiate that the installations were integrally part of plant and machinery; the material on record showed the installations to be separate. On this factual basis the Tribunal found no reason to interfere with the concurrent findings and affirmed the disallowance. [Paras 12]

Ground seeking depreciation by treating electricity installations as plant and machinery is dismissed; disallowance affirmed.

Addition for unexplained sundry creditors - onus of proof and verification of genuineness - use of confirmations and subsequent payments as evidence to establish genuineness of creditors - Additions made in respect of sundry creditors were partly deleted where the authorities below did not verify confirmations or subsequent payments; additions were sustained where genuineness was not satisfactorily established. - HELD THAT: - The AO made additions in respect of four sundry creditors treating them as bogus for reasons recorded in the assessment order. On appeal the CIT(A) reviewed the materials and confirmed additions in respect of certain creditors after examining available documents and noting deficiencies (absence of ITRs, invoices, unclear confirmations, fabricated documents, payments occurring after assessment but without proof of encashment). The Tribunal noted that for two creditors (M/s Lalit Wafers and Namkeen and part of M/s Dutt Constructions) neither the AO nor the CIT(A) verified the claims with the creditors despite confirmations and asserted subsequent payments; having regard to this failure of verification and the totality of facts, the Tribunal deleted the impugned additions in respect of those creditors. For the remaining creditor (M/s Accurate Tools Pvt. Ltd.) the assessee failed to rebut adverse findings (invoices and registration related to a later period and absence of evidence for the year under consideration), and that addition was therefore sustained. [Paras 16, 17]

Additions in respect of certain sundry creditors are partly deleted (allowed in part) where verification was not carried out; additions upheld where genuineness was not proved.

Final Conclusion: The appeal is partly allowed: the assessment was held valid; depreciation claim for electricity installations was dismissed; additions for unexplained creditors were partly deleted for two creditors owing to lack of verification, while the remaining addition was sustained; appeal accordingly allowed in part and dismissed in part.

Reopening of assessment and formation of belief for escaped income - service of notice and participation in proceedings - application of mind by assessing authority and approving officer - explanation and burden of proof in relation to unexplained investment and additions - addition under section 69A for unexplained money/investment

Reopening of assessment and formation of belief for escaped income - service of notice and participation in proceedings - application of mind by assessing authority and approving officer - Validity of initiation of proceedings under section 147/148 for AY 2009-10 and related objections to service, address and approval. - HELD THAT: - The Tribunal upheld the validity of the reopening. The assessing officer possessed information regarding purchase of immovable property and the assessee had not filed a return; on those facts the AO was justified in forming belief and initiating proceedings under section 147/148. Although the assessee contended that the notice was issued to a wrong address and that there was lack of application of mind or mechanical approval by Pr.CIT, the record showed that the assessee participated in the proceedings. In those circumstances the objections to reopening on grounds of service and procedural infirmity were held to lack merit and did not vitiate the reopening. [Paras 5]

Reopening of assessment for AY 2009-10 sustained; grounds 1 to 8 rejected.

Addition under section 69A for unexplained money/investment - explanation and burden of proof in relation to unexplained investment and additions - Validity of addition of Rs. 12,85,833 assessed as unexplained investment under section 69A for AY 2009-10. - HELD THAT: - On merits the Tribunal found the addition unsustainable. The assessee had explained that part of the amount was received from his father and filed an affidavit; the father owned larger agricultural land and had averred sale of trees as a source. The AO and the lower authorities did not verify or bring material to rebut the affidavit or the stated source. In absence of any material contradicting the averments in the father's affidavit and considering the totality of facts, the Tribunal concluded that the AO was not justified in making the addition and therefore deleted it. [Paras 5]

Impugned addition confirmed by lower authorities deleted; appeal partly allowed on merits.

Final Conclusion: Reopening under section 147/148 for AY 2009-10 sustained as valid; however the substantive addition treated as unexplained investment was deleted for lack of material to rebut the assessee's pleaded source, and the appeal was accordingly partly allowed.

Reopening of assessment under section 147 - addition on account of bogus purchases - reliance on Investigation Wing information for reassessment - assessment confined to income component and not entire transaction - application of Coordinate Bench precedent as binding

Reopening of assessment under section 147 - reliance on Investigation Wing information for reassessment - Validity of reopening of assessment - HELD THAT: - The assessee's ground challenging reopening was not pressed before the Tribunal and was therefore dismissed as not argued. Independently, the Tribunal treated the factual matrix as covered by the Coordinate Bench reasoning which accepted reopening where the Assessing Officer acted on credible information from the Investigation Wing indicating that the assessee was a beneficiary of accommodation-entry operators. Applying that reasoning, the Tribunal found no reason to interfere with the exercise of jurisdiction to reopen the assessment and upheld the validity of reopening. [Paras 3, 8]

Ground contesting reopening dismissed; reopening upheld as valid on the basis of information from the Investigation Wing and binding Coordinate Bench precedent.

Addition on account of bogus purchases - assessment confined to income component and not entire transaction - application of Coordinate Bench precedent as binding - Quantum of disallowance on account of alleged bogus purchases - HELD THAT: - The Assessing Officer had disallowed 100% of purchases from the suspected entry-provider. The Commissioner (Appeals) reduced the disallowance by applying precedents and assessing material facts. The Tribunal noted that the AO made no independent investigation, did not dispute the assessee's sales, and did not reject the books; further, tax authorities are entitled to tax the income element rather than the entire transaction. Having regard to industry gross profit rates and the Coordinate Bench decision in Pankaj K. Chaudhary, the Tribunal held that a disallowance restricted to a small percentage of the disputed purchases is sufficient to guard against revenue leakage. On this basis the Tribunal followed the Coordinate Bench and directed that addition be made at the rate of 6% of the disputed purchases. [Paras 8, 9]

Addition sustained but restricted to 6% of the disputed/bogus purchases; assessee's appeal partly allowed.

Final Conclusion: The appeal is partly allowed: the challenge to reopening is dismissed (reopening upheld), and the addition for bogus purchases is sustained but limited to 6% of the disputed purchases in accordance with the Coordinate Bench decision.

Deduction under section 80-IA(4) for new infrastructure undertaking - Pre-conditions for grant of tax holiday to be verified in the initial assessment year - Principle of continuity/consistency in recurring tax-holiday claims - Disallowance under section 40(a)(ia) where the expenditure has not been claimed

Deduction under section 80-IA(4) for new infrastructure undertaking - Pre-conditions for grant of tax holiday to be verified in the initial assessment year - Principle of continuity/consistency in recurring tax-holiday claims - Entitlement to deduction under section 80IA(4) in A.Y. 2005-06 where the assessee had first claimed the deduction in assessment year 2004-05. - HELD THAT: - The Tribunal examined whether the revenue could re-open examination of the pre-conditions for a tax holiday in a year subsequent to the initial year of claim. Having considered precedent that pre-conditions for incentive deductions must be verified in the initial assessment year and that the revenue is ordinarily precluded from disturbing a deduction once allowed in its initial year, the Tribunal found that the assessee had first made the claim for section 80IA in assessment year 2004-05 (supported by Form 10CCB and related submissions) and therefore the claim in A.Y. 2005-06 could not be rejected merely by re-examining initial-year pre-conditions unless the initial-year allowance itself was disturbed. The Tribunal accordingly set aside the orders of the authorities below and directed deletion of the addition made by the AO relating to denial of the section 80IA deduction for A.Y. 2005-06. [Paras 11]

Allowance of the section 80IA deduction for A.Y. 2005-06; orders below set aside and AO directed to delete the addition.

Disallowance under section 40(a)(ia) where the expenditure has not been claimed - Whether disallowance under section 40(a)(ia) was justified in respect of an alleged advance of Rs.5 lakhs when the assessee did not claim the amount as an expense. - HELD THAT: - The Tribunal noted that the alleged sum treated as advance was not claimed by the assessee as an expense in the return and therefore could not be the subject of disallowance under section 40(a)(ia). On that basis, and after considering the parties' submissions, the Tribunal set aside the confirmation of the disallowance by the CIT(A) and directed the AO to delete the addition. [Paras 16, 18]

Disallowance under section 40(a)(ia) deleted; appeal on this ground allowed.

Final Conclusion: The appeal is allowed: the Tribunal directed deletion of the addition denying the section 80IA deduction for A.Y. 2005-06 (having held the deduction was first claimed in assessment year 2004-05 and cannot be re-opened in a subsequent year absent disturbance of the initial-year allowance) and also directed deletion of the addition under section 40(a)(ia) in respect of an amount not claimed as an expense.

