TaxTMI Updates e-Newsletter
Sep 13,2024

Seizure of cash during search - Power to seize cash during search operations under Section 67(2) of the Central Goods and Services Tax Act, 2017 - Seizure without authority of law - Release of seized property with accrued interest - Precedent on legality of seizure

Seizure of cash during search - Seizure without authority of law - Release of seized property with accrued interest - Precedent on legality of seizure - Whether the cash of Rs.27,00,000/- seized pursuant to the Seizure Memo dated 17.04.2023 should be released to the petitioner. - HELD THAT: - The Court recorded that the panchnama dated 17.04.2023 annexed to the respondents' counter affidavit shows Rs.27,00,000/- in cash was found at the petitioner's office and was seized because no satisfactory explanation as to its source was furnished. The petitioner contended that the seizure was without authority of law and relied on this Court's decision in Deepak Khandelwal Proprietor M/s. Shri Shyam Metal v. Commissioner of CGST, Delhi West & Anr., which squarely covers the issue. The respondents' counsel concurred with the petitioner's submissions and undertook to sensitize officers regarding the power to seize cash during search operations under Section 67(2) of the CGST Act. The Court noted the seized cash had been placed in a fixed deposit by the respondents and, on the basis of the precedent and the respondents' concurrence, directed immediate remittance of the amount to the petitioner's bank account together with the accrued interest. [Paras 2, 4]

The respondents are directed to remit the seized amount to the petitioner's bank account forthwith along with the accrued interest; petition disposed accordingly.

Final Conclusion: The petition was allowed: the cash seized on 17.04.2023 is to be released to the petitioner forthwith with accrued interest, the respondents having been directed to remit the amount to the petitioner's bank account and to sensitize officers about seizure powers during search operations.

Cancellation of GST registration - principles of natural justice - show cause notice requiring intelligible reasons - opportunity of personal hearing - retrospective cancellation of registration - revocation of cancellation application - restoration of GST registration

Cancellation of GST registration - principles of natural justice - show cause notice requiring intelligible reasons - Impugned cancellation order and the antecedent Show Cause Notice are void for failure to comply with principles of natural justice. - HELD THAT: - The SCN merely reproduced the statutory ground for cancellation without providing any particulars or intelligible reasons that would enable the taxpayer to understand the case against it. The SCN also failed to specify any date, time or venue for personal hearing, and the cancellation order itself does not set out reasons and purports to cancel registration with retrospective effect though no such retrospective action was proposed. These deficiencies deprived the petitioner of a meaningful opportunity to be heard and of adequate notice of the case to be met, rendering the SCN and the cancellation order invalid. [Paras 13, 14, 15]

SCN and cancellation order set aside as passed in violation of the principles of natural justice.

Revocation of cancellation application - opportunity of personal hearing - principles of natural justice - Rejections of the petitioner's applications for revocation of cancellation were made in breach of natural justice and are unsustainable. - HELD THAT: - Successive notices proposing to reject the petitioner's revocation applications did not furnish intelligible reasons and repeatedly failed to specify any appointed date, time or venue for a personal hearing, yet the applications were rejected for non-response. The procedure adopted thus denied the petitioner a real opportunity to be heard on its revocation requests and the orders rejecting those applications lack the requisite reasons and fairness. [Paras 6, 7, 11, 16, 17]

Orders rejecting the revocation applications set aside for denial of natural justice.

Restoration of GST registration - filing of returns and payment of tax - Appropriate remedial relief is full restoration of the petitioner's GST registration subject to compliance with filing and payment obligations; respondents may initiate fresh proceedings in accordance with law. - HELD THAT: - In consequence of invalidating the SCN and cancellation order, the Court directed immediate restoration of the petitioner's GST registration. The petitioner must file outstanding GST returns and pay tax with interest and penalty, if any, within the time stipulated by the Court. The order preserves the respondents' statutory right to initiate fresh action or recovery proceedings in accordance with law, thereby leaving open adjudicatory remedies subject to proper procedure. [Paras 17, 18]

Petition allowed; registration to be restored and petitioner directed to file returns and pay tax with interest and penalty; respondents free to initiate fresh action in accordance with law.

Final Conclusion: The SCN and the order cancelling the petitioner's GST registration are quashed for breach of natural justice; the petitioner's registration is restored forthwith subject to filing of returns and payment of tax with interest and penalty as directed, without prejudice to the respondents' right to initiate fresh proceedings in accordance with law.

Cancellation of GST registration - show cause notice - natural justice - revocation of cancellation - principal place of business verification - genuineness of transactions and input tax credit - cancellation for registration obtained by fraud, wilful misstatement or suppression of facts

Show cause notice - natural justice - cancellation of GST registration - cancellation for registration obtained by fraud, wilful misstatement or suppression of facts - Validity of the impugned Show Cause Notice and the consequent cancellation order with respect to compliance with principles of natural justice - HELD THAT: - The impugned Show Cause Notice initiating cancellation merely reproduced the statutory clause permitting cancellation where registration is obtained by fraud, wilful misstatement or suppression of facts, without indicating any specific alleged fraud, wilful misstatement or suppressed facts or setting out intelligible reasons. For a measure as serious as cancellation of GST registration, the SCN must disclose particulars of the alleged misconduct so that the taxpayer can meaningfully respond. The Court found that the impugned SCN did not contain such particulars and therefore the cancellation order was passed in violation of the principles of natural justice. The petitioner's contention that the cancellation order is liable to be set aside on this ground was held to have merit. [Paras 9, 10, 11]

Impugned Show Cause Notice lacked intelligible reasons and the cancellation order was found to have been passed in violation of principles of natural justice.

Revocation of cancellation - principal place of business verification - genuineness of transactions and input tax credit - show cause notice - Whether the order rejecting the petitioner's application for revocation of cancellation should be sustained or reconsidered in light of the specific allegations set out in the subsequent SCN dated 19.04.2024 - HELD THAT: - The subsequent SCN dated 19.04.2024 issued on the petitioner's revocation application specified two grounds: that the principal place of business address was vague/incomplete and could not be located, and that an unusually large turnover in two months funded entirely through input tax credit raised questions about genuineness of transactions and compliance with Rule 86B. The petitioner confined its relief to an opportunity to answer these allegations. Although the original cancellation was vulnerable for want of particulars, the Court did not set aside the cancellation order itself. Instead, it set aside the order dated 01.05.2024 which had rejected the revocation application without affording the petitioner an opportunity to respond, and directed that the petitioner be permitted to reply to the SCN dated 19.04.2024 and be heard before a fresh decision is taken by the proper officer. [Paras 5, 12, 13, 14]

Order rejecting the revocation application set aside; petitioner granted two weeks to reply to SCN dated 19.04.2024 and the proper officer directed to consider the reply and afford a hearing before passing an appropriate order.

Final Conclusion: The Court found that the original cancellation proceeded in breach of natural justice because the initiating SCN lacked intelligible reasons; without setting aside the cancellation itself, the Court set aside the rejection of the revocation application and remitted the matter for fresh consideration, directing that the petitioner be given two weeks to reply to the specific allegations in the SCN dated 19.04.2024 and an opportunity of hearing before the proper officer.

Refund of tax deposited under protest - coercion in tax collection - availability of statutory refund remedy - summons under Section 70 of the CGST Act - oral demand for tax during enquiries

Coercion in tax collection - refund of tax deposited under protest - availability of statutory refund remedy - Whether the Court would inquire into the petitioner's claim that the tax deposits were made under coercion or would require the petitioner to seek refund under law - HELD THAT: - The Court declined to undertake an enquiry into the petitioner's allegation that amounts were deposited under coercion and observed that deposits were not made during a raid nor while the petitioner or his employees were in custody. The Court recorded that if the petitioner claims an excess deposit, statutory remedies for refund are available and any application for refund would be considered in accordance with law. The Court further noted that the petitioner could have availed remedies at the material time in respect of alleged threats but nevertheless need not be remitted to a factual probe by this Court before pursuing the statutory route. [Paras 10, 11, 12]

No judicial enquiry into coercion; petitioner may seek refund and any such application will be considered in accordance with law.

Summons under Section 70 of the CGST Act - oral demand for tax during enquiries - Whether issuance of the administrative letter calling for payment required a specific statutory basis - HELD THAT: - The Court recorded the respondent's counsel could not point to any statutory provision mandating the issuance of the letter requesting payment of the detected liability. The respondent contended the letter was sent because the authorised signatory had expressed willingness to pay the detected liability. The Court noted this factual explanation but did not treat absence of a shown statutory mandate as altering the availability of the statutory refund remedy. [Paras 8]

Respondent could not point to a statutory provision requiring issuance of the payment request letter; this does not affect the petitioner's remedy to apply for refund.

Final Conclusion: Petition disposed with observation that the Court will not investigate the allegation of coercive deposit; the petitioner is entitled to pursue statutory refund remedies and any such application will be considered according to law; pending applications disposed of.

Validity of recovery notice and its quashing - Best judgment assessment and computation of taxable turnover - Denial of Input Tax Credit for non-claim within time - Amendment permitting belated claim of Input Tax Credit (Section 114 of the Finance Act, 2024 and insertion of Sections 16(5) and 16(6)) - Grant of Input Tax Credit upon demand of tax (Formica principle)

Validity of recovery notice and its quashing - Best judgment assessment and computation of taxable turnover - Impugned Recovery Notices dated 11.08.2021 for the stated assessment years and the antecedent assessment orders set aside and the matter remitted for fresh consideration. - HELD THAT: - The recovery notices challenged arrears for Assessment Years 2017-2018 and 2018-2019 where the petitioner had not filed returns and had earlier been assessed under the best judgment procedure recorded as Section 62 (misstated as Section 63). The best judgment assessment determined taxable turnover by adding 10% towards gross profit and utilised data captured in GSTR-2A. The Court found that, in view of subsequent developments affecting entitlement to Input Tax Credit and the applicable legal principle that ITC may have to be granted once tax is demanded, the impugned recovery notices cannot stand without fresh adjudication. Consequently the notices were set aside and the matter remitted to the respondents to pass fresh orders on merits and in accordance with law within six months. [Paras 3, 4, 10, 11]

Impugned Recovery Notices set aside; matter remitted to respondents to decide afresh on merits and in accordance with law within six months.

Denial of Input Tax Credit for non-claim within time - Amendment permitting belated claim of Input Tax Credit (Section 114 of the Finance Act, 2024 and insertion of Sections 16(5) and 16(6)) - Grant of Input Tax Credit upon demand of tax (Formica principle) - Entitlement to Input Tax Credit in the assessments to be re-considered in light of the Finance Act, 2024 amendment and the principle that ITC may be allowed once tax is demanded. - HELD THAT: - The assessment orders had denied adjustment of Input Tax Credit on the ground that the petitioner had not claimed ITC within time under Section 16 as it then stood. The Court noted that Parliament, by the Finance Act, 2024 (Clause 114 enacted as Section 114), has introduced Sections 16(5) and 16(6) enabling belated claims of ITC, and that similar amendments are expected to be mirrored in the State Act. Further, the Court relied on the antecedent principle in Formica India Division (as cited in the judgment) that once tax is demanded the benefit of Input Tax Credit may have to be granted. For these reasons the question of ITC entitlement was not finally adjudicated in the writ but remitted to the respondents to examine and decide on merits and in accordance with law, including application of the amendment and the cited principle. [Paras 6, 7, 8, 9, 10]

Question of entitlement to Input Tax Credit remitted for fresh consideration by the respondents in light of the Finance Act, 2024 amendment and relevant judicial principle.

Final Conclusion: Writ petitions allowed: the recovery notices are quashed and the matters remitted to the respondents for fresh adjudication on merits and in accordance with law (including consideration of the Finance Act, 2024 amendment and the principle permitting grant of Input Tax Credit once tax is demanded), to be completed within six months; no costs.

Violation of principle of natural justice - Quashing and remand for fresh assessment - Deposit as precondition for interim relief - Treatment of assessment order as addendum to show cause notice

Violation of principle of natural justice - Quashing and remand for fresh assessment - Impugned Assessment Order dated 12.04.2021 set aside and matter remitted to respondents for fresh consideration - HELD THAT: - The Court found procedural infirmity in the manner the impugned Assessment Order was passed on the same date as the personal hearing and without apparent consideration of the petitioner's submissions, raising concern of violation of the principles of natural justice. The Court did not adjudicate the substantive merits of the tax liability or Input Tax Credit disputes, but concluded that the assessment order could not stand in view of the procedural defect and therefore must be quashed and remitted for fresh decision by the assessing authority subject to conditions ordered by the Court.

Impugned Assessment Order quashed and remitted to the respondents for fresh consideration.

Deposit as precondition for interim relief - Conditions for remand: petitioner to make specified deposit and file detailed reply within stipulated periods - HELD THAT: - As a precondition to granting relief of quashing and remand, the Court required the petitioner to make a deposit and to furnish a detailed reply. The Court specified that the petitioner shall deposit 10% of the disputed tax of Rs. 31,56,386/- within six weeks from receipt of the order, and shall file a detailed reply to the impugned Assessment Order within thirty days. The conditions operate as a threshold for the protection afforded by the writ order and are intended to balance the parties' interests while permitting a fresh adjudication on merits by the authority.

Petitioner directed to deposit 10% of the disputed tax within six weeks and to file a detailed reply within thirty days as conditions of the remand.

Treatment of assessment order as addendum to show cause notice - Effect of quashing: impugned Assessment Order to be treated as addendum to the original Show Cause Notice; consequence of non-compliance with conditions - HELD THAT: - The Court declared that the quashed Assessment Order shall be treated as an addendum to the Show Cause Notice dated 11.02.2021 and directed that failure by the petitioner to comply with either the deposit or filing condition would be construed as dismissal of the writ petition, leaving the respondents free to proceed in accordance with law. The Court thereby clarified procedural status of the quashed order for the purposes of fresh proceedings and prescribed the consequence of non-compliance.

Quashed Assessment Order treated as addendum to the Show Cause Notice; non-compliance with conditions will result in dismissal of the writ petition and respondents may proceed.

Final Conclusion: Writ petition disposed by quashing the Assessment Order dated 12.04.2021 and remitting the matter to the respondents for fresh adjudication, subject to the petitioner depositing 10% of the disputed tax within six weeks and filing a detailed reply within thirty days; the quashed order is to be treated as an addendum to the Show Cause Notice and failure to comply with the conditions will permit the respondents to proceed in law.

Reasoned order requirement - stay of order - special audit under Section 66 of the CGST Act - jurisdiction to initiate special audit - limitation - notification under Section 168A of the CGST Act - failure to deal with reply

Reasoned order requirement - failure to deal with reply - Impugned assessment order was prima facie unreasoned and failed to deal with the petitioner's reply. - HELD THAT: - The Court prima facie found that the order passed under Section 73 did not reference the contentious issues raised by the petitioner nor address the reply submitted; it merely recorded that the reply was unsatisfactory. On this basis the Court treated the order as lacking the requisite reasoning necessary for an adjudicatory order and concluded that prima facie infirmity justified interim relief. [Paras 5, 7]

Impugned order stayed until the next date of hearing.