Penalty under section 271(1)(c) - furnishing inaccurate particulars of income - concealment of income - requirement to specify the limb of section 271(1)(c) - impact of deletion of addition on sustaining penalty - effect of employer's penalty deletion on assessee's liability

Penalty under section 271(1)(c) - furnishing inaccurate particulars of income - concealment of income - requirement to specify the limb of section 271(1)(c) - impact of deletion of addition on sustaining penalty - effect of employer's penalty deletion on assessee's liability - Whether the penalty of Rs. 65,050/- imposed under section 271(1)(c) for AY 2012-13 is sustainable. - HELD THAT: - The Tribunal found that the quantum addition relating to the LTC amount (foreign component) for AY 2012-13 was deleted in the assessee's own appeal, and that the employer's penalty under section 271C in respect of the same reimbursements was also deleted by the Tribunal in related appeals. The assessee had disclosed the LTC entries in Form No.16 issued by the employer and there was no clear finding of deliberate concealment by the assessee. The penalty order itself did not specify whether it was being imposed for concealment of income or for furnishing inaccurate particulars; the assessing officer used language indicating both limbs, creating uncertainty as to which limb was the basis of the penalty. In these circumstances the Tribunal held that (i) deletion of the relevant addition removes the factual foundation for the penalty in the assessee's case, (ii) the employer's successfully contested penalty and the presence of Form No.16 support the conclusion that there was no deliberate concealment by the assessee, and (iii) the assessing officer's failure to specify the limb under section 271(1)(c) rendered the penalty unsustainable. Relying on appellate decisions addressing similar defects, the Tribunal deleted the penalty confirmed by the Commissioner (Appeals). [Paras 12, 13, 15, 16, 17]

Penalty of Rs. 65,050/- under section 271(1)(c) for AY 2012-13 deleted and appeal allowed.

Final Conclusion: The Tribunal allowed the appeal for AY 2012-13, deleting the penalty levied under section 271(1)(c) because the addition underpinning the penalty was deleted, the employer's penalty was set aside, the assessee had disclosed the amounts in Form No.16, and the assessing officer failed to specify the limb of section 271(1)(c) on which the penalty was imposed.

Comparability in transfer pricing - functional comparability - arm's length price - notional interest on outstanding receivables - benchmarking of inter-company receivables

Comparability in transfer pricing - functional comparability - arm's length price - Which of the selected comparable companies are to be retained or excluded for determining ALP of software development services - HELD THAT: - The Tribunal examined the functional profile, segmental reporting and available financial indicators of each proposed comparable. It upheld the DRP's exclusion where the record showed significant functional divergence, presence of product development or other business lines without adequate segmental disclosure, substantial on-site operations or significant intangibles that distinguish the entity from a pure software development services (SWD) provider. Conversely, where the core activity remained SWD services and the available data did not show that diversified activities constituted a sizeable portion of business, the Tribunal directed retention. Applying these principles to the material before it, the Tribunal excluded Acropetal Technologies Ltd (Seg.), E Zest Solutions Ltd., ICRA Techno Analytics Ltd., Infosys Ltd., L&T Infotech Ltd., and Persistent Systems Ltd., and directed inclusion of Igate Global Solutions Ltd., Sankhya Infotech Ltd., Zylog Ltd., and Sasken Communication Technologies Ltd. The Tribunal followed its earlier findings in the assessee's prior years and co ordinate Bench precedents where relevant but rejected exclusion where no adequate segmental evidence supported functional dissimilarity. [Paras 30]

Directed exclusion of Acropetal Technologies Ltd (Seg.), E Zest Solutions Ltd., ICRA Techno Analytics Ltd., Infosys Ltd., L&T Infotech Ltd., and Persistent Systems Ltd.; directed inclusion of Igate Global Solutions Ltd., Sankhya Infotech Ltd., Zylog Ltd., and Sasken Communication Technologies Ltd. as comparables.

Notional interest on outstanding receivables - benchmarking of inter-company receivables - arm's length price - Whether a transfer pricing adjustment is required for notional interest on delayed collection from associated enterprise and, if so, the rate and computation period - HELD THAT: - The Tribunal considered coordinate Bench and High Court rulings holding that extended credit on inter company receivables is an international transaction requiring separate benchmarking and that extra credit beyond agreed periods can amount to profit shifting. Having regard to those authorities and the material before it, and noting that the assessee did not place contrary material, the Tribunal found that an adjustment is permissible and that a notional interest rate of 6% per annum on receivables outstanding beyond 30 days is reasonable. The Tribunal therefore modified the DRP direction (which had reduced the TPO's 12% to 5%) and directed computation of ALP of interest at 6% per annum for amounts outstanding for more than 30 days. [Paras 36]

Directed computation of notional interest on outstanding receivables (beyond 30 days) at 6% per annum and remitted computation to the Assessing Officer/TPO.

Final Conclusion: Appeals and cross objections allowed in part: specific comparables were directed to be excluded or included as stated, and the assessing authority directed to compute notional interest on receivables outstanding beyond 30 days at 6% per annum for determination of ALP.

Summary order. Special Leave Petition dismissed; all pending applications disposed of.

Summary order. Appeal dismissed; question of law sought to be urged is kept open.

Provisional release of seized imported goods pending adjudication - discretion under Section 110A of the Customs Act - bond or bank guarantee to secure duty, fine or penalty - non-response by public authority amounting to abdication of statutory duty - guidelines in administrative circulars are persuasive but not binding on the Court - judicial review of exercise of executive discretion - duty to decide provisional release applications with expedition and to communicate reasons for refusal

Provisional release of seized imported goods pending adjudication - discretion under Section 110A of the Customs Act - bond or bank guarantee to secure duty, fine or penalty - Goods imported under Bill of Entry No. 5681804 dated 2-10-2021 are to be provisionally released on conditions pending adjudication of the show cause notice. - HELD THAT: - The Court found that the show cause notice dated 22-4-2022 had not been adjudicated for almost a year and that there was no acceptable reason to deny provisional release on conditions. Exercising supervisory jurisdiction under Article 226, the Court directed provisional release of the goods subject to the petitioner furnishing a bond containing an undertaking to pay the duty, fine and/or penalty as may be adjudged, subject to appellate provisions. The petitioner offered to deposit the admitted duty and to furnish a bond for any differential duty, which the Court accepted and ordered accordingly. The relief was granted because the respondent had failed to consider repeated requests and the balance of convenience and statutory framework permitted conditional provisional release under Section 110A. [Paras 11, 12, 13]

Petition allowed; goods to be provisionally released on petitioner furnishing the bond and undertaking as directed.

Guidelines in administrative circulars are persuasive but not binding on the Court - judicial review of exercise of executive discretion - Administrative circular dated 16-8-2017 is a guideline for Customs officers but does not bind the Court to pass orders only in its terms; discretion under Section 110A remains with the Customs authorities subject to judicial review. - HELD THAT: - The Court observed that the impugned circular contains guidelines for provisional release and refers to judicial decisions, but the circular is addressed to Principal Chief Commissioners and cannot constrain the Court. The circular recognises that the Revenue has discretion to require bank guarantees or security deposits in appropriate cases; the Court therefore rejected the submission that any order must strictly follow the circular and emphasised that the authorities retain discretion which is amenable to judicial review to ensure it is rightly exercised. [Paras 7, 8]

Circular is a guiding instrument for revenue officers but does not fetter the Court's power to grant relief; discretion of Customs authorities remains subject to judicial review.

Non-response by public authority amounting to abdication of statutory duty - duty to decide provisional release applications with expedition and to communicate reasons for refusal - Failure of the Customs officer to respond to repeated applications for provisional release amounted to abdication of statutory duty and warranted direction that officers decide such applications expeditiously and communicate reasons where they decline to grant release. - HELD THAT: - The Court recorded that Respondent No. 2 did not reply to multiple letters over a period of almost two years and thus ignored the statutory power and public duty to consider provisional release applications. Such conduct was found to be inconsistent with principles of fairness, non-arbitrariness and public accountability. The Court directed that provisional release applications be decided with utmost expediency and that reasons be communicated to importers when an officer is unable to grant or decide the application, to ensure transparency and effective departmental functioning. [Paras 9, 10, 14]

Respondent's failure to respond equated to abdication of duty; direction issued for expeditious decision-making and communication of reasons in provisional release matters.

Final Conclusion: The petition was allowed: the seized goods under Bill of Entry No. 5681804 dated 2-10-2021 are ordered to be provisionally released on the petitioner furnishing a bond and undertaking to pay any duty, fine or penalty adjudged; the administrative circular is persuasive but not binding on the Court; and Customs officers are directed to decide provisional release applications expeditiously and communicate reasons for refusal.