Stay of order - Whether interim stay of the impugned order should be granted. - HELD THAT: - In view of the prima facie finding that the assessment order was unreasoned and did not deal with the petitioner's reply, the Court exercised its discretion to grant an interim stay of the impugned order pending further hearing. The stay was directed to remain in force till the next date of listing so that the parties can file counter-affidavits and rejoinders as ordered. [Paras 7, 8, 9, 10]

Interim stay granted; matter listed for further hearing on 15.10.2024 with directions for filing affidavits.

Special audit under Section 66 of the CGST Act - jurisdiction to initiate special audit - limitation - notification under Section 168A of the CGST Act - Contended challenges to initiation of special audit, limitation, and impugned notification were raised and noticed for adjudication in the petition. - HELD THAT: - The petitioner contended that the special audit initiated by notice dated 24.08.2023 under Section 66 was beyond jurisdiction because the statutory conditions were not satisfied, that the resulting proceedings were barred by limitation, and that Notification No.56/2023-Central Tax under Section 168A was impugned (with the further contention that no similar notification was issued under the DGST Act). These contentions were framed by the Court for adjudication in the writ petition, and the impugned order was stayed pending decision on these and related objections. [Paras 6]

Challenges to initiation of special audit, limitation and the notification have been admitted for consideration in the petition; interim relief granted without deciding merits.

Exemption - Interim exemption application disposed of by the Court. - HELD THAT: - An application for exemption was allowed by the Court subject to all just exceptions and the application disposed of accordingly. [Paras 1, 2]

Exemption allowed subject to all just exceptions; application disposed of.

Final Conclusion: The Court allowed the exemption application, issued notice in the writ petition challenging the assessment order for April, 2018 to March, 2019 and related show cause notice, recorded prima facie that the assessment order was unreasoned for failing to deal with the petitioner's reply, and accordingly stayed the impugned order pending further hearing with directions for filing affidavits and listing on 15.10.2024.

Export proceeds realization - refund of tax on export - verification of receipt against export invoices - remand for fresh consideration - Section 56 of the Central Goods & Services Tax Act, 2017

Export proceeds realization - verification of receipt against export invoices - Whether the export proceeds in respect of sales to Nepal were realized in INR and matched the amounts shown in the export invoices. - HELD THAT: - The Court recorded that respondents carried out verification pursuant to earlier directions and found the petitioner's contention to be correct. Communication(s) produced on record corroborated that the entire proceeds of the export invoices were received in INR and matched the invoiced amounts. In view of the verification having established realization of proceeds, the finding in the Order-in-Original rejecting part refund for non-realisation was unsustainable and had to be set aside. [Paras 5, 6, 7]

Finding that export proceeds were realized in INR and matched the export invoices, and the rejection of part refund on the ground of non-realisation is set aside.

Refund of tax on export - remand for fresh consideration - Section 56 of the Central Goods & Services Tax Act, 2017 - Whether the Order-in-Original and the subsequent Order-in-Appeal should be set aside and the matter remitted for reconsideration of the part refund claim. - HELD THAT: - The Court set aside the portion of the Order-in-Original which rejected the part refund and also set aside the Order-in-Appeal to the same limited extent. The matter was remitted to the competent authority for reconsideration in accordance with law, with a direction to complete the exercise within eight weeks. The competent authority was specifically directed to take note of Section 56 of the Central Goods & Services Tax Act, 2017 while reconsidering the refund claim. [Paras 7]

Order-in-Original and Order-in-Appeal set aside to the limited extent of rejection of part refund; matter remitted for reconsideration within eight weeks with directions to take note of Section 56 CGST Act, 2017.

Final Conclusion: The courts below erred in rejecting the part refund on the ground of non-realisation; verification established receipt of export proceeds in INR, the rejection is set aside and the matter is remitted for reconsideration in accordance with law (taking note of Section 56 CGST Act, 2017) to be completed within eight weeks.

Quashing of assessment orders - remand for fresh adjudication - treating orders as addendum to show cause notices - opportunity to be heard - reconciliation of discrepancies between auto populated GSTR 2A/GSTR 07 and GSTR 3B - limitation and laches

Quashing of assessment orders - remand for fresh adjudication - opportunity to be heard - Impugned assessment orders were quashed and the matters remitted for fresh adjudication on merits with an opportunity to the petitioner to be heard. - HELD THAT: - The Court, having considered the petitioner's non reply to show cause notices on account of ill health and the partial payments made by the petitioner, exercised its supervisory jurisdiction to quash the impugned assessment orders and remand the cases for fresh consideration. The remand was directed so that the petitioner may file explanations and be heard before any fresh orders are passed on the merits. The Court acted notwithstanding the respondents' plea that the writ petitions were time barred, preferring to afford the petitioner a chance to reconcile and explain the discrepancies relied upon by the Department. [Paras 10]

Impugned orders quashed; matters remitted for fresh orders on merits with hearing of the petitioner.

Treating orders as addendum to show cause notices - The quashed impugned orders shall be treated as addenda to the respective show cause notices that preceded them. - HELD THAT: - The Court directed that the impugned assessment orders, while quashed, will operate as addenda to the original show cause notices so that the respondent may proceed with fresh adjudication taking into account the proceedings already initiated and the material on record. [Paras 11]

Quashed orders to be treated as addenda to the respective show cause notices.

Opportunity to be heard - Procedural directions were issued for filing a consolidated reply and timelines for disposal on remand. - HELD THAT: - The petitioner was directed to file a consolidated reply within 30 days from receipt of this order. The respondent was directed to pass fresh orders thereafter on merits and in accordance with law, preferably within two months, ensuring the petitioner is heard prior to passing such orders. These timelines were imposed to ensure expeditious disposal on remand. [Paras 12]

Petitioner to file consolidated reply within 30 days; respondent to pass fresh orders expeditiously, preferably within two months, after hearing petitioner.

Final Conclusion: Writ petitions disposed by quashing the impugned assessment orders for AY 2018-19 and 2019-20, treating those orders as addenda to the respective show cause notices, and remitting the matters for fresh adjudication with directions for the petitioner to file a consolidated reply within 30 days and for the respondent to pass fresh orders after hearing, preferably within two months.

Statutory remedy of appeal under Section 112 of the B.G.S.T. Act - non-constitution of the Appellate Tribunal - stay of recovery of tax on deposit - deposit condition for grant of stay - limitation period to commence after constitution of the Tribunal

Non-constitution of the Appellate Tribunal - statutory remedy of appeal under Section 112 of the B.G.S.T. Act - Petitioner is entitled to the statutory benefit of stay under Section 112(9) of the B.G.S.T. Act due to non-constitution of the Tribunal preventing exercise of the appeal remedy. - HELD THAT: - The Court recognised that the petitioner has been deprived of the statutory remedy of appeal because the Appellate Tribunal under the B.G.S.T. Act has not been constituted by the State. Since the deprivation of the remedy arises from the respondents' failure to constitute the Tribunal, the petitioner cannot be penalised by being denied the stay that Section 112(9) contemplates upon compliance with the statutory deposit requirement. The Court therefore directed that the statutory stay be extended to the petitioner, subject to the deposit condition specified below. [Paras 3, 6]

Stay under Section 112(9) of the B.G.S.T. Act granted to the petitioner on compliance with the deposit condition.

Deposit condition for grant of stay - stay of recovery of tax on deposit - Stay of recovery is granted on deposit of a sum equal to 20% of the remaining amount of tax in dispute (in addition to any earlier deposit under Section 107(6)). - HELD THAT: - Balancing equities, the Court prescribed a quantified deposit condition as the price for conferring the statutory stay where the Tribunal is not yet constituted. The direction specifies that the 20% payment is in addition to any amount already deposited under the earlier statutory provision, and that recovery proceedings shall be deemed stayed upon such compliance. The Court relied on parity with an earlier decision of the Court in SAJ Food Products Pvt. Ltd. where similar relief was granted. [Paras 4, 6]

Petitioner to deposit 20% of the remaining tax demand to attract stay of recovery; recovery deemed stayed upon such deposit.

Limitation period to commence after constitution of the Tribunal - statutory remedy of appeal under Section 112 of the B.G.S.T. Act - Petitioner must file the appeal under Section 112 of the B.G.S.T. Act once the Tribunal is constituted and the President/State President enters office; the stay is not open-ended. - HELD THAT: - The Court directed that, because the present order is necessitated solely by non-constitution of the Tribunal, the petitioner is obliged to initiate the statutory appeal once the Tribunal becomes functional. The appeal must be filed observing statutory requirements and within any period that may be specified upon constitution, thereby preventing an indefinite extension of the stay granted by this order. [Paras 6]

Appeal to be filed before the Tribunal after its constitution; stay terminates upon petitioner electing not to file the appeal within the period to be specified.

Consequence of non-filing of appeal - stay of recovery - If the petitioner does not file an appeal within the period specified after constitution of the Tribunal, the respondent authorities are free to proceed in accordance with law. - HELD THAT: - The Court made clear that the protective order is conditional and temporary. Should the petitioner choose not to avail the appellate remedy within the timeframe to be specified after constitution of the Tribunal, the authorities regain the right to resume recovery and take further lawful steps, thereby preserving the respondents' enforcement rights. [Paras 6]

Respondent-Authorities may proceed in accordance with law if petitioner fails to file appeal within the specified period.

Release of attachment on deposit - deposit condition for grant of stay - Upon compliance with the deposit direction, any bank attachment made pursuant to the demand shall be released; amounts already deposited shall be accounted for in determining the 20% payment. - HELD THAT: - The Court provided ancillary relief to give effect to the protective direction: if the petitioner pays the directed sum equivalent to 20% of the remaining tax in dispute, any bank account attachment arising from the demand shall be released. The Court further clarified that any sum already deposited by the petitioner will be taken into account when calculating the additional 20% required. [Paras 6]

Bank attachments to be released on compliance with deposit; earlier deposits to be credited in computing the 20%.

Final Conclusion: Writ petition disposed of by granting a conditional stay of recovery under Section 112(9) of the B.G.S.T. Act on payment of 20% of the remaining tax demand (net of prior deposits); petitioner to file appeal before the Tribunal once constituted, failing which the authorities may proceed in law; bank attachments to be released on compliance.

Overlapping assessment and double demand - quashing of order and remand for rehearing - non participation in adjudicatory proceedings and waiver of objection - reliance on intelligence report for assessment

Overlapping assessment and double demand - reliance on intelligence report for assessment - Validity of the order dated 04.12.2023 (Annexure 5) in the face of an earlier order dated 09.11.2023 (Annexure 1) based on an intelligence report covering overlapping periods - HELD THAT: - The Court found on the record that an assessment based on an intelligence report was completed by order dated 09.11.2023 covering the financial years 2017 18 and 2018 19, while the Adjudicating Authority passed order dated 04.12.2023 for the period October 2017 to March 2018. The adjudicating order did not take account of the earlier assessment when passed. The Court observed that, although there may be overlap between the periods, the question of whether amounts overlap cannot be resolved unless brought to the Adjudicating Authority's notice or canvassed in the proceeding. The petitioner had given a request/representation pointing to the overlapping period but did not participate in the adjudicatory proceedings despite being given three opportunities. The Court held that because the Adjudicating Authority passed the impugned order without consideration of the overlapping assessment and despite the factual overlap on record, the order dated 04.12.2023 could not be sustained.

Order dated 04.12.2023 (Annexure 5) is quashed insofar as it failed to consider the overlapping assessment recorded by Annexure 1.

Quashing of order and remand for rehearing - non participation in adjudicatory proceedings and waiver of objection - Relief to be granted following quashing and the manner of further adjudication - HELD THAT: - Having quashed the impugned order, the Court remitted the matter to the Adjudicating Authority for rehearing and passing of an appropriate order in accordance with law. The Court emphasized that the Adjudicating Authority must give an opportunity of hearing to the parties and consider, on record, the assessment already made on the basis of the intelligence report, including any contention as to overlapping demand. The Court also recorded that the petitioner had failed to appear despite three notices and that mere submission of a request letter did not amount to participation; accordingly, the petitioner was directed to appear before the Adjudicating Authority on the specified date so that a final hearing can be fixed and the matter disposed of.

Matter remitted to the Adjudicating Authority for rehearing and fresh decision after affording hearing and considering the earlier assessment; petitioner directed to appear on the specified date.

Final Conclusion: The writ petition is allowed to the extent that the order dated 04.12.2023 (Annexure 5) is quashed for failure to consider overlapping assessment recorded by Annexure 1; the matter is remitted to the Adjudicating Authority for rehearing and fresh disposal in accordance with law after giving the parties an opportunity of hearing, and the petitioner is directed to appear on the date fixed by the Court.

Competence to issue show-cause notice - delegation of power under Section 74(5) of the C.G.S.T. Act - adjudication by competent central tax officer of the Executive Commissionerate - show-cause notice v. intimation to pay

Competence to issue show-cause notice - delegation of power under Section 74(5) of the C.G.S.T. Act - Validity of issuance of the impugned communication by the Additional Director of the Directorate General of GST Intelligence - HELD THAT: - The court examined Annexure-P2 circular which assigns Deputy or Assistant Commissioners as Proper Officers under sub-section (5) of Section 74 and permits central tax officers of Audit Commissionerates and the DGGSTI to issue show-cause notices. The petitioner conceded that the Additional Director is equivalent to an Assistant Commissioner. In view of the circular's explicit permission and the admitted equivalence in rank, there was no basis to hold the officer who issued the impugned communication incompetent. The court thus found no reason to invalidate the communication on grounds of incompetence.

The issuance of the impugned communication by the Additional Director is valid and not incompetent.

Adjudication by competent central tax officer of the Executive Commissionerate - show-cause notice v. intimation to pay - Characterisation of the impugned communication as a show-cause notice or merely an intimation to pay and its adjudicatory consequences - HELD THAT: - The court noted paragraph 6 of the circular which provides that DGGSTI officers may issue show-cause notices which are to be adjudicated by the competent central tax officer of the Executive Commissionerate. The impugned communication, however, was held to be only an intimation to pay the indicated amounts and not itself a formal show-cause notice. Even if it were to lead to a show-cause notice under Section 74(1), the Additional Director (being equivalent to an Assistant Commissioner) is competent to issue such a show-cause notice. Consequently, there is no procedural defect requiring interference.

The impugned communication is an intimation (not a formal show-cause notice), and any subsequent show-cause notice under Section 74(1) would be competently issuable by the Additional Director; no interference warranted.

Final Conclusion: The writ petition is dismissed; the impugned communication stands upheld as validly issued and not subject to interference.

Show Cause Notice - Cancellation of GST Registration - Opportunity of Personal Hearing - Adjudication within Reasonable Time - Reservation of Rights

Show Cause Notice - Adjudication within Reasonable Time - Opportunity of Personal Hearing - Cancellation of GST Registration - Direction to adjudicate the Show Cause Notice proposing cancellation of GST registration within a fixed time after providing opportunity of personal hearing - HELD THAT: - Petitioner challenged the Show Cause Notice dated 06.03.2024 proposing cancellation of GST registration and contended that a reply was sent by Speed Post on 21.03.2024 but the Notice remained undecided. The Court issued notice and, on acceptance by respondents' counsel, directed the proper officer to adjudicate the Show Cause Notice and pass an appropriate order within four weeks. The Court specifically required that the disposal be after giving the petitioner an opportunity of personal hearing. The Court made no adjudication on the merits of the contentions of either party and expressly reserved all rights of the parties. The order is a procedural direction to ensure timely adjudication and does not constitute a determination on the validity of the Show Cause Notice or the merits of cancellation. [Paras 2, 3, 4, 5]

Show Cause Notice to be adjudicated by the proper officer within four weeks after giving opportunity of personal hearing; petition disposed; merits not considered and rights reserved.

Final Conclusion: Petition disposed by directing adjudication of the Show Cause Notice proposing cancellation of GST registration within four weeks after affording personal hearing; the Court did not decide merits and reserved parties' rights.

Quashing of show cause notice - Interference at notice stage - Show cause notice under Section 74 of the OGST Act - Verification of raw material composition of manufactured goods - Reply to show cause notice and adjudicatory consideration

Quashing of show cause notice - Interference at notice stage - Show cause notice under Section 74 of the OGST Act - Whether the High Court should quash or interfere with the show cause notice issued under Section 74 of the OGST Act at the pre-adjudication stage. - HELD THAT: - The Court declined to interfere with the notice of show cause issued under Section 74 of the OGST Act at the stage when components of the petitioner's product (fly ash bricks) and the composition of raw materials are under challenge. The Court observed that it would not adjudicate the merits at the notice stage and that objections as to composition and demand ought to be raised before the statutory authority in response to the notice so that the authority may consider them in accordance with law. The Court expressly refrained from expressing any opinion on the merits of the claim or the validity of the demand while declining to quash the notice. [Paras 6]

No interference with the show cause notice; writ petition not allowed to quash the notice at this stage.

Verification of raw material composition of manufactured goods - Reply to show cause notice and adjudicatory consideration - Whether the petitioner's request for testing/random verification of fly ash bricks and consideration of the percentage utilization of raw materials must be considered by the authority. - HELD THAT: - The Court directed that the petitioner, if raising objections regarding the demand and the composition of raw materials, should file a comprehensive reply to the show cause notice. The authority is permitted and expected to consider the petitioner's submissions and the request for verification/testing and take necessary steps in accordance with law. The Court limited its order to directing consideration and did not decide the substantive questions on testing, composition or liability, leaving those for adjudication by the authority. [Paras 6]

Petitioner to file comprehensive reply; authority to consider the request for verification/testing and decide the matter in accordance with law.

Final Conclusion: Writ petition disposed of: the High Court refused to quash or interfere with the show cause notice issued under Section 74 of the OGST Act at the notice stage, directed the petitioner to file a comprehensive reply contesting the demand and seeking verification/testing, and directed the authority to consider and act on those submissions in accordance with law; no opinion expressed on the merits.

Right to statutory appeal under Section 107 of the CGST/SGST Acts - condonation of delay in filing statutory appeal - exclusion of period for computation of limitation - appellate authority to decide uninfluenced by prior judicial observations - no expression of opinion on merits

Right to statutory appeal under Section 107 of the CGST/SGST Acts - condonation of delay in filing statutory appeal - exclusion of period for computation of limitation - Permission granted to file a statutory appeal against Ext.P5 with exclusion of specified period from computation of limitation. - HELD THAT: - The writ petition challenging Ext.P5 was filed within the period that could be condoned for instituting an appeal under Section 107 of the CGST/SGST Acts. Having regard to the limited relief sought, the Court permitted the appellant to file an appeal against Ext.P5 on or before 15.05.2024 and directed that the period from 15.03.2024 to 15.05.2024 shall be excluded for the purpose of determining the limitation for filing such appeal. The direction was given to protect the appellant's statutory remedy in view of the earlier filing of the writ petition within the condonable period. [Paras 3]

If the appellant files the appeal against Ext.P5 on or before 15.05.2024, the period 15.03.2024 to 15.05.2024 shall be excluded for computing limitation for that appeal.

Appellate authority to decide uninfluenced by prior judicial observations - no expression of opinion on merits - Appellate Authority directed to decide the appeal independently and the Court refrained from expressing any opinion on merits. - HELD THAT: - The Court directed that any appeal filed pursuant to this order shall be disposed of by the Appellate Authority free from any observation contained in the Single Judge's judgment. The High Court explicitly clarified that it has not expressed any view on the merits of the matter, thereby leaving the substantive adjudication to the Appellate Authority. [Paras 3]

The Appellate Authority shall adjudicate the appeal untrammelled by observations in the Single Judge's judgment and the High Court has not expressed any opinion on merits.

Final Conclusion: Writ appeal disposed by permitting filing of statutory appeal against Ext.P5 with exclusion of the period 15.03.2024 to 15.05.2024 for limitation purposes; the Appellate Authority to decide the appeal independently; no opinion expressed on merits.

Claim of long-term capital gains exemption u/s 10(38) - right to rectify omission / file revised return to claim exemption - principles of natural justice - right to cross-examine adverse witnesses - inadmissibility of survey-obtained admissions - reliance on statements of third-party entry providers for additions u/s 68 and 69 - delay filling SLP

High Court [2023 (2) TMI 392 - ORISSA HIGH COURT] dismissed the Revenue's appeals, holding that the ITAT correctly affirmed the CIT(A)'s findings on the assessee's entitlement to the Section 10(38) exemption and on the invalidity of additions founded on untested statements of third parties; no substantial question of law arose requiring interference.

HELD THAT:- There is a delay of 449 days in filing the special leave petition. The explanation offered is not sufficient in law to condone the delay. Hence, the application seeking condonation of delay is dismissed.

Consequently, the special leave petition is also dismissed keeping open the question of law, if any.

Pending application(s) stand disposed of.

The aforesaid order is passed following the order passed by this Court in Anupama Mohapatra [2024 (2) TMI 1202 - SC ORDER].

Validity of assessment u/s 153C - Statutory imperatives of incriminating material - as decided by HC [2024 (5) TMI 1468 - DELHI HIGH COURT] power to undertake such an assessment would stand confined to those years to which the material may relate or is likely to influence - Absent any material that may either cast a doubt on the estimation of total income for a particular year or years, the AO would not be justified in invoking its powers conferred by Section 153C. It would only be consequent to such satisfaction being reached that a notice would be liable to be issued and thus resulting in the abatement of pending proceedings and reopening of concluded assessments.

Impugned action under Section 153C of the Act, pertaining to AYs 2014-15, 2015-16, 2016-17, 2017-18, 2018-19 and 2020-21 are hereby quashed and set aside.

However, and insofar as AY 2019-20 is concerned, the same is left untouched. All rights and contentions of respective parties are kept open to be addressed in the ongoing assessment proceedings for AY 2019-20.

HELD THAT:- We are not inclined to interfere with the impugned judgment and, hence, the special leave petition is dismissed.

Pending application(s), if any, shall stand disposed of.

Condonation of delay under section 119(2)(b) of the Income-tax Act, 1961 - bona fide reliance on professional adviser - mechanical exercise of discretionary power - failure to record reasons for disbelief - equitable/compassionate consideration in condoning procedural delay - power to regularise returns

Condonation of delay under section 119(2)(b) of the Income-tax Act, 1961 - bona fide reliance on professional adviser - failure to record reasons for disbelief - mechanical exercise of discretionary power - Whether the PCIT was justified in rejecting the petitioners' applications for condonation of delay in filing returns and whether the delay should be condoned. - HELD THAT: - The Court found that the petitioners, who were members of one family, had a genuine and documented reliance on their Chartered Accountant whose spouse's ill-health prevented timely filing. The PCIT rejected the applications by expressing disbelief in the petitioners' reasons but did not record reasons explaining why the medical documents and asserted dependence were disbelieved, nor was there contrary material on record. The Court held that a rigid or mechanical approach in exercising the discretionary power under section 119(2)(b) is inappropriate where bona fide human difficulties prevented compliance. Jurisprudential principles of equitable and compassionate consideration governing condonation of delay in judicial proceedings are applicable by analogy when the statute confers power to condone delay in filing income-tax returns. Where an assessee is at no fault because of genuine reliance on a professional whose incapacity was beyond control, the discretionary power must favour permitting regularisation of returns unless the plea is shown to be false or wholly unacceptable. Applying these principles to the present facts, the Court concluded that the delay was sufficiently explained and the PCIT's order rejecting condonation was liable to be quashed. [Paras 4, 6, 7, 8]

Impugned order quashed; respondents directed to permit petitioners to file returns without penalty, fees or interest, if any, within two weeks; all contentions on merits of returns kept open.

Final Conclusion: The PCIT's rejection of the petitioners' applications for condonation of delay is set aside for being mechanically decided without adequate reasons; the petitioners are permitted to file returns within two weeks without penalty, fees or interest, while merits of the returns remain open.

Penalty under section 271(1)(c) - levy of penalty for concealment or furnishing inaccurate particulars of income - disallowance of expenses on estimate/adhoc basis - mere unsustainable claim does not attract penalty - assessment completed under section 144 read with section 143(3) of the Act - deletion of additions by appellate authority as relevant to penalty liability

Penalty under section 271(1)(c) - disallowance of expenses on estimate/adhoc basis - mere unsustainable claim does not attract penalty - deletion of additions by appellate authority as relevant to penalty liability - Whether penalty under section 271(1)(c) is leviable where major additions made by AO on adhoc/estimate basis were deleted by the CIT(A)/NFAC and only a small lump-sum addition was sustained. - HELD THAT: - The Tribunal noted that the Assessing Officer completed the assessment under section 144 read with section 143(3) and imposed penalty under section 271(1)(c) after making adhoc disallowances. On appeal the CIT(A)/NFAC deleted the bulk of those additions and sustained only a lump sum addition of Rs. 2,50,000 out of the adhoc disallowance. Relying on the Supreme Court's decision in CIT v. Reliance Petro Products (as stated in the order), the Tribunal held that mere making of a claim which is not sustainable in law does not, by itself, attract penalty where the assessee has furnished particulars of income which are not found to be inaccurate. The Tribunal observed that there are consistent decisions holding that disallowance of expenses made on estimate basis does not automatically give rise to concealment penalty. Given that the major amount of additions was deleted by the appellate authority and only a small estimated addition was sustained, the Tribunal concluded that imposition of penalty under section 271(1)(c) was not warranted and the penalty was to be deleted. [Paras 10, 11]

Penalty under section 271(1)(c) deleted and the grounds of appeal allowed.

Final Conclusion: The Tribunal allowed the appeal, set aside the order confirming penalty, and directed deletion of the penalty levied under section 271(1)(c) for Assessment Year 2014-15.

Validity of notice for reopening assessment after death of the assessee - Requirement to substitute legal representative for proceedings after death - Liability of legal representative under section 159 of the Income Tax Act - Nullity of assessment for non-impleading of specific legal heir

Validity of notice for reopening assessment after death of the assessee - Requirement to substitute legal representative for proceedings after death - Liability of legal representative under section 159 of the Income Tax Act - Nullity of assessment for non-impleading of specific legal heir - Assessment reopened and finalized where notice was issued in the name of the deceased and no specific legal heir was impleaded is void. - HELD THAT: - The Tribunal held that once the Assessing Officer was informed of the death of the assessee, proceedings under section 147 could only be continued by substituting the legal representative and issuing notice in the name of that legal representative. Section 159(2)(b) permits proceedings which could have been taken against the deceased to be taken against the legal representative, and section 159(3) deems the legal representative to be an assessee for the purposes of the Act. The Assessing Officer made no enquiry to identify or implead any named legal heir, issued notice in the name of the dead person and ultimately framed the assessment merely against the description 'legal heir of late Arjun Dass Agarwal' without specifying a person against whom it would be enforceable. For these reasons the reopening notice and the assessment founded on it were vitiated and the assessment was quashed. [Paras 7, 8]

The impugned assessment order is void for being framed after a notice issued in the name of the deceased without impleading or issuing notice to any specific legal representative; the assessment is quashed.

Final Conclusion: The appeal is allowed and the assessment order for AY 2012-13, framed pursuant to a notice issued in the name of the deceased without impleading any specific legal heir, is quashed.

Deduction under section 80P(2)(a)(i) - deduction for co-operative societies providing credit facilities to members - deduction under section 80P(2)(d) - deduction for interest/dividend on investments with co-operative societies - concept of mutuality - definition of "member" to be ascertained under relevant State Co operative Societies Act - de novo remand for verification and reconsideration - relief under section 57 for expenditure against income assessed under "Income from Other Sources"

Deduction under section 80P(2)(a)(i) - deduction for co-operative societies providing credit facilities to members - concept of mutuality - definition of "member" to be ascertained under relevant State Co operative Societies Act - de novo remand for verification and reconsideration - Claim for deduction under section 80P(2)(a)(i) in respect of interest income from providing credit facilities to members. - HELD THAT: - The Tribunal applied the Supreme Court's decision in Mavilayi Service Co-operative Bank Ltd. and held that the expression "member" for the purpose of section 80P(2)(a)(i) must be construed with reference to the definition of "member" in the relevant State Co-operative Societies Act under which the society is registered. In view of that dictum and consistent coordinate-bench practice, the issue of entitlement to deduction under section 80P(2)(a)(i) cannot be finally decided on the basis of the AO's earlier conclusions regarding associated/nominal members and voting rights; instead the matter is restored to the file of the Assessing Officer for de novo examination of facts and law in the light of the Supreme Court's guidance, with opportunity to the assessee to be heard. [Paras 4]

Claim under section 80P(2)(a)(i) remitted to the Assessing Officer for de novo consideration in light of the Supreme Court's decision; not finally adjudicated by the Tribunal.

Deduction under section 80P(2)(d) - deduction for interest/dividend on investments with co-operative societies - de novo remand for verification and reconsideration - Entitlement to deduction under section 80P(2)(d) for interest/dividend earned on investments. - HELD THAT: - The Tribunal directed the Assessing Officer to verify whether the interest or dividend claimed arises from investments made with co-operative societies. The Tribunal noted the Supreme Court's pronouncements (as referred to) that income from investments with co-operative societies may qualify for deduction under section 80P(2)(d). Accordingly, the question of allowance under section 80P(2)(d) is restored to the AO for factual verification and fresh adjudication in accordance with law. [Paras 5]

Entitlement under section 80P(2)(d) remanded to the Assessing Officer for verification whether the income arose from investments with co-operative societies and for de novo consideration.

Relief under section 57 for expenditure against income assessed under "Income from Other Sources" - Grant of consequential relief under section 57 if interest income is assessed under the head "Income from Other Sources." - HELD THAT: - The Tribunal clarified that, if on de novo consideration the interest earned from banks is to be assessed as "Income from Other Sources," the assessee would be entitled to claim deductions permissible under section 57 in accordance with law. This is a direction to the Assessing Officer to consider and grant such relief where legally permissible. [Paras 5]

If interest is assessed under "Income from Other Sources," relief under section 57 is to be considered and granted by the Assessing Officer in accordance with law.

Final Conclusion: The appeal is partly allowed for statistical purposes: the Tribunal has remitted the claims under section 80P(2)(a)(i) and section 80P(2)(d) to the Assessing Officer for de novo consideration in light of Supreme Court authority and directed that, if interest is assessed as "Income from Other Sources," consequential relief under section 57 be allowed where applicable.