Rejection of transaction value after inquiry - requirement of passing order within 15 days under Section 17(5) of the Customs Act - application of Rule 12 of the Customs Valuation Rules, 2007 - requirement of a reasoned order for rejecting declared transaction value - invalidity of remand/denovo direction where statutory procedure not followed

Requirement of passing order within 15 days under Section 17(5) of the Customs Act - Whether the assessing authority complied with the statutory requirement to pass an order within 15 days when the declared transaction value was not accepted and goods were released under protest. - HELD THAT: - The Tribunal found that no order of the proper officer was passed within 15 days of the assessing the Bills of Entry after the declared value was not accepted and the goods were released under protest. The bench held that the statutory requirement embodied in Section 17(5) was not complied with and that omission vitiates the proceedings which followed. The finding notes that compliance with the time-bound order-making obligation is a prerequisite to sustain further action on valuation when the transaction value is not accepted. [Paras 4, 6]

Non-compliance with the 15-day order requirement rendered the subsequent show cause and valuation proceedings unsustainable.

Application of Rule 12 of the Customs Valuation Rules, 2007 - requirement of a reasoned order for rejecting declared transaction value - rejection of transaction value after inquiry - Whether the department applied Rule 12 and Rule 3 (as applicable) of the Customs Valuation Rules with a reasoned inquiry before rejecting the declared transaction value and enhancing the assessed value. - HELD THAT: - The Tribunal observed that there is no record of a reasoned order applying Rule 12 after enquiry and explaining on what grounds the declarant's materials were rejectable. The appellate directions requiring ascertainment of facts (including material distinguishing water-based from solvent-based ink and detailed NIDB comparisons) were not followed by the adjudicating authority. Citing consistent precedents, the bench emphasised that a transaction value can be rejected only after a proper enquiry and a reasoned order recording findings; absence of such procedure invalidates the show cause and enhancement of value. [Paras 4, 5, 6]

Because Rule 12 was not applied with an enquiry and a reasoned rejection of the transaction value, the enhanced valuation and proceedings based thereon could not be sustained.

Invalidity of remand/denovo direction where statutory procedure not followed - Whether the repeated remands and the appellate remand in the facts of this case should be allowed to stand in view of the assessing authority's failure to follow statutory procedure. - HELD THAT: - The Tribunal recorded that there were repeated remands and that the original authority had not followed appellate directions, causing unnecessary litigation. Given the substantive defects-failure to pass the 15-day order and absence of a reasoned application of Rule 12-the Tribunal held that the remand order and the entire valuation proceedings were unsustainable. Reliance was placed on prior benches' decisions emphasising the necessity of following statutory steps before rejecting transaction value. Accordingly, the Tribunal exercised its power to set aside the remand and the proceedings. [Paras 4, 6]

The second remand and the entire ensuing proceedings are set aside; the appellant is granted consequential relief.

Final Conclusion: The Tribunal set aside the repeated remand and the whole valuation proceedings because the assessing authority failed to pass the mandatory 15 day order and did not conduct or record a reasoned enquiry under the Customs Valuation Rules before rejecting the declared transaction value; consequential relief was directed to the appellant.

Confiscation under Section 111(d) of Customs Act, 1962 for import without valid licence - Inapplicability of Section 111(m) in absence of a declaration (bill of entry) - Redemption fine under Section 125 of Customs Act, 1962 to be linked to ascertained value/margin of profit and not exceed market price - Restriction on import of old and used garments under Foreign Trade Policy (para 2.17) and ITC (HS) Classification

Confiscation under Section 111(d) of Customs Act, 1962 for import without valid licence - Restriction on import of old and used garments under Foreign Trade Policy (para 2.17) and ITC (HS) Classification - Validity of confiscation of imported old and used worn clothing for want of a valid import licence. - HELD THAT: - The Tribunal accepted that the imported goods fell within the restricted tariff description and that import was not against a valid specific licence. In that circumstance confiscation under Section 111(d) of the Customs Act, 1962-for goods imported in contravention of an import restriction-was sustained. The appellate reduction of redemption fine and penalty did not vitiate the lawfulness of confiscation, which was founded on non-possession of the prescribed licence under the Foreign Trade Policy and ITC (HS) classification. [Paras 5, 6]

Confiscation under Section 111(d) upheld; the appellate authority's reduction of redemption fine and penalty is adequate and the impugned order is sustained.

Inapplicability of Section 111(m) in absence of a declaration (bill of entry) - Redemption fine under Section 125 of Customs Act, 1962 to be linked to ascertained value/margin of profit and not exceed market price - Whether Section 111(m) could be invoked for misdeclaration of value where proceedings commenced prior to filing of the bill of entry and whether the redemption fine and penalty as reduced were appropriate. - HELD THAT: - Relying on the earlier decision in Venus Traders (Tri.-Mumbai) the Tribunal observed that Section 111(m), which addresses goods not corresponding with the entry made under the Act, cannot be invoked in the absence of a declaration (the bill of entry) because confiscation under Section 111 requires material particulars to be withheld or incorrectly recorded in that declaration. Given the paucity of evidence and the impracticality of conducting an ex post facto compliance with remand directions to disclose margin of profit, the Tribunal endorsed the view that confiscation could not be sustained on the footing of Section 111(m). As regards fines, the Tribunal noted the statutory principle that redemption fine under Section 125 must be tied to ascertained value/margin of profit and not exceed market price; applying the reasoning in the cited authority, the Tribunal found the reductions effected by the Commissioner(Appeals) adequate. [Paras 4]

Section 111(m) is not invocable without a declaration; in the circumstances the reduced redemption fine and penalty as fixed by the Commissioner(Appeals) are appropriate and are sustained.

Final Conclusion: The Tribunal dismissed the Revenue's appeal; confiscation under Section 111(d) was upheld for import without a valid licence, Section 111(m) was held inapplicable in the absence of a declaration, and the redemption fine and penalty as reduced by the Commissioner(Appeals) were sustained.

Rights of a Pledgee / Pawnee - special property / special interest in pledged goods - validity of contractual terms in a deed of pledge beyond Sections 172-179 of the Indian Contract Act - effect of Depositories Act and Depositories Regulations on pledged dematerialised securities - status and rights of a beneficial owner on invocation of pledge - assignment of financial assets under Section 5 of the SARFAESI Act - fraud affecting contracts: distinction between void and voidable agreements (Sections 17, 19, 23, 24, 64, 65 of the Contract Act) - requirement of reasonable notice under Section 176 of the Indian Contract Act - doctrine of election / affirmation of contract by a defrauded party

Rights of a Pledgee / Pawnee - special property / special interest in pledged goods - validity of contractual terms in a deed of pledge beyond Sections 172-179 of the Indian Contract Act - requirement of reasonable notice under Section 176 of the Indian Contract Act - Whether a deed of pledge may validly confer on the Pledgee rights such as voting and related proprietary incidents in respect of dematerialised shares, or whether such terms are necessarily inconsistent with the law of pledge and void under Section 176 of the Indian Contract Act. - HELD THAT: - The Court, on a prima facie consideration, held that the law of pledge (Sections 172-179 of the Contract Act) is not exhaustive and parties may contractually provide incidents governing the pledge so long as those terms do not violate mandatory provisions of the Act. The decision in PTC India was treated as authoritative: dematerialisation and the Depositories regime must be read harmoniously with the Contract Act, and the Depositories Regulations require registration of the Pledgee as 'beneficial owner' to enable sale. The mandatory requirement of Section 176 - reasonable notice prior to sale - is satisfied by the Pledge Deeds in the present case (clauses requiring notice and evidence of notice issuance). Accordingly, the mere conferral of voting rights and other contractual incidents in the Deeds of Pledge is not, prima facie, contrary to the law of pledge, nor does it automatically convert the pledge into a mortgage provided the mandatory statutory protections are respected. [Paras 204, 205, 206, 207, 216]

Prima facie the Pledge Deeds may validly include voting and related rights and such clauses are not per se void under Section 176; the Pledgee's contractual rights survive subject to compliance with mandatory statutory safeguards such as reasonable notice.

Effect of Depositories Act and Depositories Regulations on pledged dematerialised securities - status and rights of a beneficial owner on invocation of pledge - assignment of financial assets under Section 5 of the SARFAESI Act - Whether, on invocation of the pledge and subsequent transfers, the Pledgee (and an assignee such as an ARC) can be registered and recognised as beneficial owner with attendant rights (including voting), and whether transfer of the pledged dematerialised shares to J.C. Flowers pursuant to the Assignment Agreement under Section 5 SARFAESI was, prima facie, lawful. - HELD THAT: - The Court accepted the reasoning in PTC India that the Depositories Act and Regulations operate in addition to the Contract Act and mandate registration of the Pledgee as 'beneficial owner' to effect sale of dematerialised securities. Registration as beneficial owner confers the rights, benefits and liabilities attendant on beneficial ownership; the Depositories regime does not limit that status to a narrow procedural role. The Assignment Agreement between Yes Bank and JCF, considered together with the definition of 'financial asset' in Section 2(l) of the SARFAESI Act and Section 5 read as a whole, prima facie permits an ARC to acquire financial assets (including pledges of movables) and to step into the rights of the assignor; accordingly the transfer of the suit shares to JCF pursuant to the Assignment Agreement is prima facie permissible and JCF is to be deemed the beneficial owner entitled to rights including voting, subject to other law. [Paras 223, 224, 225, 226, 229]

Prima facie the Pledgee's registration as beneficial owner under the Depositories regime confers the attendant rights, and the transfer/assignment of the pledged financial asset to JCF under the Assignment Agreement and Section 5 SARFAESI is, on the present record, lawful and renders JCF the entity holding the rights attached to the securities.