Foreign Tax Credit - Filing of Form No.67 as mandatory requirement under Rule 128 - Directory requirement versus mandatory requirement - Double taxation relief under DTAA

Foreign Tax Credit - Filing of Form No.67 as mandatory requirement under Rule 128 - Directory requirement versus mandatory requirement - Double taxation relief under DTAA - Denial of foreign tax credit to the assessee on the ground of delay in filing Form No.67 - HELD THAT: - The Tribunal found that the assessee had declared the overseas salary in the return of income, had claimed credit of foreign tax and had filed Form No.67 before the return was processed by CPC under section 143(1). The Department did not dispute the genuineness of the particulars or the tax withheld in the foreign jurisdiction. Reliance was placed on coordinate Tribunal precedents holding that filing of Form No.67 is a procedural/directory requirement and that delay in filing does not extinguish the substantive right to relief under the DTAA. In these circumstances denial of the foreign tax credit solely on account of delayed filing of Form No.67 was held to be incorrect; the rejection while processing the return amounted to an error that warranted allowing the claimed credit. [Paras 7, 8]

Foreign tax credit claimed by the assessee is allowed and the appeal is allowed.

Final Conclusion: The Tribunal allowed the appeal, holding that denial of foreign tax credit on account of delayed filing of Form No.67 was erroneous and directing that the claimed relief under the DTAA for Assessment Year 2020-21 be allowed.

Allowability of expenditure incurred wholly and exclusively for business - disallowance as personal/non-business expenditure - legal ownership of property and entitlement to claim business deduction - voluntary expenditure incurred to promote business (Sasoon principle)

Allowability of expenditure incurred wholly and exclusively for business - legal ownership of property and entitlement to claim business deduction - disallowance as personal/non-business expenditure - Allowability of guest house maintenance expenses claimed by the assessee for AY 2014-15 and AY 2015-16 - HELD THAT: - The Tribunal found that legal ownership of the Mumbai guest house vested with the assessee company during the relevant years and that the company incurred expenses for its maintenance in the assessment years under consideration. Applying the principle that expenditures voluntarily incurred to promote business are deductible when they are for business purposes, the Tribunal held that the maintenance outgoes were for business and not personal. The Tribunal accepted the assessee's explanation and documents regarding ownership and concluded that the AO's disallowance as personal/non-business expenditure was incorrect. Consequently the additions made for maintenance expenses in AY 2014-15 and AY 2015-16 were directed to be deleted. [Paras 13, 14]

Maintenance expenditures for the Mumbai guest house are allowable as business expenditure for AY 2014-15 and AY 2015-16; additions deleted and appeals allowed.

Final Conclusion: Both appeals are allowed: the disallowances of guest house maintenance expenses for AY 2014-15 and AY 2015-16 are set aside and the AO is directed to allow the expenditures as business deductions.

Rectification under section 154 - limitation under section 154(7) - time barred rectification where limitation is reckoned from date of order sought to be amended - mistake apparent from the record

Rectification under section 154 - limitation under section 154(7) - time barred rectification where limitation is reckoned from date of order sought to be amended - Validity of the rectification order dated 26/03/2021 under section 154 of the Income Tax Act on limitation grounds - HELD THAT: - The Tribunal upheld the learned CIT(A)'s conclusion that a rectification under section 154 is subject to the four year bar in section 154(7) and that the limitation period is to be reckoned from the date of the order sought to be amended. The assessment order was passed on 18/02/2016, which made 31/03/2020 the last date for passing a rectification under section 154. The rectification order impugned was passed on 26/03/2021, after expiry of the period stipulated by section 154(7). The Tribunal accepted the reasoning of the CIT(A), including reliance on earlier authority applying the rule that the original order's date commences the limitation period for rectification, and noted that the order giving effect to the appellate order under section 250 (dated 29/10/2019) was not the subject of the rectification; accordingly the rectification could not be sustained as within time. [Paras 5, 7]

The rectification order dated 26/03/2021 is barred by limitation under section 154(7) and is quashed; Revenue's appeal dismissed.

Final Conclusion: The Tribunal dismissed the Revenue's appeal, holding that the rectification order dated 26/03/2021 was time barred under section 154(7) as the limitation is reckoned from the date of the order sought to be amended (assessment order dated 18/02/2016).

Revision of assessment as erroneous and prejudicial to the interest of revenue under Section 263 - duty of Assessing Officer to make enquiries during assessment proceedings under Section 143(3) - explanation of source, genuineness, identity and creditworthiness of unexplained cash receipts under Section 68 - limits of revision where Assessing Officer has made detailed enquiries and taken a plausible view

Revision of assessment as erroneous and prejudicial to the interest of revenue under Section 263 - duty of Assessing Officer to make enquiries during assessment proceedings under Section 143(3) - explanation of source, genuineness, identity and creditworthiness of unexplained cash receipts under Section 68 - limits of revision where Assessing Officer has made detailed enquiries and taken a plausible view - Whether the Principal Commissioner of Income Tax was justified in invoking Section 263 to set aside the assessment on the ground that the Assessing Officer did not verify the gift of Rs. 2,00,00,000/- and the assessment was erroneous and prejudicial to the revenue - HELD THAT: - The Tribunal found on record that the Assessing Officer had issued notice under Section 142(1) and raised specific queries regarding the large increase in capital; the assessee replied with submissions dated 30.11.2019 and furnished the bank statement of the donor and other particulars explaining receipt of Rs. 2,00,00,000/-. The Assessing Officer examined the material during assessment under Section 143(3) and made disallowance where warranted (for instance, under Section 40(a)(ia)), demonstrating that enquiries were conducted and a plausible view was taken. The PCIT's exercise of revision under Section 263 was confined to the proposition that the AO had not made further verification; however, where the source was explained and the AO had made enquiries of substance, the jurisdiction under Section 263 could not be invoked merely because the PCIT preferred a different view or sought the "source of source". Reliance was placed on the principle that revision is impermissible when the Assessing Officer has conducted detailed enquiries and reached a plausible conclusion, as reflected in the authority relied upon by the assessee. Applying these principles to the facts, the Tribunal held that the AO's proceedings were not erroneous or prejudicial to the revenue so as to warrant revision under Section 263. [Paras 7, 8]

The invocation of Section 263 was not justified and the appeal is allowed.

Final Conclusion: The order passed by the Principal Commissioner revising the assessment under Section 263 was set aside because the Assessing Officer had conducted detailed enquiries under Section 142(1)/143(3) and taken a plausible view after the assessee explained the receipt of the gift; the appeal is allowed.

Deduction under section 80P(2)(d) of the Income tax Act - co-operative society - co-operative bank as a species of co-operative society - proviso in section 80P(4) excluding certain co-operative banks - beneficial construction in favour of the assessee

Deduction under section 80P(2)(d) of the Income tax Act - co-operative bank as a species of co-operative society - proviso in section 80P(4) excluding certain co-operative banks - beneficial construction in favour of the assessee - Assessee entitled to deduction under section 80P(2)(d) for interest earned on investments in co operative banks - HELD THAT: - The Tribunal held that section 80P(2)(d) allows deduction where a co operative society derives income by way of interest or dividends from investments made with any other co operative society. The term "co operative society" as defined in the Act and the nature of co operative banks as a species of co operative societies support allowing the deduction. The proviso in section 80P(4) excludes only those co operative banks which function as banks licensed by the Reserve Bank of India and operate at par with commercial banks; that proviso does not negate the general entitlement of a co operative society to claim deduction on interest received from investments made in co operative banks which are not shown to be RBI licensed commercial functioning banks. The Tribunal placed reliance on the Supreme Court principle that section 80P is a beneficial provision to be construed liberally in favour of the assessee and on consistent coordinate bench decisions (including the assessee's own ITAT decision for A.Y. 2020 21) which allowed the deduction. As no material was produced to show that the investee co operative banks were RBI licensed banks functioning at par with commercial banks, the AO's denial could not be sustained and the deduction was to be allowed subject to verification. [Paras 14, 15, 17]

Assessee's claim under section 80P(2)(d) allowed in respect of interest earned from investments in co operative banks; impugned orders set aside and AO directed to grant deduction.

Final Conclusion: Appeals allowed. The orders dated 14.08.2023 and 02.08.2023 are set aside and the assessing officer is directed to allow the deduction under section 80P(2)(d) of the Act for interest earned from investments in co operative banks for A.Y. 2018-19 and A.Y. 2021-22, subject to verification.

Condonation of delay - Rectification under section 154 - Section 143(1) adjustment - Deduction under section 80P(2)(d) - Section 80AC applicability to belated returns - Exclusion of COVID period for limitation

Condonation of delay - Rectification under section 154 - Exclusion of COVID period for limitation - Delay in filing first appeals was condoned. - HELD THAT: - The Tribunal found that the assessee had filed rectification applications under section 154 which remained pending (as per record screenshot) and that the society was under a bona fide belief that rectification would be permitted; consequently the society delayed filing appeals on professional and organizational grounds. The affidavit explained limited voluntary management, reliance on a part time accountant, and that the matter was pursued only after recovery proceedings were initiated. A portion of the delay was also covered by the exclusion of the COVID period as recognised by the Supreme Court. Having considered these facts and the explanation, the Tribunal held there was reasonable cause for the inordinate delays in filing the appeals and therefore condoned the delays. [Paras 7, 17, 18]

Delays in filing the appeals are condoned.

Section 143(1) adjustment - Deduction under section 80P(2)(d) - Section 80AC applicability to belated returns - Adjustments made by CPC under section 143(1) disallowing deduction under section 80P(2)(d) were beyond the scope of section 143(1) and are deleted; the claim under section 80P(2)(d) is to be allowed. - HELD THAT: - The Tribunal, following a co ordinate bench decision, observed that prior to the amendments effected for A.Y. 2021 22, prima facie adjustments under section 143(1)(a) were confined to certain specified deductions (e.g., sections in the 80 series specifically listed) and did not permit disallowance of a claim under section 80P(2)(d). For the years under adjudication the CPC treated returns as belated and disallowed the 80P claim; the Tribunal examined the due date position (including audit requirements for cooperative societies) and the scope of section 80AC and concluded that deduction under section 80P(2)(d) was not hit by section 80AC for the relevant periods. Consequently, the CPC's adjustment treating interest from co operative banks as taxable and disallowing the 80P(2)(d) claim could not be sustained under section 143(1) and was deleted for each assessment year considered. [Paras 8, 10, 14, 18, 21]

The disallowance made by CPC under section 143(1) on account of section 80P(2)(d) is beyond the scope of that provision and is deleted; the assessing officer is directed to allow the deduction.

Final Conclusion: Appeals allowed: delays in filing the first appeals are condoned and the disallowances made by CPC under section 143(1) by treating interest from co operative banks as taxable (thereby denying deduction under section 80P(2)(d)) are held beyond the scope of section 143(1) for the assessment years 2012 13, 2014 15, 2015 16, 2016 17 and 2018 19; the assessing officer is directed to allow the claim of deduction under section 80P(2)(d).

Evidentiary value of statements recorded during survey - distinction between statements under section 132(4), 133A(3)(iii) and 131 - inadmissibility of making additions solely on survey admissions - retraction of confessional statement and its effect - incriminating material - explanation and corroboration - telescoping of undisclosed income against unexplained investment/outgo

Evidentiary value of statements recorded during survey - distinction between statements under section 132(4), 133A(3)(iii) and 131 - inadmissibility of making additions solely on survey admissions - retraction of confessional statement and its effect - Whether admissions/statements recorded during survey can be treated as conclusive evidence and used as sole basis for making additions - HELD THAT: - The Tribunal held that the statutory scheme distinguishes statements recorded during search under section 132(4) from statements recorded during survey under section 133A(3)(iii) and from enquiries under section 131. A statement recorded in the course of survey is not conclusive and cannot be the sole foundation for additions. Retraction of a statement is permissible and must be weighed together with corroborative material; absent independent, unassailable corroboration, admissions made during survey cannot automatically sustain additions. The CIT(A)'s finding that the AO relied on survey statements to corroborate impounded documents but that the assessee had explained the impounded material was accepted. The Tribunal followed earlier authorities and CBDT guidance emphasising that survey statements are not to be mechanically relied upon and that corroborative evidence is necessary before making additions.

Survey statements are not conclusive; additions cannot be sustained solely on admissions made during survey and retracted statements must be considered with other evidence.

Incriminating material - explanation and corroboration - inadmissibility of making additions solely on survey admissions - Deletion of addition of Rs. 33,60,000 made as undisclosed investment for purchase of house at 7, Wonder Road, Kota - HELD THAT: - The AO relied on an impugned agreement and the assessee's survey statement. The Tribunal found the impounded agreement was not acted upon by the assessee (it was unsigned) and the registered sale deed showed the property was purchased and paid for by the assessee's wife, who had accounted for payments in her books. The assessee produced ledger entries, bank evidence and books of the wife to explain the impounded documents. In light of the explanation and absence of independent corroboration tying the cash to the assessee, the CIT(A)'s deletion was upheld.

Addition of Rs. 33,60,000 deleted.

Incriminating material - explanation and corroboration - Deletion of addition of Rs. 7,10,000 alleged for purchase of agricultural land at Mandana, Kota - HELD THAT: - The impounded papers and payments were dated 2008-2009 and the assessee produced the sale agreement and ledger entries showing payments in that earlier period. The CIT(A) found, and the Tribunal agreed, that the transaction pertained to AY 2009-10 and not AY 2017-18. No material linked the cash payment to the year under consideration.

Addition of Rs. 7,10,000 deleted for AY 2017-18.

Incriminating material - explanation and corroboration - telescoping of undisclosed income against unexplained investment/outgo - Addition of Rs. 35,00,000 for construction expenses at E-15, Ballabhbari - extent of deletion and subsequent set-off - HELD THAT: - The assessee demonstrated that Rs. 27,97,131 of the expenditure was recorded in the books of his wife and produced bills, vouchers, ledgers and bank records which were not rejected by the AO. The CIT(A) deleted the addition to that extent and upheld the balance of Rs. 7,02,869. The assessee also claimed telescoping/set off of amounts available as disclosed income. On cross appeal/consideration the Tribunal accepted the explanation and the evidentiary material for the accounted portion and entertained the telescoping/set off claim in the factual matrix of the case.

Addition deleted to the extent of Rs. 27,97,131; balance initially sustained but ultimately addressed by telescoping/set off and relieved in proceedings.

Incriminating material - explanation and corroboration - Deletion of addition of Rs. 75,00,000 alleged as marriage expenses of the assessee's son - HELD THAT: - Impounded papers contained rough estimates of marriage expenses; the assessee produced ledger accounts, head wise breakups, bills, vouchers and bank statements showing that the marriage expenses were recorded in the books of the assessee's wife and mostly routed through banking channels. The AO did not rebut or reject those records. Given the documentary explanation and the non conclusive nature of the survey material, the CIT(A)'s deletion was sustained.

Addition of Rs. 75,00,000 deleted.

Telescoping of undisclosed income against unexplained investment/outgo - Whether additional income offered/assessed in earlier years can be telescoped/set off against additions sustained for AY 2017-18 - HELD THAT: - The Tribunal applied the well established telescoping principle: undisclosed income in earlier years constitutes a concealed fund which may be used to meet subsequent undisclosed applications and, subject to factual satisfaction that the earlier assessed amounts were available, may be set off against later additions. The assessee had declared and got assessed additional cash income (aggregate sums shown for earlier years and for AY 2017 18), and the CIT(A) granted telescoping to the extent of documented availability. The Tribunal accepted the factual findings that the declared/assessed amounts were available and, after adjusting carried forward balances from earlier years, found no uncovered addition remained. The Tribunal also allowed the assessee to invoke Rule 27 to press the telescoping claim.