Fraud affecting contracts: distinction between void and voidable agreements (Sections 17, 19, 23, 24, 64, 65 of the Contract Act) - doctrine of election / affirmation of contract by a defrauded party - Whether the Pledge Deeds are void ab initio on account of alleged fraud in the underlying loan transaction (Sections 23/24 of the Contract Act), or whether plaintiff has established a prima facie case of fraud sufficient to grant the interim reliefs sought. - HELD THAT: - The Court found, on prima facie consideration of the materials, that the alleged impropriety in the loan disbursements at most made the transaction voidable (Sections 17 and 19) rather than void under Sections 23/24, because the pleaded facts did not establish fraud as to the character of the document. The record showed the Plaintiff had prior knowledge of the complaints and related proceedings and had not rescinded or avoided the Pledge Deeds; several pleadings in the plaint continued to affirm the pledges. The Court emphasised that where a contract is merely voidable for fraud in its contents, the defrauded party must elect to avoid it; until avoidance, the contract remains valid. The Court also held the plaintiff had not established a prima facie case of fraud on available material (investigative complaints and preliminary inquiries being only opinions or preliminary), and that restitution issues would arise if avoidance succeeded (Sections 64-65). [Paras 241, 242, 243, 244, 245]

Prima facie the Pledge Deeds are not void ab initio for fraud; the plaintiff has not established a prima facie case of fraud rendering the pledges void, and having elected to affirm the pledges the plaintiff cannot now avoid them-interim reliefs based on the fraud plea are not justified.

Final Conclusion: On a prima facie assessment the Court held that (i) parties may contractually confer additional incidents (including voting rights) in a deed of pledge so long as mandatory statutory safeguards (eg. reasonable notice under Section 176) are respected; (ii) under the Depositories regime and Section 5 SARFAESI an invoked pledge may lead to registration of the Pledgee (and on assignment an ARC) as beneficial owner with attendant rights; and (iii) the plaintiff failed to make out a prima facie case that the pledges are void ab initio for fraud-the alleged irregularities, if established, were at best of a voidable character and the plaintiff had, on the record, elected to affirm the pledges. The interim application was therefore dismissed with no order as to costs.

Look Out Circular - fundamental right to travel abroad under Article 21 - requirement of sufficient reasons/parameters for issuance of LOC - Office Memorandum guidelines for issuance of LOC - inadmissibility of LOC as a device for recovery of civil/financial dues - measure to procure surrender or arrest of a person

Look Out Circular - fundamental right to travel abroad under Article 21 - measure to procure surrender or arrest of a person - requirement of sufficient reasons/parameters for issuance of LOC - Validity of the Look Out Circular issued at the instance of Bank of Baroda against the petitioner when he was not an accused and no arrest was even contemplated - HELD THAT: - The Court held that a Look Out Circular is a coercive measure intended to secure the surrender or arrest of a person and can be issued only when sufficient reasons exist and, where applicable, the conditions set out in the controlling Office Memorandum are satisfied. The Court noted that on the date the LOC was opened the petitioner was not an accused in any FIR and there was no material to show that his arrest was contemplated by enforcement agencies. A mere possibility that the petitioner might eventually be made an accused cannot justify issuance of an LOC which impedes the fundamental right to travel abroad recognised under Article 21. The legality of an LOC must be judged by the circumstances and material available on the date the request for issuance is made; absent such material the LOC is arbitrary and unsustainable. [Paras 9, 10, 11]

The LOC opened against the petitioner was invalid and unsustainable because it was issued without sufficient material or objectively ascertainable reasons while the petitioner was not an accused, and it unreasonably restricted his fundamental right to travel.

Office Memorandum guidelines for issuance of LOC - inadmissibility of LOC as a device for recovery of civil/financial dues - requirement of sufficient reasons/parameters for issuance of LOC - Whether a bank may invoke an LOC as a tool to restrain a person's movement for the purpose of recovering money payable by a company - HELD THAT: - The Court examined the Office Memorandum (including its amendment) governing issuance of LOCs and observed that LOCs are permissible only when the stipulated conditions are met (for example, cognizable offences or exceptional national interest grounds). The Court rejected the proposition that banks may use LOCs simply as an expedient means to recover monies due from a company, holding that phrases such as 'detriment to the economic interest of India' cannot be invoked without substantial material. The Court emphasised that statutory remedies available to banks for recovery (for instance under SARFAESI or IBC) do not authorise the use of LOCs as a substitute enforcement mechanism against individuals who are not shown to be criminally implicated. [Paras 12, 13]

Banks cannot use LOCs as a device for recovering civil or financial dues in the absence of substantial material satisfying the Office Memorandum's conditions; the LOC issued at the instance of the bank for such purpose was therefore unsustainable.

Final Conclusion: The petition is allowed; the Look Out Circular issued at the instance of Bank of Baroda is quashed as being arbitrary and issued without the requisite material or justification, and the petitioner's fundamental right to travel being unduly restricted is vindicated.

Striking off of company name - compliance with Section 248 of the Companies Act, 2013 - Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016 - restoration of company name - power to impose costs and conditional restoration

Striking off of company name - compliance with Section 248 of the Companies Act, 2013 - Companies (Removal of Names of Companies from the Register of Companies) Rules, 2016 - restoration of company name - Validity of striking off the company's name from the Register for non filing and entitlement to restoration of the company's name - HELD THAT: - The Tribunal examined whether the Registrar of Companies complied with the statutory regime under Section 248 and the corresponding Rules before striking the company's name and whether, on facts, the company was carrying on business or possessed assets that disentitled striking off. The Appellants contended that notices required by the Rules were not served on the directors and that the Registrar failed to record satisfaction as contemplated by Section 248(6). The Registrar relied on non filing of statutory returns after FY 2015 16 and the STK notices and public notice preceding the STK 7 removal. The Appellate Tribunal found on the material before it that the company possessed substantial movable and immovable assets and that change of circumstances had led to non filing; consequently it was not correct to treat the company as not carrying on business. On that basis the Tribunal held the orders of the Registrar and the NCLT were not sustainable. The Court therefore set aside the impugned NCLT order and directed restoration of the company's name, while imposing conditional terms: payment of costs to the Registrar, filing of all outstanding annual returns and balance sheets with requisite fees/late fees, and permitting the Registrar to proceed with any other action permissible under the Act for non filing/late filing. The restoration was therefore granted subject to compliance with those conditions. [Paras 10, 11]

Impugned order set aside; company's name to be restored to the Register subject to payment of costs, filing of outstanding statutory documents with fees/late fees, and without prejudice to Registrar's power to take other action under the Companies Act.

Final Conclusion: Appeal allowed to the extent that the NCLT order is set aside and the company's name is ordered to be restored to the Register, subject to payment of costs and compliance with filing and fee conditions; Registrar remains free to take any other action permissible under the Companies Act for non filing/late filing.

Bail - Prevention of Money Laundering Act - proceeds of crime - chargesheet filed and trial commenced - conditions of bail

Bail - Prevention of Money Laundering Act - proceeds of crime - chargesheet filed and trial commenced - conditions of bail - Grant of bail to the petitioner in an ECIR registered under PMLA where the allegation concerns deposit of funds alleged to be proceeds of crime. - HELD THAT: - The Court noted the core allegation that the petitioner transported vehicles during 01.06.2022 to 26.06.2022 and that a deposit of Rs.30 lakh in the petitioner's bank account on 24.01.2022 was alleged to be proceeds of crime. The petitioner furnished an explanation during investigation that the deposit related to the sale consideration for a house with land and that the sum was transferred by NEFT to the purported vendor, with the sale having been represented as registered. The Court observed that the deposit predated the period of the alleged illegal activity and that these aspects would be examined during trial. It was also noted that the chargesheet has been filed, charges framed and trial begun (five witnesses examined out of 42 listed), and that the petitioner has been in custody for a little over one year. Balancing these facts, and subject to the petitioner diligently participating in the trial, not interfering with the course of justice and complying with appropriate conditions to be imposed by the trial court, the Court concluded that bail should be granted. The order for bail is to be implemented by production before the trial court for imposition of appropriate conditions and issue of release order. [Paras 3, 4, 7, 8, 9]

Petitioner enlarged on bail in the PMLA prosecution subject to appropriate conditions to be imposed by the trial court and the petitioner's diligent compliance with them.

Final Conclusion: The petition is allowed: bail granted to the petitioner in the PMLA proceedings subject to conditions to be imposed by the trial court; petitioner to be produced forthwith for release formalities; pending applications disposed of.

Refund of service tax paid on services used for export of goods - specified taxable services under Notification No. 41/2007-ST - verification of supplier's registration certificate not prerequisite for refund - CBEC Circular No. 112/6/2009 ST clarifying procedural non-denial of refund - classification of port services by place and nature of service

Refund of service tax paid on services used for export of goods - specified taxable services under Notification No. 41/2007-ST - verification of supplier's registration certificate not prerequisite for refund - CBEC Circular No. 112/6/2009 ST clarifying procedural non-denial of refund - classification of port services by place and nature of service - Whether the refund claim could be rejected on the ground that the service providers were not registered under the specific service heads and that charges such as Terminal Handling Charges, demurrage, documentation, BL and related charges are not covered under the specified services in Notification No. 41/2007 ST. - HELD THAT: - The Tribunal found that the sole basis for rejecting the refund was that the impugned services (THC, demurrage, handling, LDD/TSC, documentation, BL charges, nomination charges) were not covered as port/specified services or that the service providers lacked registration under such specific service heads. The CBEC Circular No. 112/6/2009 ST (12.03.2009) was held to be determinative: refunds granted under Notification No. 41/2007 ST to exporters for taxable services used in export do not require verification of the supplier's registration certificate, and procedural irregularities by the service provider must be dealt with separately. The Tribunal also relied on the decision of the High Court of Rajasthan in Union of India v. Arihant Tiles and Marbles Pvt. Ltd., which upheld that where services like terminal and handling are availed within the port in connection with export, they qualify for benefit under port services irrespective of their classification or the supplier's registration. Applying these principles to the admitted facts - that the services were availed for export and service tax was paid - the Tribunal concluded that registration under a specific service head is not a condition precedent for grant of refund under the Notification and that the original order rejecting the refund on that ground was unsustainable. [Paras 8, 9, 10, 11]

The impugned order was set aside; the appeal was allowed and the refund claim was permitted with consequential reliefs as per law.

Final Conclusion: Appeal allowed: refund claim for the quarter ending 31.03.2008 is to be granted as the supplier's registration under a particular service head is not a valid ground to deny refund under Notification No. 41/2007 ST; procedural irregularities, if any, to be addressed separately.

Cenvat credit on inputs and capital goods - functional utility test - permanency test - entitlement determined at time of receipt - nexus test - movable goods in CKD/SKD condition - use of inputs for provision of output services

Cenvat credit on inputs and capital goods - movable goods in CKD/SKD condition - use of inputs for provision of output services - entitlement determined at time of receipt - functional utility test - nexus test - permanency test - Eligibility to avail Cenvat credit on towers, tower materials and pre-fabricated telecom shelters (as inputs or capital goods) for the periods 2006-07 to 2009-10 and 2010-11 - HELD THAT: - The Tribunal applied and followed the decision of the Hon'ble Delhi High Court in Vodafone Mobile Services Ltd., holding that towers and pre-fabricated shelters received in CKD/SKD condition qualify as goods used in providing the output service and therefore fall within the definition of inputs or capital goods under the Cenvat Rules. The Tribunal endorsed the functional utility test and rejected the revenue's reliance on immovability at a later stage: entitlement to credit is to be determined at the time of receipt, and subsequent fixation or emergence of an immovable structure does not defeat excisability when goods were received as movable articles. The Tribunal further held that applying a narrow nexus test to disallow credit was erroneous where the components (MS angles, channels, towers, shelters) go into making the towers which are integrally used to provide telecom/infra-support services. The permanency test was invoked to reject the view that attachment to earth post-assembly renders the goods non-excisable; movability in CKD/SKD condition and the commercial practice of relocating towers reinforce that these are not immovable property for the purpose of denying credit. The Tribunal noted that coordinated bench and division bench decisions following the Delhi High Court support allowing Cenvat credit, and that appeals by revenue before higher courts had not attracted any stay. [Paras 10, 11, 12, 13, 14]

Impugned order denying Cenvat credit on tower, tower material and telecom shelters is unsustainable and is set aside; appeal allowed with consequential relief.

Final Conclusion: Following the authoritative decision of the Hon'ble Delhi High Court and consistent Tribunal precedents, the CESTAT allowed the appellant's appeal and set aside the demand and penalties insofar as they denied Cenvat credit on towers, tower materials and telecom shelters for the tax periods in dispute, granting consequential relief as per law.

Freezing of bank accounts - recovery notice and pending appeal/pre-deposit - sufficiency of bank balance to meet contingent liability - necessity of funds for conduct of business - direction to defreeze bank accounts

Freezing of bank accounts - recovery notice and pending appeal/pre-deposit - sufficiency of bank balance to meet contingent liability - necessity of funds for conduct of business - Whether the order refusing to defreeze the appellant's bank accounts was justified and whether those accounts should be defrozen. - HELD THAT: - The Tribunal found that one confirmed demand remained under adjudication as the appellant had filed an appeal, while a separate confirmed demand had been deposited. The appellant produced the challan evidencing substantial pre-deposit and bank statements showing that sufficient balances remained in the frozen accounts to meet potential liability if the appeal failed. The Department did not place any material on record to show that the appellant had other means to sustain its business or that freezing the accounts was necessary despite available funds and the pendency of appeal. Considering the appellant's need for working capital and the absence of justification from the Department, there was no basis to continue the restraint on the accounts. On these facts the Tribunal concluded that the impugned refusal to defreeze was unsustainable and directed that the accounts be defrozen. [Paras 5, 6, 7]

The order dated 25.05.2023 refusing to defreeze the appellant's bank accounts is set aside and the appeal is allowed; the accounts are to be defrozen.

Final Conclusion: In view of the pre-deposit made, the pendency of the appeal, the bank balances shown and the absence of any departmental justification, the Tribunal set aside the order refusing defreeze and directed that the appellant's accounts be defrozen; appeal allowed.

Interpretation of concessional exemption condition "manufactured out of textured or draw-twisted yarn" - treatment of intermediate product stage for satisfaction of notification condition - requirement of non-availment of CENVAT credit for claiming exemption - limitation/time-bar for recovery of duty

Interpretation of concessional exemption condition "manufactured out of textured or draw-twisted yarn" - treatment of intermediate product stage for satisfaction of notification condition - requirement of non-availment of CENVAT credit for claiming exemption - Whether the condition of Notification No. 6/2002-CE (condition 31(i) and 31(ii)) was satisfied when dyed yarn was manufactured ultimately out of duty-paid texturised yarn despite an intermediate stage producing twisted yarn on which no duty was paid - HELD THAT: - The Tribunal held that the notification's condition is satisfied where the finished dyed yarn is manufactured out of duty-paid texturised (or draw-twisted) yarn even if, in the intermediate captive process, the duty-paid yarn is converted into an intermediate product (twisted yarn) on which duty was not separately discharged. The court adopted the reasoning that if A (duty-paid texturised yarn) is used to make B (twisted yarn), which is then used to make C (dyed yarn), A can be said to have been used in the manufacture of C and the duty-paid character of A continues to satisfy the notification condition. It was further noted that there was no case of availment of CENVAT credit by the appellant in the dyeing process, and therefore condition 31(ii) stood complied with. The Tribunal relied on its earlier decisions including Kejariwal Yarns Pvt Ltd and Precot Mills Ltd , treating the point as no longer res integra and following their ratio that intermediate processing does not defeat entitlement to the conditional exemption. On these grounds the demand confirmed by the Revenue was held unsustainable and the Commissioner (Appeals) order allowing the assessee was upheld.

Condition of the notification was fulfilled; exemption rightly claimed and demand set aside.

Limitation/time-bar for recovery of duty - Whether the demand for duty was barred by limitation - HELD THAT: - The Tribunal observed that, apart from merits, the demand was raised beyond the normal period of one year and was therefore time-barred. It recorded that the assessee had made declarations and statutory entries while claiming the concessional rate and that such a claim of exemption could not be equated with suppression or misrepresentation to invoke an extended limitation period. Following precedent, the Tribunal held there was no intent to evade duty and consequently the longer period of limitation could not be invoked by the Revenue.

Demand is barred by limitation and cannot be sustained.

Final Conclusion: Appeal allowed; impugned order confirming demand and penalty is set aside on merits and as time-barred, with consequential relief to the appellant.