Telescoping/set off claim allowed in the factual matrix; after adjustment of carried forward available cash the remaining addition was eliminated.

Final Conclusion: The Revenue's appeal is dismissed. The Tribunal affirmed that survey statements are not conclusive and cannot, without independent corroboration, sustain additions; on the facts the CIT(A)'s deletions (and partial deletions) in respect of the contested additions were upheld and the assessee's telescoping/set off claims were accepted so that no addition survives for AY 2017-18. No order as to costs.

Summary order. Special Leave Petition dismissed for delay (175 days) and on merits; no costs; pending applications disposed of.

Summary order. Special Leave Petition dismissed for delay (238 days); pending application disposed of.

Revocation of licence - forfeiture of security deposit - requirement of "offence report" under Regulation 17 - pre-requisite for initiation of proceedings - non-application of mind - post-decisional hearing

Requirement of "offence report" under Regulation 17 - pre-requisite for initiation of proceedings - revocation of licence - forfeiture of security deposit - non-application of mind - Whether initiation of proceedings and subsequent revocation of Customs Broker Licence and forfeiture of security deposit was valid in the absence of an "offence report" required by the Regulations. - HELD THAT: - The Court agreed with the Tribunal's conclusion that the statutory scheme contemplates receipt of an "offence report" by the Licensing Authority as the foundational trigger for initiation of proceedings under the Customs Brokers Licencing Regulations, 2018 (Regulation 17 read with the regime reflected in Regulation 20 of earlier rules and the Board's Circular). The Licensing Authority proceeded on the basis of earlier show cause notices which had been quashed, and there was admittedly no separate "offence report" received. The Tribunal also noted that the Licensing Authority did not address the respondent's contention that proceedings could not be initiated without the offence report, suggesting non-application of mind. Reliance on the Board's Circular and the decision in Necko Freight Forwarders Ltd. supported the view that an investigating authority's report regarding detection of an offence is the essential pre-condition for commencement of disciplinary/licensing action, subject to the limited exception for immediate suspension with post-decisional hearing. In these circumstances, the Court found no error in the Tribunal's setting aside of the Order-in-Original revoking the licence and forfeiting the security deposit. [Paras 4, 5, 6]

Proceedings and the Order-in-Original were invalidated because they were commenced and upheld in the absence of the requisite "offence report", and the Tribunal's quashing of the revocation and forfeiture was upheld.

Final Conclusion: The appeal is dismissed; the Tribunal's order setting aside the revocation of the Customs Broker Licence and forfeiture of the security deposit is affirmed on the ground that initiation of proceedings required an "offence report" which was not received, and the Licensing Authority failed to address that deficiency.

Deposit made under protest - refund of amounts deposited during investigation - payments made under duress or compulsion - recovery of tax only after adjudication and due process - unjust enrichment and restitution - statutory interest on refundable deposits

Deposit made under protest - refund of amounts deposited during investigation - unjust enrichment and restitution - statutory interest on refundable deposits - Respondents liable to refund amounts deposited by the petitioners during the course of investigation when adjudication concluded in their favour, together with statutory interest. - HELD THAT: - The Court found that the sums were deposited during investigation and pending adjudication and that the adjudicatory process ultimately concluded in favour of the petitioners. There being no assessment or demand that has attained finality against the petitioners, the respondents lack legal justification to retain amounts deposited under protest. The reasoning stresses that deposits made under protest or under compulsion during investigation do not acquire the character of tax recoverable by the State unless assessed and finalised by due process; retention in such circumstances would amount to unjust enrichment and offend the principle that taxes may be levied or collected only by authority of law. The Court relied on its earlier precedents addressing deposits made under protest and during investigations and on administrative directions emphasising that recovery should follow adjudication, concluding that the petitioners are entitled to refund accompanied by statutory interest until payment is made. [Paras 5, 7, 8, 10]

The respondents are directed to refund the amounts deposited during investigation forthwith, with statutory interest payable under the Act until actual disbursement.

Amendment of shipping bills and detention certificate - Prayer for permission to amend shipping bills and for grant of detention certificate is not decided and is left open for independent pursuit. - HELD THAT: - The Court expressly refrained from adjudicating the petitioners' request for leave to amend shipping bills, allow export of goods, or for grant of a detention certificate. These matters were left to be pursued separately before the appropriate authorities or forums, with all rights and contentions preserved. [Paras 11]

The prayers relating to amendment of shipping bills and grant of detention certificate are left open for independent consideration; parties' rights and contentions in that regard are kept open.

Final Conclusion: Writ petitions allowed to the extent of directing immediate refund of the deposits made during investigation with statutory interest; ancillary requests concerning amendment of shipping bills and detention certificate are left open for separate adjudication.

Essential character - Rule 2(a) of the General Rules for Interpretation (GIR) - classification of incomplete, unassembled or disassembled goods (CKD/SKD) - parts versus complete article

Rule 2(a) of the General Rules for Interpretation (GIR) - essential character - parts versus complete article - classification of incomplete, unassembled or disassembled goods (CKD/SKD) - Whether the imported items (kettle body, plastic lid, thermostat, base plastic top and base plastic bottom) are to be classified as a complete electric kettle under GIR 2(a) or as parts of an electric kettle. - HELD THAT: - The Court applied GIR 2(a), which treats an incomplete or unassembled article as the complete article if, as presented, it has the essential character of the finished article. The imported items included the heating element, thermostat and body that together provide the core functions of an electric kettle - heating water by electricity and automatic cut-off on attaining the required temperature. Although certain ancillary items (electric wire, ISI plug, screws, controller/sensor and packaging) were procured domestically and are necessary for a marketable, fully assembled appliance, those items were held to be minor or additional and not essential to confer the kettle's fundamental characteristics. The Tribunal found that the Commissioner (Appeals) erred in requiring that every constituent part be imported together before classifying the consignment as a complete article; that reasoning conflicted with GIR 2(a), which permits classification as the finished article where the imported goods, though incomplete, possess the essential character of the finished article. On this basis the Deputy Commissioner's classification as a complete electric kettle was upheld. [Paras 14, 15, 16]

The Commissioner (Appeals) was in error; the imported items possess the essential character of an electric kettle and are classifiable as a complete electric kettle under GIR 2(a); the Deputy Commissioner's classification is restored and the Revenue's appeal is allowed.

Final Conclusion: The Tribunal allowed the Revenue's appeal, set aside the Commissioner (Appeals) order, restored the Deputy Commissioner's classification of the imported items as an electric kettle under GIR 2(a), and dismissed the respondent's cross-objection; the stay application was dismissed as infructuous.

Customs valuation - transaction value under Section 14 and Customs Valuation Rules, 2007 - Reliability and admissibility of NIDB data for contemporaneous imports - Customs valuation rules - application of Rule 3(1), Rule 4/5 and Rule 12(2)(iii) of CVR, 2007 - Classification of goods - parts suitable for use solely or principally with machines of heading 8501/8502 (CTH 8503) - Interpretation of Explanatory Notes and Section/Chapter Notes (Section XVII) in determining principal use between CTH 8503 and CTH 8708

Customs valuation - transaction value under Section 14 and Customs Valuation Rules, 2007 - Reliability and admissibility of NIDB data for contemporaneous imports - Customs valuation rules - application of Rule 3(1), Rule 4/5 and Rule 12(2)(iii) of CVR, 2007 - Enhancement of assessable value based solely on NIDB contemporaneous assessed values was not sustainable and the transaction value declared by the importer was to be accepted. - HELD THAT: - The Tribunal examined whether the assessing authority validly rejected the transaction value and enhanced the CIF value relying on contemporaneous imports reflected in the NIDB. It held that NIDB shows assessed values and does not invariably disclose the declared transaction value; reliance solely on NIDB without establishing comparability (country of origin, quantity, supplier, quality and other factors under Rule 5) and without further enquiries under the Valuation Rules vitiates the enhancement. The assessing officer did not demonstrate that the price declared was not the price actually paid, nor that buyer and seller were related or that price was not the sole consideration. The assessing authority's action was therefore arbitrary, mechanical and contrary to Section 14 and the Customs Valuation Rules; the Commissioner (Appeals) rightly set aside the enhancement and restored the declared transaction value. [Paras 10, 11]

Enhancement of assessable value set aside; transaction value declared in the Bills of Entry accepted.

Classification of goods - parts suitable for use solely or principally with machines of heading 8501/8502 (CTH 8503) - Interpretation of Explanatory Notes and Section/Chapter Notes (Section XVII) in determining principal use between CTH 8503 and CTH 8708 - The imported 'controller' is classifiable under CTH 8503 0090 as a part suitable for use with electric motors and not as a part/accessory of motor vehicles under CTH 8708. - HELD THAT: - The Tribunal considered the nature and principal use of the imported controller. Although the adjudicating authority emphasised broader usages (e.g., in e-rickshaws), the Tribunal found no declaration or evidence that the controller is solely or principally employed in motor vehicles nor that it is excluded from CTH 8503. The controller's functions (start/stop, speed regulation, direction) are intrinsically connected to and cannot be exercised independently of an electric motor; controllers are therefore parts suitable for use with machines of chapter 8501. Explanatory notes and Section XVII/Chapter notes do not support classification under CTH 8708 for the goods imported, and electronic controllers are excluded from CTH 8708. On this basis the Commissioner (Appeals) correctly classified the goods under CTH 8503 0090. [Paras 12, 13]

Imported controller held classifiable under CTH 8503 0090; classification in the Orders-in-Appeal upheld.

Final Conclusion: Both grounds of the Revenue's appeals fail; the Tribunal upholds the Commissioner (Appeals) orders - the transaction value declared in the Bills of Entry is accepted and the goods are correctly classified under CTH 8503 0090; the appeals are dismissed.

Rectification of Register of Members - exercise of power under Section 59 of the Companies Act, 2013 - summary jurisdiction of the Company Court - exclusive jurisdiction and relegation to civil court - limitation as a mixed question of fact and law - preponderance of probabilities - remand for fresh consideration

Rectification of Register of Members - exercise of power under Section 59 of the Companies Act, 2013 - summary jurisdiction of the Company Court - exclusive jurisdiction and relegation to civil court - Scope and forum for adjudication of disputes in rectification proceedings under Section 59 and whether the Company Court/NCLT should decide or relegate contentious questions to a civil court or regulator. - HELD THAT: - The Court reviewed established precedents holding that the jurisdiction conferred for rectification is summary and exclusive insofar as the dispute truly falls within the field of rectification, but the Company Court has the discretion to relegate matters that are outside that sphere or involve serious disputed questions of title. The Court emphasised that the NCLT must examine the substance of the dispute after removing any cloak of form and test the phrase 'sufficient cause' in Section 59 against whether acts or omissions contravene the Act and Rules. Prior decisions require that where an open-and-shut case of fraud in favour of the applicant exists, the Tribunal may exercise its power under Section 59; conversely, complex questions of title or matters squarely entrusted to a regulator should be left to the appropriate forum. The Court accepted that limitation can be a mixed question of fact and law requiring full inquiry rather than a summary dismissal on preliminary dates alone, and that relegation to civil court is not automatic merely because complex factual disputes exist; jurisdictional exclusion depends on whether the dispute falls within the statutory domain of the Company Court. [Paras 23, 24, 31, 32, 33]

The NCLT/NCLAT were required to apply the foregoing principles and properly examine whether the matter fell within the exclusive summary jurisdiction under Section 59 or should be relegated; this determination could not be made without fuller inquiry.

Preponderance of probabilities - limitation as a mixed question of fact and law - remand for fresh consideration - Whether the NCLT and the NCLAT correctly appreciated and weighed documentary evidence and material facts and whether their concurrent orders should be sustained. - HELD THAT: - The Court found that both the Acting President of the NCLT and the NCLAT failed to undertake proper verification of assertions and documentary material, ignored the interim findings and materials noted by the Member (Judicial) of the NCLT, and accepted contested narratives without requiring proof. The NCLT had earlier observed that receipts of monies, signatures, and related matters required probing and that limitation raised mixed questions needing fuller examination. The Acting President summarily dismissed the petition and made adverse factual findings without examining primary documents or calling for necessary evidence; the NCLAT compounded these errors and misapprehended facts (including who had remitted monies). Questions of fact in such proceedings must be decided on the preponderance of probabilities after due consideration of evidence. In view of these deficiencies, the Court concluded that a fresh and proper appreciation of evidence was necessary. [Paras 34, 35, 36, 37]

The judgments of the NCLT and NCLAT were set aside and the Company Petition was restored to the NCLT, Amaravati Bench, for fresh consideration on merits and in accordance with law, with direction for expedition; pending IAs disposed and parties to bear their own costs.

Final Conclusion: Appeals allowed. The impugned judgments of the National Company Law Tribunal and the National Company Law Appellate Tribunal are set aside. Company Petition No. 667/59 & 241/HDB/2018 is restored to the NCLT, Amaravati Bench, for fresh adjudication on merits and in accordance with law, with directions to give the matter priority; pending interlocutory applications, if any, stand disposed and parties shall bear their own costs.

Operational creditor - Operational debt - Privity of contract - Contract of guarantee - Invoices as basis of operational debt - Counting of limitation from date of default - Misuse of IBC provisions

Operational creditor - Privity of contract - Contract of guarantee - Whether the Appellant was an operational creditor of the Respondent by virtue of alleged guarantee/privity evidenced by e mails and related communications. - HELD THAT: - The Tribunal examined the documentary material relied upon to establish a tripartite contractual relationship or a guarantee by the Respondent. The Appellant did not place any signed guarantee or tripartite agreement on record; the e mails relied upon included a request by the Appellant for a letter of assurance and an email allegedly stating that the Respondent "will take guarantee of payment". The Tribunal found these communications did not demonstrate a clear meeting of minds or mutual consent of all parties, noted challenges to the authenticity/authority of the alleged undertaking and observed absence of Empathy's consent or signatures in the minutes of the meeting. In the absence of documentary evidence establishing privity or a legally enforceable guarantee, the Appellant could not be treated as an operational creditor of the Respondent. [Paras 11, 12, 13, 14]

Appellant is not an operational creditor of the Respondent as no privity of contract or enforceable contract of guarantee was established.

Operational debt - Invoices as basis of operational debt - Whether the claim advanced by the Appellant qualified as an operational debt against the Respondent where invoices were raised by third party suppliers and goods were supplied to Empathy. - HELD THAT: - The Tribunal noted the statutory concept of operational debt requires a claim in respect of provision of goods or services. The Adjudicating Authority rightly relied on invoices as the basic edifice of operational debt and observed the invoices before it were issued by third parties (Machine & Chemical Industries and G.S.R. Marketing Limited), not by the Appellant, and were raised against Empathy, not the Respondent. The Appellant's assertion that the goods were supplied through its local distributors was unsupported by any agreement or document showing such an arrangement or consent of Empathy/Respondent. Given the lack of correlation between the third party supplies and any claim by the Appellant against the Respondent, the requirements of Rule 5(1) and Section 5(21) were not met and no operational debt against the Respondent was established. [Paras 15]

The claim did not constitute an operational debt of the Respondent because invoices and supplies were by third parties and no basis was shown to fix liability on the Respondent.