Abatement for works contract - application of Rule 2(ii)(A) of Service Tax (Determination of Value) Rules, 2006 - apportionment of tax between service provider and service receiver under Notification No.30/2012 ST (S.No.9) - quashing of assessment order for failure to apply statutory abatement - right to personal hearing in assessment proceedings

Abatement for works contract - application of Rule 2(ii)(A) of Service Tax (Determination of Value) Rules, 2006 - quashing of assessment order for failure to apply statutory abatement - Assessment order imposing 100% service tax without applying the statutory abatement for works contract was incorrect and liable to be quashed. - HELD THAT: - The Court recorded that the petitioner performed works contract services such as construction and repair of government works. Rule 2(ii)(A) of the Service Tax (Determination of Value) Rules, 2006 prescribes that for execution of original works the taxable value is subject to the abatement (40% of the total amount charged). The authorities imposed tax on the full value without applying the abatement applicable to works contracts. In view of the omission to apply the statutory abatement, the assessment order could not stand and was quashed to enable fresh consideration in accordance with the Rule.

Impugned assessment order quashed insofar as it imposed 100% service tax without applying the abatement under Rule 2(ii)(A); matter remitted for fresh assessment after compliance with directions.

Apportionment of tax between service provider and service receiver under Notification No.30/2012 ST (S.No.9) - quashing of assessment order for failure to apply statutory apportionment - Where the assessee is to be treated as a company, the apportionment under S.No.9 of Notification No.30/2012 ST (50% payable by provider and 50% by receiver) ought to have been considered; failure to do so warranted interference. - HELD THAT: - The Court observed that if the petitioner were to be considered a company, the specified apportionment in S.No.9 of Notification No.30/2012 ST dated 20.06.2012 would apply, resulting in 50% liability allocation between provider and receiver. The authorities did not invoke or apply the notification and proceeded to impose full tax. For that reason the assessment was interfered with and set aside to permit application of the correct legal treatment during fresh proceedings.

Assessment set aside to enable the authorities to consider and apply the apportionment under Notification No.30/2012 ST (S.No.9), if applicable, during the fresh assessment.

Right to personal hearing in assessment proceedings - direction for fresh hearing and completion of reassessment - Assessment proceedings remitted for fresh consideration with directions to permit the petitioner to file reply, grant personal hearing and complete assessment within a stipulated time; adjournments disallowed. - HELD THAT: - Although the authorities had issued notices and fixed hearings which the petitioner had not initially responded to, the Court quashed the impugned order and directed the petitioner to file a reply within two weeks of receipt of the order. The respondent was directed to grant a personal hearing and complete the assessment proceedings within eight weeks thereafter. The petitioner was directed not to seek adjournments. The matter is remanded for fresh consideration limited to compliance with these procedural directions and correct application of the said Rule and Notification.

Proceedings remitted for fresh assessment: petitioner to file reply within two weeks; personal hearing to be granted; assessment to be completed within eight weeks; no adjournments allowed.

Final Conclusion: Writ petition allowed: the assessment order dated 22.03.2023 is quashed for failure to apply the statutory abatement/apportionment applicable to works contracts and is remitted for fresh assessment after the petitioner files a reply and is afforded a personal hearing; assessment to be completed within eight weeks with no adjournments.

Entitlement to concessional duty under the Foreign Trade Policy - periodicity of computation of DTA sale quota (monthly versus quarterly) - valuation discrepancy between ER-2 returns and APR - duty demand and penalty for short levy on clearances - remand for verification and fresh consideration

Periodicity of computation of DTA sale quota (monthly versus quarterly) - entitlement to concessional duty under the Foreign Trade Policy - Maharashtra State Pollution Control Board directive affecting removals - Whether the appellant's computation of entitlement to clear goods into the Domestic Tariff Area on a monthly basis, prompted by statutory/regulatory requirement to effect monthly removals, could be accepted for determining concessional duty entitlement - HELD THAT: - The Tribunal found that the appellant's claim that monthly removals mandated by the Maharashtra State Pollution Control Board effectively precluded quarterly or other periodic computation was not examined with sufficient care by the lower authorities. The court acknowledged that certain classes of units are entitled to different periodicities of clearance and that rigidity in computing entitlement may be inequitable where regulatory directives (MSPCB) necessitate more frequent removals. The veracity of the appellant's entitlement to clearances at the concessional rate therefore requires factual verification and fresh consideration by the original authority rather than being dismissed summarily by the adjudicating authority. [Paras 5, 7, 8]

Issue remanded to the original authority for verification of the appellant's entitlement and proper computation of DTA sale quota taking into account MSPCB requirements.

Valuation discrepancy between ER-2 returns and APR - duty demand and penalty for short levy on clearances - remand for verification and fresh consideration - Whether the differential duty demand arising from the alleged lesser value declared in ER-2 returns vis-a -vis the APR submitted to the Development Commissioner is sustainable without a proper appreciation of the appellant's explanation - HELD THAT: - The Tribunal observed that the lower authorities treated the appellant's explanation regarding differing figures in ER-2 and APR in a perfunctory manner and did not adequately appreciate the justification offered. Although the lower authority concluded that the lesser value in ER-2 indicated intent to evade duty, the Tribunal considered that the appellant's submissions on the appropriate value of clearances at full rate of duty were not properly examined. Consequently, the question of whether the differential duty demand is justified, and whether the admitted shortfall beyond the conceded amount remains unreconciled, must be reconsidered and verified by the original authority. [Paras 3, 6, 9]

Issue remanded to the original authority for fresh consideration of the appellant's explanations and verification of the values declared in ER-2 and APR before confirming any differential duty demand.

Final Conclusion: The impugned order is set aside and the matters concerning computation of entitlement for concessional DTA clearances and the valuation discrepancy between ER-2 and APR are remanded to the original authority for verification and fresh consideration.

Manufacture - CENVAT credit - inputs - constructive reversal of credit - non-excisability - recovery of wrongly availed credit - verification of computation of utilized credit

Manufacture - CENVAT credit - inputs - non-excisability - Whether credit availed on inputs used in re-packing and labelling of specified products that were held not to be manufacture is liable to be recovered as wrongly availed - HELD THAT: - The Tribunal records that the adjudicating authority found that the re-packing and labelling did not amount to manufacture and therefore the goods were not exigible to central excise; however, the Tribunal relied on its and higher court decisions holding that where duty on final products cleared from factory has been accepted or paid, utilization of CENVAT credit in relation to those clearances operates as a constructive reversal of credit. In that view, a finding of non-excisability does not automatically render the earlier availment of credit wholly recoverable without examining whether the credit had already been utilized against duty on cleared products. The Tribunal noted competing precedents and authorities and concluded that the correctness of the factual finding on non-manufacture does not obviate the need to verify actual availment and corresponding reversal/utilisation of credit. [Paras 2, 5, 6]

Set aside the impugned order insofar as it directed recovery without verification and remand the matter to the original authority to verify computations and to restrict any recovery to credit in excess of that already availed/constructedly reversed

Constructive reversal of credit - recovery of wrongly availed credit - verification of computation of utilized credit - Extent and manner in which recovery of CENVAT credit should be determined when final product duty has been accepted or credit has been utilized - HELD THAT: - The Tribunal held that where credit has been availed and the corresponding final product clearances have accepted duty or where credit has been utilized at the time of clearance, such utilization amounts to a constructive reversal of credit. Consequently, the correctness of the underlying classification or excisability may not automatically justify full recovery without a fresh and limited verification of the details and arithmetic of utilisation. The Tribunal therefore directed remand for verification of the computations to ascertain whether any credit remains unutilised and only such excess should be recovered. [Paras 5, 6, 7]

Remand for verification of actual availment and utilisation and limit any recovery to credit found in excess after such verification

Final Conclusion: Impugned order set aside; matter remanded to the original authority for verification of computations of credit utilisation and for recovery, if any, to be limited to credit found in excess of that already availed or constructively reversed.

Cenvat credit reversal on opting for SSI exemption - effect of audit-led rectification and interest payment on adjudication - sustainability of show-cause notice for recovery of cenvat credit

Cenvat credit reversal on opting for SSI exemption - sustainability of show-cause notice for recovery of cenvat credit - effect of payment of interest for intervening period - Whether proceedings demanding recovery of cenvat credit (and imposition of penalty) were sustainable where the discrepancy was detected in audit and the assessee thereafter reversed the cenvat credit and paid interest for the intervening period. - HELD THAT: - The Tribunal found that the discrepancy in reversal of cenvat credit on opting for SSI exemption was brought to the Department's notice during audit. The appellant corrected the error by computing and reversing the credit on inputs, work-in-process and finished goods on the relevant dates and made entries in the statutory register, and also paid interest for the intervening period. On these facts the Tribunal held that, having been rectified pursuant to audit, there was no requirement to proceed by way of a show-cause notice for recovery. The adjudicatory proceedings and penalty based on the recovery demand were therefore held not to be sustainable in the circumstances.