Counting of limitation from date of default - Misuse of IBC provisions - Whether the Section 9 application was barred by limitation and whether the filing evidenced misuse of IBC provisions. - HELD THAT: - Relying on settled law that limitation for Section 9 proceedings is governed by the Limitation Act and is to be counted from the date of default, the Tribunal observed the date of default recorded in the application was 28.08.2015 while the Section 9 petition was filed on 11.02.2019, exceeding the three year limitation period. The Tribunal also noted a pattern of multiple notices and withdrawn petitions by the Appellant against Respondent and Empathy, concluding that the repeated filings indicated an attempt to pressurize a solvent third party to recover monies due from Empathy and amounted to misuse of the Code. [Paras 17, 18]

The Section 9 application was time barred and the filing pattern indicated misuse of the IBC for recovery rather than bona fide initiation of CIRP.

Final Conclusion: The Adjudicating Authority's rejection of the Section 9 application is upheld: the Appellant failed to establish privity or an enforceable guarantee, did not show operational debt against the Respondent (invoices/supplies were by third parties), and the petition was barred by limitation; the appeal is dismissed and the impugned order requires no interference.

Condonation of delay under Section 61(2) of the IBC - Jurisdictional limit on extension beyond fifteen days - Limitation period to be counted from date of pronouncement of the order - Deemed knowledge from public announcement of CIRP - Intervention and presence before the Adjudicating Authority as evidence of knowledge

Condonation of delay under Section 61(2) of the IBC - Jurisdictional limit on extension beyond fifteen days - Application for condonation of delay in filing the appeal was dismissed as beyond the permissible period. - HELD THAT: - Section 61(2) permits filing an appeal within 30 days and authorises the Appellate Tribunal to allow a further period not exceeding 15 days upon sufficient cause. The Court held that the statutory outer limit of 15 days for extension is absolute and cannot be exceeded. The appellant sought condonation of delay amounting to more than 50 days beyond the statutory 30-day period, which would make the total delay exceed the 45-day ceiling; therefore the Court has no jurisdiction to condone such delay. Applying the settled principle that the 15-day extension is the maximum permissible indulgence, the application for condonation was rejected and the appeal was held not to be duly constituted. [Paras 12, 14, 15]

Application for condonation of delay dismissed; appeal not duly constituted and dismissed.

Limitation period to be counted from date of pronouncement of the order - Limitation for filing the appeal is to be counted from the date of pronouncement of the impugned order, not from the date of knowledge. - HELD THAT: - Relying on precedent, the Court held that under the Code the limitation period runs from the date the Adjudicating Authority pronounces the order. The appellant's contention that limitation should be counted from the date it came to know of the order was rejected; the pronouncement date governs computation of the 30-day statutory period and the subsequent 15-day window for condonation. [Paras 13]

Limitation to be computed from date of pronouncement of the order.

Deemed knowledge from public announcement of CIRP - Intervention and presence before the Adjudicating Authority as evidence of knowledge - The appellant was held to have had knowledge of the CIRP order-both by virtue of being an intervenor in the proceedings and by the public announcement-so ignorance could not be pleaded to justify delay. - HELD THAT: - The Court observed that the appellant had filed an intervention application and thus was present in the proceedings before the Adjudicating Authority; consequently it could not claim ignorance of the order. Further, publication of notice regarding the CIRP gives deemed knowledge in accordance with established authority. On these grounds the appellant's plea of lack of notice or ignorance was rejected and not accepted as a sufficient cause for condonation of delay. [Paras 13]

Appellant had actual or deemed knowledge of the order; plea of ignorance repelled.

Final Conclusion: The application for condonation of delay is dismissed as barred by the statutory outer limit; consequently the appeal is not duly constituted and is dismissed. The Court reaffirmed that limitation runs from the date of pronouncement and that public announcement and participation in proceedings confer knowledge for the purpose of computing limitation.

Admission of Section 7 application - Inclusion of creditors in Committee of Creditors - Related party claims - Section 60(5) of the IBC - challenge to admission of claims - Interim restraint on convening Committee of Creditors meetings

Admission of Section 7 application - Validity of the Adjudicating Authority's order admitting the Section 7 application - HELD THAT: - The Tribunal declined to interfere with the Adjudicating Authority's admission order dated 03.07.2024 because debt and default were not disputed. The Appellant's challenges to inclusion of particular claimants and related-party character were held to be matters appropriately addressed before the Adjudicating Authority under the procedure prescribed by the IBC rather than a ground for setting aside admission at this appellate stage. [Paras 13, 15]

The order of admission under Section 7 dated 03.07.2024 is not interfered with.

Inclusion of creditors in Committee of Creditors - Related party claims - Section 60(5) of the IBC - challenge to admission of claims - Whether the inclusion of M/s Creta Infrastructure Pvt. Ltd. and M/s Proplarity Infratech Pvt. Ltd. in the CoC and admission of their claims should be adjudicated by the Adjudicating Authority - HELD THAT: - The Tribunal held that disputed questions about whether the two intervenors are related parties and whether their claims were rightly admitted are matters to be raised and decided before the Adjudicating Authority by way of an appropriate application under Section 60(5) of the IBC. The Tribunal therefore granted the Appellant liberty to file such an application within a specified short period, leaving the merits of those contentions to the Adjudicating Authority for fresh consideration and determination after hearing the parties. [Paras 13, 15]

Appellant granted liberty to file an application under Section 60(5) challenging inclusion of the two intervenors in the CoC and admission of their claims; those issues remitted to the Adjudicating Authority for decision.

Interim restraint on convening Committee of Creditors meetings - Interim measures to protect the Appellant pending adjudication of challenges to claim admission and CoC composition - HELD THAT: - Having permitted the Appellant to approach the Adjudicating Authority, the Tribunal imposed a limited interim restraint on the IRP to prevent prejudice to the Appellant: the IRP was directed not to convene any CoC meeting for a short, specified period (two weeks), subject to any earlier order of the Adjudicating Authority on the application to be filed. The IRP had also undertaken to refrain from convening meetings for a shorter period, which the Tribunal extended in its directions. [Paras 14, 15]

IRP restrained from convening CoC meetings for two weeks, subject to any directions by the Adjudicating Authority.

Final Conclusion: The appeal is disposed of by refusing to disturb the Section 7 admission; the Appellant is granted liberty to challenge the admission of the two intervenors' claims and their inclusion in the CoC before the Adjudicating Authority under Section 60(5) of the IBC within the time directed; meanwhile the IRP is restrained from convening CoC meetings for two weeks. All pending interlocutory applications are disposed of and parties shall bear their own costs.

Financial debt - maintainability of Section 7 application - joint development/investment versus loan - term sheet as indicia of transaction character - inapplicability of precedents on different facts

Financial debt - joint development/investment versus loan - term sheet as indicia of transaction character - The amount advanced to the respondent was not a 'financial debt' under the Code but an investment towards joint development/clearing of title as per the term sheet. - HELD THAT: - The Tribunal's finding that the monies were given for clearing title and for development sharing (30%/70%) flows from the terms of the Term Sheet and the manner in which the transaction was structured. The Appellants did not place any financial statements on record treating the sum as a loan, nor was there an agreed interest/timeframe for repayment at the time of advancement. On the basis that the payment was to result, upon successful completion, in a Joint Development Agreement and profit/share rights rather than an obligation to repay as a debt, the amount cannot be classed as a 'financial debt' within the meaning of the Code. The appellate forum found no error in the Tribunal treating the transaction as an investment/partnership arrangement and rejecting the Section 7 petition on that ground. [Paras 6, 7]

Tribunal's conclusion that the sum is not a financial debt but an investment/joint development contribution is upheld; Section 7 petition rightly rejected on maintainability grounds.

Maintainability of Section 7 application - inapplicability of precedents on different facts - The judgments relied upon by the appellant were inapplicable on the facts and did not warrant interference with the Tribunal's order dismissing the Section 7 application. - HELD THAT: - The Appellant relied on earlier decisions, but the court found those authorities distinguishable on facts. The Tribunal had referred to and applied relevant authority concerning consortium/joint development arrangements to hold that amounts invested in such projects do not amount to financial debt. Given the factual matrix - the nature of the Term Sheet, absence of loan treatment in financial records, and the conditional arrangement to convert payments into development/share rights - the appellate court found no basis to accept the precedents cited by the Appellant as applicable to reverse the Tribunal's decision. [Paras 4, 5, 7]

Precedents relied upon by the appellant are distinguishable; no interference with the Tribunal's rejection of the Section 7 petition.

Final Conclusion: Appeal dismissed; Tribunal's order rejecting the Section 7 petition is upheld on the ground that the payment was an investment/joint development contribution and not a 'financial debt' under the Code; no costs.

First charge on property - secured creditor - pari materia - priority in liquidation / waterfall mechanism - overriding preferential payments (interaction of Section 529A and Section 530) - proof of claim - Form B: directory versus mandatory

Pari materia - first charge on property - secured creditor - priority in liquidation / waterfall mechanism - overriding preferential payments (interaction of Section 529A and Section 530) - Whether the claim of the Commercial Tax Department under Section 33 of the MPVAT Act is pari materia with Section 48 of the GVAT Act and thereby qualifies the Department as a secured creditor entitled to priority under the insolvency waterfall. - HELD THAT: - The Court examined the text of Section 33 of the MPVAT Act and observed that it is expressly made subject to Section 530 of the Companies Act, 1956. Section 530, read with Section 529A, prescribes a statutory order of preferential payments in winding up where certain dues (including taxes) are given priority subject to the overriding preferential payments in Section 529A which place workmen's dues and debts due to secured creditors ahead of other debts. Earlier decisions cited (KTC Tyres, Zicom Saas and related authorities) establish that where a State tax provision is made subject to Company law preferential provisions, it does not operate in the same manner as Section 48 of the GVAT Act as interpreted in Rainbow Papers. This Court agreed with the view taken in Zicom Saas that Section 48 GVAT and the provision under consideration are not pari materia; consequently, the ratio in Rainbow Papers (which treated the State as a secured creditor under Section 48 GVAT) is distinguishable and not applicable. Applying that reasoning to the present record, the appellant's claim under Section 33 MPVAT Act could not be treated as a secured debt attracting priority in the insolvency waterfall, and there was no breach of Section 30(2)(b) in treating the Department as an operational creditor for purposes of the approved resolution plan. [Paras 19, 20, 21, 22]

The appellant's contention that its dues are a first charge equivalent to the position in Rainbow Papers is rejected; Rainbow Papers is distinguishable and inapplicable, and the appeal is dismissed.

Final Conclusion: The appeal by the Commercial Tax Department is dismissed: the MPVAT provision relied upon is not pari materia with Section 48 GVAT and does not convert the Department's claim into a secured debt entitled to priority under the insolvency waterfall; the impugned approval of the resolution plan is upheld.

Duty of Resolution Professional to disclose assets in the Information Memorandum - Reliance on the Information Memorandum and Virtual Data Room by Resolution Applicants - Obligation of Resolution Applicants to conduct due diligence - Resolution plan on an "as is where is" basis - Remand for fresh Form G/Information Memorandum where assets are added during CIRP

Duty of Resolution Professional to disclose assets in the Information Memorandum - Reliance on the Information Memorandum and Virtual Data Room by Resolution Applicants - Obligation of Resolution Applicants to conduct due diligence - Resolution plan on an "as is where is" basis - Whether failure of the Resolution Professional to divulge inclusion of certain floors with commercial spaces warranted setting aside the Adjudicating Authority's order approving the Resolution Plan and remanding the plans to the CoC. - HELD THAT: - The Tribunal found that the contention that the RP did not divulge inclusion of the 4th to 9th floors was contrary to the Appellant's own comparative note which recorded that the Information Memorandum disclosed assignment of the 4th to 9th floors and related parking and common areas to a third party. The resolution process had been conducted on an "as is where is" basis and the Information Memorandum and VDR were made available to the Resolution Applicants. It was for each Resolution Applicant to undertake its due diligence and seek clarifications if required. The Court therefore rejected the submission that non-disclosure by the RP caused procedural unfairness or conferred an undue advantage on the Successful Resolution Applicant. The Tribunal also noted absence of a copy of the Information Memorandum on record from the Appellant, and that the comparative note itself demonstrated disclosure. Accordingly, there was no basis to set aside the approval or remand the matter to the CoC. [Paras 16, 17, 19, 23]

Application to set aside the approval of the Resolution Plan and to remand the plans to the CoC was rejected for lack of merit.

Remand for fresh Form G/Information Memorandum where assets are added during CIRP - Reliance on precedent distinguishing cases where assets are later added to the asset pool - Whether the Tribunal's earlier decision in Masatya Technologies (directing fresh Form G/Information Memorandum where assets were added during CIRP) required similar directions in the present case. - HELD THAT: - The Tribunal distinguished the Masatya Technologies decision on its facts: that case involved properties that were added to the corporate debtor's assets after issuance of the Information Memorandum, materially altering the asset pool and necessitating fresh Form G/IM for prospective bidders. In the present case, the Information Memorandum itself recorded the assignment of the 4th to 9th floors to a third party, and no new assets were discovered or added post-IM that would change the valuation or require re-issuance. Therefore the Masatya precedent did not apply and did not support remand or re-issuance of Form G/IM here. [Paras 20, 21, 22]

Masatya Technologies is distinguishable on facts and does not warrant re-issuance of Form G/Information Memorandum or remand in this case.

Final Conclusion: The Interlocutory Application challenging approval of the Resolution Plan was dismissed. The Tribunal held that the Information Memorandum disclosed the relevant floors, Resolution Applicants were required to perform due diligence on an "as is where is" basis, and the Masatya Technologies precedent is distinguishable; IA No.5691 of 2024 is rejected.

Proviso to Section 9(5)(ii)(a) - notice to rectify defect - rejection of Section 9 application as defective - requirement of opportunity to cure defects in insolvency application - pre-existing dispute under Section 9(5)(ii)(d) - defect in demand notice - remand for fresh consideration in accordance with law

Proviso to Section 9(5)(ii)(a) - notice to rectify defect - rejection of Section 9 application as defective - requirement of opportunity to cure defects in insolvency application - Rejection of the Section 9 application as defective without issuing notice to rectify the defect was unsustainable. - HELD THAT: - The Adjudicating Authority dismissed the Section 9 application on the first date of hearing stating there was no proper explanation as to date of invoice, date of default, limitation and that invoices were raised on two different entities and not segregated. The proviso to Section 9(5)(ii) mandates that before rejecting an application under clause (ii)(a) the Adjudicating Authority shall give notice to the applicant to rectify the defect within seven days. The impugned order shows rejection on the ground of incompleteness but no notice to rectify was given. Since the Adjudicating Authority did not advert to or decide the other specified grounds of rejection under clause (ii) (b) to (e), the dismissal as defective without affording the statutory opportunity violated the proviso and is unsustainable. The Tribunal has accordingly set aside the impugned order and revived the Section 9 application, directing the Adjudicating Authority to give notice for rectification and then proceed to consider the application in accordance with law. [Paras 8, 9, 10, 19, 21]

Impugned order set aside; Section 9 application revived and remitted to Adjudicating Authority to issue notice to rectify defects and then decide in accordance with law.