Proceedings attacking the appellant for recovery of cenvat credit and imposition of penalty set aside; reversal of credit and payment of interest by the appellant accepted and the impugned order quashed.

Final Conclusion: The appeal is allowed: the Tribunal set aside the impugned order, confirmed the appellant's reversal of cenvat credit and payment of interest for the intervening period, and held the recovery and penalty proceedings unsustainable where the discrepancy had been rectified following audit.

Refund of duty - unjust enrichment - incidence of excise duty - FOB versus CIF valuation - credit to Consumer Welfare Fund

Refund of duty - unjust enrichment - incidence of excise duty - FOB versus CIF valuation - credit to Consumer Welfare Fund - Whether the amount of Rs.3,01,002/- sanctioned as refund should have been credited to the Consumer Welfare Fund on the ground of alleged passing on of duty to the foreign buyer, or paid to the appellant as refund. - HELD THAT: - The Tribunal found that the adjudicating authority, while sanctioning the refund, directed crediting the amount to the Consumer Welfare Fund on the basis that the incidence of duty had been passed on to the foreign buyer. The record, however, showed that the export invoice raised on the foreign buyer was on CIF value in foreign exchange while excise duty was paid by the appellant only on the FOB value in INR after excluding freight and insurance. The shipping bill and bank realization certificate corroborated that the CIF invoice did not include excise duty, and there was no collection of excise duty from the foreign buyer. The Show Cause Notice did not allege unjust enrichment. On appreciation of the documentary evidence, the Tribunal concluded that the appellant bore the incidence of duty and that the view that duty was passed on to a buyer outside India was unsustainable. Consequently, directing the sanctioned refund to be credited to the Consumer Welfare Fund was held to be improper. [Paras 6, 7]

The direction to credit the sanctioned refund to the Consumer Welfare Fund is set aside and the appellant is held entitled to receive the sanctioned refund of Rs.3,01,002/-, with consequential reliefs if any.

Final Conclusion: The appeal is allowed: the order directing credit of the sanctioned refund to the Consumer Welfare Fund is modified and the appellant is entitled to payment of the sanctioned refund, the Tribunal having found that the excise duty was paid on FOB value and not passed on to the foreign buyer.

Summary order. Special Leave Petition dismissed; pending applications disposed of.

Audit assessment under section 9C(5) of the Orissa Entry Tax Act, 1999 - delay in submission of the audit visit report (AVR) - imposition of freight charges on overall turnover based on market value - examination of vouchers to determine whether purchase price included freight - imposition of penalty in absence of mala fide or intent to evade tax - remand for fresh consideration

Audit assessment under section 9C(5) of the Orissa Entry Tax Act, 1999 - delay in submission of the audit visit report (AVR) - Validity of the audit assessment in view of delay in submission of the audit visit report (AVR). - HELD THAT: - The court found that the proceedings under challenge constitute an audit assessment under section 9C of the OET Act and recognised that the question whether the assessment is invalid by reason of delayed submission of the AVR is a jurisdictional issue. In light of this, and having noted the subsequent decision of this Court in Chandrakanta Jayantilal, the Tribunal was directed to examine afresh, among the issues in the memorandum of appeal, whether the audit assessment is invalid on account of delay in submission of the AVR under section 9C(5) of the OET Act, applying the authoritative guidance in Chandrakanta Jayantilal. The court did not decide the merits but remanded the question for fresh consideration by the Tribunal. [Paras 4, 5]

Order of the Tribunal set aside and the question of validity of the audit assessment due to delayed AVR remanded to the Tribunal for fresh consideration in light of Chandrakanta Jayantilal.

Imposition of freight charges on overall turnover based on market value - examination of vouchers to determine whether purchase price included freight - Whether freight charges computed at one per cent of purchased value on overall turnover (based on market value) were correctly imposed, and whether purchased materials' market rate already included freight. - HELD THAT: - The court directed that the Tribunal should re-examine the freight charge issue after inspecting the vouchers produced by the petitioner that form part of the record. The Tribunal is to determine, on the basis of documentary evidence, whether the methodology of imposing freight at the stated rate on overall turnover based on market value was sustainable and whether the purchase price already included freight. The High Court expressly refrained from expressing any view on the merits and remitted the issue for fresh adjudication. [Paras 2, 5]

Freight charge issue remanded to the Tribunal for re-examination of vouchers and fresh decision; High Court declined to express a view.

Imposition of penalty in absence of mala fide or intent to evade tax - Validity of imposition of penalty where there is no alleged mala fide or intent to evade tax. - HELD THAT: - Although the question concerning penalty was one of the points framed when admitting the revision petition, the court did not decide the question on merits. By restoring the appeal to the Tribunal for fresh decision and directing consideration of the issues set out in the memorandum of appeal, the court left the penalty question to be considered by the Tribunal along with the other issues in the appeal. The High Court made no substantive pronouncement on whether a penalty is justified in the absence of mala fide or intent to evade tax. [Paras 2, 5]

Penalty question left open and remitted to the Tribunal to be considered as part of the restored appeal; no view expressed by the High Court.

Final Conclusion: The Tribunal's order dated February 23, 2016 is set aside and S.A. No.129(ET)/2014-15 is restored to the Tribunal for fresh disposal; the Tribunal is directed to re-examine the validity of the audit assessment in light of delayed AVR under section 9C(5) and Chandrakanta Jayantilal, to inspect vouchers and re-decide the freight-charge issue, and to consider the other appellate issues (including the penalty question), the High Court expressing no view on the merits.

Legally enforceable debt - time-barred debt - limitation period on promissory note payable at a fixed time - Section 138 of the Negotiable Instruments Act - presumption under Section 139 of the Negotiable Instruments Act - Section 25(3) of the Indian Contract Act - promise to pay a time barred debt - exercise of inherent power under Section 482 CrPC to quash criminal proceedings

Exercise of inherent power under Section 482 CrPC to quash criminal proceedings - legally enforceable debt - presumption under Section 139 of the Negotiable Instruments Act - Section 25(3) of the Indian Contract Act - promise to pay a time barred debt - Whether the High Court was justified in quashing complaints under Section 138 NI Act on the ground that the underlying debt was time barred. - HELD THAT: - The Court reviewed earlier precedents and reiterated that interference under Section 482 CrPC at the pre trial stage is justified only where the debt is out and out non recoverable or the complaint discloses lack of jurisdiction. Generally the question whether a debt is time barred is a mixed question of law and fact to be decided after evidence is led, and the presumption under Section 139 NI Act, and the applicability of Section 25(3) of the Contract Act, ordinarily preclude quashing at the threshold. Consequently, except in clear cases where the debt is legally unenforceable on its face, a High Court should not quash criminal proceedings under Section 138 merely on the basis of a contention of limitation without examining the evidence. [Paras 10, 11, 12]

Quashing under Section 482 CrPC was not justified on the mere ground of limitation in the absence of a demonstration that the debt was plainly non recoverable; therefore the High Court erred in quashing the complaints on that basis.

Time-barred debt - limitation period on promissory note payable at a fixed time - Section 138 of the Negotiable Instruments Act - Whether, on the facts of these cases, the promissory note debt was time barred at the time the cheque was issued and the complaints filed. - HELD THAT: - The promissory note expressly fixed December 2016 as the date for full payment. Under the Limitation Act (Article 34, Part II - suits on promissory notes payable at a fixed time), the three year limitation period begins to run when the fixed time expires. Thus limitation would commence from December 2016 and expire in December 2019. The cheque in question was dated April 28, 2017 and the complaint was filed in July 2017, both well within the three year period. On the face of the record the claim was therefore a legally recoverable debt and not barred by limitation. [Paras 14, 15, 16]

On the facts, the debt was not time barred when the cheque was issued or when the complaint was filed; the High Court's conclusion to the contrary was a misdirection and was set aside.

Final Conclusion: The High Court's order quashing the complaints was set aside; the criminal complaints under Section 138 NI Act are restored to the Trial Court for expeditious disposal, directed to be concluded within six months from receipt of this judgment.