Pre-existing dispute under Section 9(5)(ii)(d) - defect in demand notice - remand for fresh consideration in accordance with law - Allegations of pre-existing dispute and of a defective demand notice were not decided and must be considered afresh by the Adjudicating Authority. - HELD THAT: - The Respondent contended that a notice of dispute had been sent and that the Demand Notice was defective. The Adjudicating Authority did not adjudicate these contentions nor record findings on whether a pre-existing dispute existed under Section 9(5)(ii)(d) or whether the Demand Notice complied with IBC requirements. The Tribunal declined to decide these issues on appeal and held that the Adjudicating Authority has jurisdiction to examine and decide them on the basis of materials on record. Accordingly, those issues are remanded to the Adjudicating Authority for fresh consideration in accordance with law after giving the parties an opportunity to be heard. [Paras 10, 11, 20, 21]

Issue of pre-existing dispute and validity of Demand Notice not decided on appeal; remitted to Adjudicating Authority for fresh consideration in accordance with law.

Final Conclusion: The order dismissing the Section 9 application as defective without issuing the statutory notice to rectify is set aside; the Section 9 application is revived and remitted to the Adjudicating Authority to permit rectification and thereafter to decide all contested issues, including pre-existing dispute and validity of the Demand Notice, in accordance with law.

Proportionality of penalty - contravention of Section 6(3)(a) of FEMA, 1999 read with Regulations 5, 6 and 13 of the Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2000 - penalty under Section 42(1) of FEMA, 1999 - reduction of penalty in the peculiar facts and circumstances of the case

Proportionality of penalty - reduction of penalty in the peculiar facts and circumstances of the case - The quantum of penalty imposed on the company and the individual was disproportionate and required reduction. - HELD THAT: - The Tribunal, while recording that contravention under the stated provisions of FEMA and the Regulations was not being contested by the appellant, considered the factual matrix including initial RBI clearance, subsequent clarifications by the company, and RBI's later approval for closure and repatriation. Applying these facts to the question of proportionality, the Tribunal found the original penalties excessive in the peculiar facts and circumstances and reduced the penalty imposed on the company and the individual accordingly. The Tribunal confined its interference to quantum and did not re-open the question of contravention on merits as the appellant did not press that challenge before the Tribunal. [Paras 11, 12, 13, 14]

Penalty on M/s Tips Industries Ltd. reduced from Rs.70 lakhs to Rs.35 lakhs; penalty on Shri Kumar S. Taurani reduced from Rs.28 lakhs to Rs.8 lakhs.

Contravention of Section 6(3)(a) of FEMA, 1999 read with Regulations 5, 6 and 13 of the Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2000 - penalty under Section 42(1) of FEMA, 1999 - The appellants did not press a challenge to the finding of contravention and the Tribunal proceeded on the basis that contravention is not contested. - HELD THAT: - The Tribunal noted that the appellant, having obtained time to seek review of the High Court's framed issues, ultimately elected not to press those legal issues and expressly limited the appeal to the question of quantum. On that basis the Tribunal recorded that contravention of the statutory provisions was not contested and therefore restricted its adjudication to the proportionality of the penalty, leaving the adjudication on merits undisturbed by this order. [Paras 2, 3, 9, 15]

Tribunal proceeded to decide only the quantum of penalty as the appellants did not contest the finding of contravention.

Final Conclusion: The Tribunal modified the Special Director's order only in respect of penalty quantum, reducing the company's penalty to Rs.35 lakhs and the individual's penalty to Rs.8 lakhs, while leaving the finding of contravention unchallenged as the appellants did not press that issue.

Contravention of the Foreign Exchange Regulation Act, 1973 - negligence versus connivance / mens rea - penalty proportionality and quantum - judge of one's own cause / bias in adjudication - effect of restitution on liability for contravention

Contravention of the Foreign Exchange Regulation Act, 1973 - negligence versus connivance / mens rea - Whether the appellants committed a contravention by permitting non-convertible funds to be made convertible and whether that contravention was the result of negligence or connivance. - HELD THAT: - The Tribunal found on the facts that non-convertible funds were transferred out of India so as to make them convertible without prior permission of the Reserve Bank of India, and therefore a contravention of the Act of 1973 occurred. While the appellants pleaded inadvertent error, the transfers took place on multiple occasions and the conduct disclosed more than a one-off mistake. In view of the Delhi High Court's direction limiting further proceedings to the question of negligence, the Tribunal examined and recorded that negligence on the part of the appellants was proved. The Tribunal noted that, although a deeper inquiry might have shown connivance, it confined itself to the negligence finding in deference to the High Court's order. [Paras 14, 15]

Contravention of the Act of 1973 is established and the conduct of the appellants is found to amount to negligence.

Judge of one's own cause / bias in adjudication - Whether the Adjudicating Authority acted as a judge of its own cause by passing the impugned order without assistance or fresh production of material by the Enforcement Directorate. - HELD THAT: - The Tribunal held that the Adjudicating Authority did not act as judge of its own cause. The procedure followed-receipt of material by the Adjudicating Authority, issuance of a Show Cause Notice, opportunity to reply to the person alleged to have contravened the Act, and consideration of the record and replies-was in accordance with the adjudicatory process. The absence of fresh oral representation by the Enforcement Directorate at the final hearing did not render the Authority biased, as the order was based on the material on record and the appellants' own admissions regarding the transfers. [Paras 16, 18]

No bias or disqualification of the Adjudicating Authority; it did not become judge of its own cause.

Penalty proportionality and quantum - effect of restitution on liability for contravention - Whether the penalty imposed by the Adjudicating Authority was justified and, if not, what quantum of penalty should be imposed having regard to the negligence finding and restitution of the funds. - HELD THAT: - Although the Tribunal affirmed that bringing the funds back to India does not nullify the contravention, it concluded that the penalty originally imposed was disproportionate to the proved default which the Delhi High Court had constrained to negligence. The Tribunal examined the material and the mitigating circumstance that the non-convertible amount was returned, and determined that interference with the quantum was warranted. Applying a proportionality assessment confined to the negligence finding, the Tribunal reduced the penalty imposed on the bank and on the individual officers. It also observed that appellants had already satisfied the pre-deposit requirements and directed refund of any amount recovered in excess of the reduced penalty. [Paras 19, 20, 21]

Penalty reduced as disproportionate: corporate penalty reduced from the amount imposed by the Adjudicating Authority to a lower sum and individual penalties reduced; any excess recovered to be refunded.

Final Conclusion: The Tribunal upheld that a contravention of the Act of 1973 occurred and that the appellants were negligent, rejected the contention of bias against the Adjudicating Authority, but found the penalties imposed to be disproportionate; accordingly the penalties were reduced and any excess pre-deposit recovered to be refunded.

Admissibility of statements recorded under Section 108 of the Customs Act in adjudication under the Act of 1973 - Reliance on retracted statements and evidentiary value of retraction - Requirement of recording statements under the special enactment's procedure for adjudication - Service of show-cause notice and effect on maintainability including limitation under Section 49(3) of FEMA, 1999 - Effect of acquittal in criminal prosecution on separate civil/adjudicatory penalty proceedings

Admissibility of statements recorded under Section 108 of the Customs Act in adjudication under the Act of 1973 - Statements recorded under Section 108 of the Customs Act can be relied upon in adjudication proceedings under the Act of 1973. - HELD THAT: - The Tribunal held that statements recorded under Section 108 are not confined to criminal prosecution standards and, being deemed to be in a judicial proceeding for purposes of Sections 193 and 228 IPC, may be relied upon in adjudication under the Act of 1973. The court distinguished authorities applying criminal trial standards (e.g., Noor Aga) by noting that conviction requires trial evidence beyond reasonable doubt whereas adjudication under the Act of 1973 proceeds on a different standard; additionally, Section 108 statements are not hit by the prohibition in Section 25 of the Evidence Act or Article 20(3) since Customs officers are not police and such statements fall within recognized admissibility. The Tribunal therefore accepted reliance on those statements together with the seizure as sufficient material to sustain findings of contravention. [Paras 18, 19, 20, 21, 25]

The adjudicating authority rightly relied upon statements recorded under Section 108 of the Customs Act as admissible material in passing the penalty order under the Act of 1973.

Reliance on retracted statements and evidentiary value of retraction - No valid retraction of the appellant's statement was proved; even retracted statements may be acted upon where retraction is not substantiated or is an afterthought and other material corroborates the statement. - HELD THAT: - The Tribunal found no documentary proof of any retraction by the appellant and observed that a mere pleading of retraction without evidence cannot displace the inculpatory statement. Citing precedent, the Tribunal noted that a retracted statement does not automatically render the earlier statement involuntary; the authority must subjectively apply its mind to the retraction and reasons for it. In the present case, there was seizure of currency and other persons' statements corroborating the transaction; in absence of proof of inducement or timely justification for retraction, reliance on the original statements was sustainable. [Paras 22, 23, 24]

The challenge based on alleged retraction fails; the adjudicating authority was justified in acting on the inculpatory statements in the circumstances.

Requirement of recording statements under the special enactment's procedure for adjudication - Adjudication under the Act of 1973 does not become invalid merely because statements were not recorded under Section 40 of the Act of 1973; adherence to the special procedure of criminal prosecution is not a prerequisite for civil adjudication under the Act. - HELD THAT: - The Tribunal rejected the submission that absence of statements recorded under Section 40 and lack of an investigation under the Act of 1973 rendered the penalty order invalid. It reasoned that the procedural regime for criminal prosecution (and the need to record statements thereunder) differs from the standard applicable to adjudication proceedings under the Act of 1973, and that reliance on admissible material (including Section 108 statements and seizure evidence) sufficed for adjudication purposes. [Paras 17, 19]

Failure to record statements under Section 40 of the Act of 1973 did not vitiate the adjudication proceedings in the facts of this case.

Service of show-cause notice and effect on maintainability including limitation under Section 49(3) of FEMA, 1999 - The show-cause notice was validly issued and served such that proceedings were initiated within the two-year limitation; alleged non-service and delay contentions are without substance. - HELD THAT: - The Tribunal examined service attempts and noted that notices were sent on several occasions and that on one occasion the notice was received by the appellant's wife with an endorsement that the appellant was out of India. The appellant sent a telegram seeking adjournment, which the Tribunal accepted as indicia of his awareness. Issuance of the show-cause notice within the statutory period constituted initiation of proceedings under Section 49(3) of FEMA, 1999, and the contention that proceedings were time-barred or that natural justice was violated for want of proper service was rejected. [Paras 15, 16, 26]

Service and initiation of adjudication were adequate and within the two-year period; the limitation and service objections are dismissed.

Effect of acquittal in criminal prosecution on separate civil/adjudicatory penalty proceedings - The appellant's acquittal in the criminal prosecution - which was on technical grounds relating to sanction for prosecution - does not preclude imposition of penalty in separate adjudication under the Act of 1973 where the adjudicatory authority has reached findings on contravention. - HELD THAT: - The Tribunal observed that the Metropolitan Sessions Judge acquitted the appellant on the technical ground of absence of sanction for prosecution under a specific penal provision; however, the Sessions Judge also recorded that the appellant and others attempted and abetted smuggling. An acquittal based on procedural or technical infirmity in criminal proceedings does not necessarily negate civil/adjudicatory findings where those findings are based on the available material and proper application of the adjudicatory standard. Accordingly, the criminal acquittal on a technicality was held not to be determinative of the penalty proceedings. [Paras 27, 28]

The acquittal in the prosecution does not invalidate the penalty order in the separate adjudication under the Act of 1973.

Final Conclusion: Having found the adjudicating authority's reliance on Section 108 statements and seizure evidence permissible, rejected the asserted retraction and service/limitation objections, and held the criminal acquittal immaterial to the separate adjudication, the appeal is dismissed.

Seizure under Section 37A of FEMA - Continuing contravention - Retrospective application of penal or in-rem provisions - Threshold for action under Section 37A - "reason to believe"/"suspected" - Scope of appellate jurisdiction under Section 37A(5) - Seizure versus confiscation; transfer of dematerialised securities to take possession - Proviso to Section 37A(4) - disclosure and restoration

Seizure under Section 37A of FEMA - Threshold for action under Section 37A - "reason to believe"/"suspected" - Validity of the seizure confirmed by the Competent Authority under Section 37A in view of the appellant's discharge in connected criminal/tax proceedings - HELD THAT: - The Tribunal held that Section 37A(1) requires only that the authorised officer have "reason to believe" that foreign exchange or foreign security is "suspected" to have been held in contravention of Section 4. That statutory threshold is a low one and is markedly distinct from the standard required for framing criminal charges (which the ACMM found was not met). Consequently, the fact that the appellant was discharged in the Income Tax prosecution does not, by itself, nullify or vitiate initiation and continuation of action under Section 37A. Given that the date of closure of the alleged foreign account and repatriation (if any) were not proved by the appellant, and the source of funds was not satisfactorily established, the Tribunal found the exercise of power under Section 37A justified at the interim stage pending adjudication.

The confirmation of seizure under Section 37A was not set aside on the ground of the appellant's discharge in the tax prosecution.

Continuing contravention - Retrospective application of penal or in-rem provisions - Whether Section 37A (inserted w.e.f. 09.09.2015) could be applied to alleged transactions predating the amendment by treating the contravention as continuing - HELD THAT: - The Tribunal examined competing contentions on retrospectivity. The respondent relied on the proposition that the alleged foreign exchange had not been repatriated and therefore the contravention continued after insertion of Section 37A, so retrospectivity is not in issue. The appellant contended that the amendment could not be applied to past transactions. The Tribunal accepted that where the relevant property/holding is still "held" after the amendment, application is not retrospective. Because the appellant did not prove closure or repatriation of the account or when (or whether) repatriation occurred, and the facts necessary to show cessation of contravention were within appellant's knowledge, the Tribunal concluded that Section 37A could validly be invoked on the basis of a continuing contravention and refused to quash the seizure on retrospectivity grounds.

Section 37A was applicable on the facts because the contravention was treated as continuing; the seizure was not vitiated by alleged retrospective operation of the provision.

Scope of appellate jurisdiction under Section 37A(5) - Proviso to Section 37A(4) - disclosure and restoration - Whether this Appellate Tribunal, on an appeal under Section 37A(5), may take into account subsequent developments occurring after the Competent Authority's order (including discharge in criminal/tax proceedings) - HELD THAT: - Two earlier Single Member Bench decisions were cited for the proposition that the Tribunal's jurisdiction on an appeal under Section 37A(5) is limited to the issues dealt with by the Competent Authority and that the confirmed seizure continues till adjudication under Section 37A(4), with the Competent or Adjudicating Authority empowered under the proviso to set aside seizure upon disclosure and repatriation. Notwithstanding those precedents, the Tribunal emphasised that where the statutory language is clear, the Appellate Tribunal may adjudicate the appeal on the material before it and, in the interest of justice, may take relevant subsequent judicial developments on record. However, the Tribunal observed that the statutory scheme anticipates adjudication by the Adjudicating Authority thereafter and that the proviso to Section 37A(4) provides the specific route for setting aside seizure upon repatriation and disclosure.

The Tribunal accepted the discharge order on record for consideration but held that it does not, per se, require setting aside the Competent Authority's confirmed seizure; the statutory scheme contemplates adjudication and specific remedy under the proviso to Section 37A(4).

Seizure versus confiscation; transfer of dematerialised securities to take possession - Legality of transferring the dematerialised government bonds to the Directorate's demat account and whether that amounted to unauthorised confiscation - HELD THAT: - The Tribunal noted that Section 37A empowers seizure of equivalent value situated within India. "Seize" in ordinary parlance means taking possession. For dematerialised securities, taking possession necessarily involves transfer into the seizing authority's demat account. The Directorate's transfer of the bonds to its demat account was therefore characterised as taking possession in the exercise of seizure powers; confiscation is a distinct consequence which, under the statutory scheme, can follow only after adjudication. On the facts, the Tribunal accepted the respondent's explanation that the bonds were seized (by transfer) and not confiscated, and that interest/earnings on seized instruments may be subject to the statutory process.