Compounding of offences under the Negotiable Instruments Act - Section 147 of the Negotiable Instruments Act (compoundability) - Compounding after conviction - Acceptance of compromise upon payment of compensation - Quashing of conviction and acquittal upon compounding - Non-obstante clause in Section 147 overriding Section 320 CrPC

Compounding after conviction - Acceptance of compromise upon payment of compensation - Quashing of conviction and acquittal upon compounding - Section 147 of the Negotiable Instruments Act (compoundability) - Compounding of the offence under Section 138 of the Negotiable Instruments Act was permissible after conviction where the complainant received the awarded compensation and consented to compound, and the conviction could be quashed with acquittal. - HELD THAT: - The Court applied the statutory scheme of Section 147 of the Negotiable Instruments Act, noting its non-obstante character vis-a -vis Section 320 Cr.P.C., and followed authoritative precedents which permit acceptance of compromise even after recording of conviction. The complainant recorded on the record that he had received the entire amount of compensation as awarded by the trial court and had no objection to compounding. In the light of the compromise and receipt of compensation, and consistent with the principles accepted in Damodar S. Prabhu v. Sayed Babalal H. and K. Subramanian v. R. Rajathi , the High Court found no impediment to exercising the power under Section 147 to compound the offence. The Court observed that where the statutory requirement of compounding is satisfied by the parties (including payment/receipt of compensation and consent), the conviction may be set aside and the accused acquitted; the compounding fee was deposited and formalities complied with, justifying quashing of the conviction and order of sentence. [Paras 10, 12, 13, 14]

The petition for compounding is accepted; the conviction and sentence dated 24.09.2018 (affirmed on 21.04.2023) are quashed and set aside and the petitioner is acquitted of the charge under Section 138 of the Act.

Final Conclusion: On the recorded compromise and receipt of awarded compensation and upon payment of the statutory compounding fee, the High Court allowed compounding under Section 147 of the Negotiable Instruments Act, quashed the conviction and sentence, acquitted the petitioner of the offence under Section 138, and discharged bail bonds, disposing of the petition and pending applications.

Compounding of offences under Section 147 of the Negotiable Instruments Act - Acceptance of compromise after conviction - Non-obstante effect of Section 147 over Section 320 of the Code of Criminal Procedure - Guidelines for imposition of compounding fee and judicial discretion to reduce costs - Effect of compounding: quashing of conviction and acquittal - Release of accused on acquittal

Compounding of offences under Section 147 of the Negotiable Instruments Act - Acceptance of compromise after conviction - Non-obstante effect of Section 147 over Section 320 of the Code of Criminal Procedure - Effect of compounding: quashing of conviction and acquittal - Whether the offence under Section 138 of the Negotiable Instruments Act could be compounded after conviction and affirmation on appeal upon compromise and payment of awarded compensation. - HELD THAT: - The Court applied the enabling and non-obstante character of Section 147 of the Negotiable Instruments Act and the Apex Court precedents cited to hold that offences under the Act are compoundable and that compounding can be permitted even after recording of conviction and appellate affirmation where the parties have compromised. The complainant's affidavit and his statement before this Court stating that the entire amount of compensation awarded by the trial court has been received were relied upon. In view of the compromise and payment of compensation, the Court accepted the prayer to compound the offence, quashed and set aside the conviction and sentence and directed acquittal of the accused. [Paras 11, 12, 13, 14, 15]

Compounding allowed; impugned judgments of conviction and sentence quashed and set aside and the accused acquitted.

Guidelines for imposition of compounding fee and judicial discretion to reduce costs - What compounding fee should be imposed and whether the Court may moderate the fee in view of the accused's financial condition. - HELD THAT: - The Court referred to the graded scheme in the Apex Court's guidelines (permissible scale for costs depending on the forum) and its explanation that the competent court may reduce the prescribed costs in appropriate cases by recording reasons. Considering the petitioner's financial condition and that the competent court has discretion to reduce compounding fee, the Court directed deposit of a token compounding fee as a condition for compounding, payable to the District Legal Services Authority within a specified period. [Paras 18, 19]

Token compounding fee directed to be deposited (Rs.3000) with the District Legal Services Authority within four weeks.

Release of accused on acquittal - Whether the accused should be released forthwith following compounding and acquittal. - HELD THAT: - On acceptance of compounding and quashing of the conviction, the Court held that the accused, if not required in any other case, shall be released forthwith and directed the Registry to prepare the release warrant. [Paras 16]

Accused directed to be released forthwith if not required in any other case; release warrant to be prepared.

Final Conclusion: The High Court permitted compounding under Section 147 of the Negotiable Instruments Act on account of a bona fide compromise and payment of the awarded compensation, quashed and set aside the trial and appellate convictions, directed acquittal and immediate release if not wanted in other cases, and imposed a reduced token compounding fee payable to the District Legal Services Authority.

Compounding of offences under the Negotiable Instruments Act governed by Section 147 - effect of compromise after conviction in proceedings under Section 138 of the Negotiable Instruments Act - application of guidelines in Damodar S. Prabhu and K. Subramanian on compounding and graded compounding fee - judicial discretion to reduce compounding fee in appropriate cases - release of deposited compensation subject to verification

Compounding of offences under the Negotiable Instruments Act governed by Section 147 - effect of compromise after conviction in proceedings under Section 138 of the Negotiable Instruments Act - Acceptance of parties' compromise and compounding of the offence under Section 147 of the Negotiable Instruments Act resulting in quashing of conviction and acquittal. - HELD THAT: - The High Court examined the factual position that the complainant had received Rs.3,33,000 of the compensation awarded and the balance Rs.67,000 had been deposited in the trial court, and that the complainant expressed no objection to compounding and sought quashing of the conviction. Applying Section 147 (which makes offences under the Act compoundable) and the principles in Damodar S. Prabhu and K. Subramanian that compromise can be accepted even after conviction, the Court found no impediment to permitting compounding. In light of the compromise and the complainant's recorded statement of no objection, the Court exercised its power to allow compounding, quashed the judgments of conviction and sentence, and acquitted the petitioner of the offence under Section 138 of the Act. [Paras 8, 10, 12, 14]

The offence was compounded; the judgments of conviction and sentence were quashed and the petitioner was acquitted.

Release of deposited compensation subject to verification - Direction for release of the amount deposited before the trial court to the complainant after due verification. - HELD THAT: - The Court noted that the balance amount deposited by the petitioner in the trial court should be released to the complainant as part of giving effect to the compromise. The learned Trial Court was directed to release the deposited sum after due verification, thereby completing the financial aspect of the compromise consistent with the Court's order compounding the offence. [Paras 15]

The trial court was directed to release the deposited amount to the complainant after due verification.

Application of guidelines in Damodar S. Prabhu and K. Subramanian on compounding and graded compounding fee - judicial discretion to reduce compounding fee in appropriate cases - Imposition of a reduced compounding fee in exercise of the Court's discretion under the established guidelines. - HELD THAT: - Having regard to the graded scheme of compounding fees laid down by the Apex Court and the petitioner's pleaded poor financial condition, the High Court exercised the discretion permitted by those authorities to reduce the compounding fee. The Court ordered the petitioner to deposit a token compounding fee of Rs.5,000 with the District Legal Services Authority within four weeks, recording that the competent court may reduce costs in specific facts and circumstances. [Paras 16, 17, 18]

Petitioner to deposit a token compounding fee of Rs.5,000 with the District Legal Services Authority within four weeks.

Final Conclusion: The petition was allowed: the parties' compromise was accepted and the offence under Section 138 of the Negotiable Instruments Act was compounded; convictions and sentences recorded by the trial and appellate courts were quashed and the petitioner acquitted; the trial court was directed to release the deposited balance to the complainant after verification; and the petitioner was directed to pay a reduced compounding fee of Rs.5,000 to the District Legal Services Authority.

Right to cross-examine by the adverse party under Sections 137-138 of the Indian Evidence Act, 1872 - adverse party - examination-in-chief and re-examination - co-defendants with no adverse interest - suit for partition

Adverse party - right to cross-examine by the adverse party under Sections 137-138 of the Indian Evidence Act, 1872 - co-defendants with no adverse interest - suit for partition - Whether a co-defendant who has no adverse interest is entitled to cross-examine a witness called by another co-defendant in a partition suit - HELD THAT: - The Court held that the statutory right of cross-examination is confined to an 'adverse party' and, therefore, a party who does not have an interest adverse to the witness (here, a co-defendant husband vis-a -vis his wife) is not entitled to cross-examine that witness. The trial court's finding that the third defendant (wife) and the fourth defendant (husband) 'sail together' and that the written statements are identical, coupled with the third defendant's alleged settlement of her properties in favour of the fourth defendant, establishes the absence of any adverse interest between them. Reliance was placed on the scheme of Sections 137 and 138 of the Indian Evidence Act, 1872 and on earlier decisions construing the requirement that cross-examination is exercisable only by a party having an adverse interest; when there is no clash of interest or nothing is said against the co-defendant, no statutory right to cross-examine arises. Applying these principles, the Court found no infirmity in the trial court's refusal to permit the fourth defendant to cross-examine the third defendant. [Paras 12, 18, 19]

The fourth defendant, not being an adverse party to the third defendant, was rightly not permitted to cross-examine her; the trial court's order is affirmed.

Final Conclusion: Civil Revision Petition dismissed; impugned order refusing cross-examination by the fourth defendant is upheld. The trial court is directed to dispose of O.S.No.172 of 2010 within three months; no order as to costs.