The transfer of dematerialised bonds to the respondent's demat account constituted lawful seizure (possession) and did not amount to final confiscation in the absence of adjudication.

Final Conclusion: The appeal was dismissed. The Tribunal held that (i) the low statutory threshold in Section 37A for seizure was satisfied on the material before the Authority and the appellant's discharge in connected prosecution did not mandate setting aside the confirmed seizure; (ii) Section 37A could be applied where the contravention is continuing, and on the record the appellant had not proved repatriation or account closure; (iii) transfer of dematerialised bonds to the Directorate's demat account amounted to lawful seizure (possession) and not confiscation; and (iv) adjudication proceedings remain the appropriate forum for final determination and for any order under the proviso to Section 37A(4). No order as to costs.

Discretion in imposition of penalty under section 13(1) of FEMA - penalty up to thrice the sum involved under section 13(1) of FEMA - technical contravention versus substantive contravention - realization of export proceeds and non-quantifiability of contravention - proportionality and judicial exercise of discretion in imposing penalties

Discretion in imposition of penalty under section 13(1) of FEMA - technical contravention versus substantive contravention - realization of export proceeds and non-quantifiability of contravention - proportionality and judicial exercise of discretion in imposing penalties - Validity of the Adjudicating Authority's imposition of penalty of Rs. Two Lakh each and whether the penalty ought to be enhanced to thrice the sum involved. - HELD THAT: - The Appellate Tribunal examined Section 13(1) of FEMA and held that the provision prescribes a maximum limit but does not mandate a fixed or minimum penalty; hence the Adjudicating Authority has discretion to impose penalty, to be exercised judiciously in view of facts and evidence. Applying settled principles that judicial authorities may refrain from imposing maximum penalties for venial or technical breaches, the Tribunal agreed with the Adjudicating Authority's finding that the contraventions were technical in nature because the export proceeds were ultimately realized albeit with delay. Consequently, the delay in realization did not render the contravention quantifiable as equivalent to the export proceeds for purposes of imposing the maximum monetary penalty. Reliance was placed on precedents establishing that penalty imposition is discretionary and that technical breaches arising from bona fide conduct or resulting in no loss may justify lenient treatment. Having regard to the nature of the breach, the fact of eventual realization of proceeds, and the Adjudicating Authority's reasons, the Tribunal found no reason to interfere with the exercise of discretion and the quantum of penalty imposed. [Paras 5, 6]

The Adjudicating Authority's imposition of Rs. Two Lakh penalty on each noticee is upheld; the enhancement sought by the appellant is rejected.

Final Conclusion: The appeal is dismissed and the Adjudicating Authority's order imposing penalty of Rs. Two Lakh each on the respondents is affirmed.

Contravention of foreign exchange regulations - hawala/underground remittance - possession and surrender of unspent foreign exchange - evidentiary weight of initial statement and after thought documents - penalty under section 13(1) FEMA - confiscation under section 13(2) FEMA

Contravention of foreign exchange regulations - hawala/underground remittance - penalty under section 13(1) FEMA - confiscation under section 13(2) FEMA - Whether the appellant committed contravention of FEMA by receiving Indian currency from a person resident outside India and whether the penalty and confiscation imposed in respect of the seized Indian currency are sustainable. - HELD THAT: - The Tribunal examined the search, the appellant's initial statement of 29.01.2011 admitting receipt of Rs.30,00,000 on instructions of a person resident in Hong Kong, and the subsequent explanations and documents produced by the appellant. The authority below found the original statement corroborative of clandestine receipt and treated later documents and agreements as after thoughts replete with contradictions and not credibly proved. The Tribunal accepted the appraisal of evidence by the Adjudicating Authority, noting that the search outcomes prima facie corroborated the information that prompted action and that the appellant failed to satisfactorily account for the seized Indian currency. On that basis the Tribunal held that the finding of contravention (to the extent adjudicated) was supported by the material and confirmed the penalty and the order of confiscation of the Indian currency. [Paras 25, 26, 28, 30, 32]

Findings of contravention in relation to the seized Indian currency were upheld; the penalties and confiscation imposed by the Adjudicating Authority are confirmed.

Contravention of foreign exchange regulations - possession and surrender of unspent foreign exchange - penalty under section 13(1) FEMA - Whether the appellant unlawfully dealt in foreign exchange (purchase from persons other than authorised dealers) and whether the penalty in respect of the seized US$ 6200 and other foreign currencies is sustainable. - HELD THAT: - The Tribunal noted the appellant's explanations that the foreign currency represented unspent balances from multiple foreign trips and later claims of prize money from casinos, but observed discrepancies between the seized currencies and the documentary evidence produced. The Adjudicating Authority's reasoning that the appellant failed to satisfactorily explain the source of US$ 6200 and that the unsubstantiated, inconsistent documents did not reliably support the claim was accepted. The Tribunal also noted the authority's reliance on applicable possession and surrender rules and found no reason to disturb the conclusion that contraventions occurred and penalties were warranted. [Paras 27, 31, 32]

Findings of contravention in respect of the seized foreign currency (including US$ 6200 and other currencies) were upheld and the penalties confirmed.

Evidentiary weight of initial statement and after thought documents - Whether the appellant's initial statement was involuntary or otherwise inadmissible and whether later retractions or documents required the authority to disbelieve the initial admissions. - HELD THAT: - The Tribunal considered the appellant's contention that the initial statement was recorded under coercion and that subsequent documents should exonerate him. It endorsed the Adjudicating Authority's finding that nothing on record established coercion in recording the statement and that mere retraction did not absolve the appellant where other material corroborated the initial account. The Tribunal agreed that the documents produced subsequently suffered contradictions and were plausibly after thoughts, thus carrying insufficient weight to overturn the findings based on the initial statement and other material. [Paras 25, 29, 30, 32]

The initial statement was accepted as admissible and credible; subsequent retractions and documents did not displace the findings based on that statement.

Possession and surrender of unspent foreign exchange - Whether enquiries with alleged authorized dealers (money changers) were necessary for the Department to establish the charge regarding foreign exchange seized from the appellant. - HELD THAT: - The Adjudicating Authority concluded that where documents produced by the appellant failed to correlate with the seized currencies, there was no compulsion on the Department to make further enquiries with the authorised dealers. The Tribunal accepted this reasoning, observing that the appellant attempted to correlate disparate sets of documents with seized notes and that discrepancies and lack of corroboration justified the authority's conclusion without requiring the Department to conduct further inquiries in every instance. [Paras 16, 31, 32]

No deficiency found in the authority's approach; lack of correlation in documents absolved the Department from a duty to make further enquiries with money changers in the circumstances.

Final Conclusion: The Appellate Tribunal found the Adjudicating Authority's findings on contraventions of FEMA (including dealings in foreign exchange, failure to surrender unspent foreign currency, and clandestine receipt of Indian currency on instructions of a person abroad) to be supported by the material on record; accordingly the penalties and the order of confiscation were confirmed and the appeal was dismissed.

Right to cross-examination - principles of natural justice - powers of Adjudicating Authority analogous to a Civil Court - admissibility of statements recorded under Section 37 of FEMA - relevance of documentary corroboration to deny cross-examination - summary procedure of tribunals

Right to cross-examination - admissibility of statements recorded under Section 37 of FEMA - relevance of documentary corroboration to deny cross-examination - summary procedure of tribunals - Whether the Adjudicating Authority erred in refusing appellant's request to summon and permit cross-examination of witnesses whose statements recorded under Section 37 of FEMA were relied upon in the Show Cause Notice. - HELD THAT: - The Tribunal acknowledged that an Adjudicating Authority under FEMA possesses the powers analogous to a Civil Court for purposes of proceedings, as reflected in Section 16(5) read with Section 28(2). Nevertheless, it held that the grant of cross-examination is not an absolute right in adjudication under FEMA and may be refused where the case is supported by substantial documentary and other material evidence corroborating the recorded statements. Reliance was placed on the principle that tribunals adopt summary procedures and are not bound by Civil Procedure Code formalities; refusal to permit cross-examination is permissible where statements recorded under Section 37 are corroborated by documents and other material so that permitting cross-examination would not be material to demolition of the case. The Tribunal further noted procedural unfairness where a party seeks cross-examination without having filed a substantive reply to the Show Cause Notice and observed that such requests may be used to delay proceedings. The Telstar Travels precedent was applied to the effect that disclosure of documents and opportunity to explain them can constitute substantial compliance with natural justice and justify refusal to summon witnesses for cross-examination if no prejudice is shown. On the facts, substantial documentary evidence (bank records, bank letters, DRI/embassy reports, CDF enquiries and related materials) corroborated the investigative statements relied upon, and the Adjudicating Authority did not err in declining the summons for cross-examination at that stage; the Adjudicating Authority, however, retains power to summon and examine witnesses on oath if required in the interest of justice. [Paras 5, 6]

Refusal to permit cross examination was upheld; the Adjudicating Authority did not err in declining the request at that stage given documentary corroboration and the circumstances, subject to its discretion to summon witnesses later if necessary.

Final Conclusion: Appeal dismissed. Adjudicating Authority directed to proceed with and conclude adjudication in accordance with law (subject to any stay), appellant free to file substantive reply; nothing herein affects rights of parties and the Adjudicating Authority may examine or cross examine witnesses on oath if required in the interest of justice.

Look-Out Circular - quashing of LOC - anticipatory bail and travel restriction - flight risk and evasion of process in economic offences - administrative issuance of LOC under Ministry of Home Affairs guidelines - reasonable restriction on right to travel

Look-Out Circular - quashing of LOC - flight risk and evasion of process in economic offences - Continuation of the Look-Out Circular against the petitioner was not justified and is quashed. - HELD THAT: - The Court examined the circumstances permitting issuance and continuance of a Look-Out Circular and applied the principle that LOCs are permissible where an accused in a cognizable offence is deliberately evading arrest or likely to leave the country to evade trial. The Court found those circumstances absent here: the petitioner had repeatedly cooperated with investigations (having appeared before ED on numerous occasions and joined investigation as required), had deep roots in India (family, property, employment, residence), and had been granted anticipatory bail by the Supreme Court without travel restrictions. In view of these facts and the petitioner's cooperation, there was no continuing likelihood of evasion and thus no ground to sustain the LOC; accordingly the LOC issued against the petitioner was quashed. [Paras 46, 47, 48, 49, 50]

The Look-Out Circular issued against the petitioner is quashed.

Anticipatory bail and travel restriction - administrative issuance of LOC under Ministry of Home Affairs guidelines - reasonable restriction on right to travel - Permissibility of petitioner's foreign travel and procedural safeguarding to inform the trial court. - HELD THAT: - The Court noted that the Supreme Court had granted anticipatory bail to the petitioner without imposing travel restrictions and that administrative issuance or renewal of an LOC must conform to the prescribed guidelines; mechanical or arbitrary renewals are impermissible. Observing that temporary foreign travel would not prejudice investigation given the petitioner's cooperation and Indian nationality, the Court allowed travel subject to procedural safeguards: the petitioner must keep the trial court informed of his residence and contact details and, before travelling abroad, file an application in the trial court with itinerary and overseas residence details. [Paras 30, 31, 32, 51]

Petitioner may travel abroad, provided he keeps the trial court informed of residence and contact details and files an application with itinerary and overseas residence when travelling.

Final Conclusion: Writ petition allowed: the Look-Out Circular against the petitioner is quashed; petitioner may travel abroad subject to informing the trial court of residence and providing itinerary and overseas address in advance.

Service tax leviable only on service portion in tyre retreading - benefit of Notification No.12/2003-ST in respect of materials used in retreading - SSI/threshold exemption under Notification No.06/2005-ST - application of precedent in Safety Retreading Company (P) Ltd. (Apex Court) - rectification of clerical/typographical error in appellate order

Service tax leviable only on service portion in tyre retreading - benefit of Notification No.12/2003-ST in respect of materials used in retreading - application of precedent in Safety Retreading Company (P) Ltd. (Apex Court) - Whether service tax is chargeable on the total amount for retreading including value of materials or only on the service portion after excluding materials - HELD THAT: - The Tribunal accepted the finding recorded by the Commissioner (Appeals) that the appellant purchased materials (tread rubber, patch), paid VAT, and charged material and labour separately; the appellant's accounts showed purchase and sale of materials separately, satisfying the condition of Notification No.12/2003-ST. The Commissioner (Appeals) correctly applied the Apex Court decision in Safety Retreading Company (P) Ltd., holding that the identical issue requires exclusion of the value of materials and charging service tax only on the service portion. The appellate court's observation that service tax is leviable on the service portion is thus to be read as recognising liability only on the net service value after excluding materials, in conformity with the precedent and Notification No.12/2003-ST. [Paras 5, 6]

Value of materials used in retreading is to be excluded and service tax is chargeable only on the service portion.

SSI/threshold exemption under Notification No.06/2005-ST - service tax leviable only on service portion in tyre retreading - Whether the service portion, after exclusion of material value, falls below the SSI/exemption threshold and thus attracts no service tax - HELD THAT: - The Commissioner (Appeals) found that after excluding material value the taxable service portion was below the prescribed threshold limit. The Tribunal held that a finding that the taxable value is below the threshold entitles the appellant to exemption under Notification No.06/2005-ST (as amended w.e.f. 01.04.2007 and 01.04.2008), and consequently no service tax is leviable under Section 66 of the Finance Act for the period in question. The correct legal consequence of the admitted finding of taxable value being below the threshold is exemption, not imposition of tax. [Paras 5, 6]

The service portion, being below the SSI/exemption threshold, is exempt and no service tax is leviable for the period in question.

Rectification of clerical/typographical error in appellate order - Whether the concluding part of the Commissioner (Appeals) order which set aside the original order and allowed the Department's appeal despite findings favourable to the appellant is sustainable - HELD THAT: - The impugned order contains an internal inconsistency: although paras 5.2 and 5.3 record findings in favour of the appellant (exclusion of material value and taxable service below threshold), the concluding paragraph purported to set aside the original order and allow the Department's appeal. The Tribunal found this to be an unsustainable clerical/typographical error. Rather than remitting for mere rectification, the Tribunal decided the appeal on merits: holding the appellate finding in paras 5.2-5.3 to be correct and setting aside the contradictory concluding line that allowed the Department's appeal. [Paras 6, 7]

The contradictory concluding line in the Commissioner (Appeals) order is unsustainable and is set aside; the Department's appeal before the Commissioner (Appeals) is rejected.

Final Conclusion: The Tribunal sets aside the portion of the Commissioner (Appeals) order that contradicted its own findings, affirms that the value of materials used in tyre retreading is to be excluded, holds that the taxable service portion falls below the applicable SSI/exemption threshold and is therefore exempt, rejects the Department's appeal before the Commissioner (Appeals), and allows the present appeal.

Discharge of tax liability - Taxation of the same service only once - Reverse charge mechanism - Levy of interest and penalty - Extended period of limitation

Discharge of tax liability - Taxation of the same service only once - Reverse charge mechanism - Sustainability of demand for service tax when the entire tax due has been deposited in the government account though partly by the appellant and partly by the service recipient - HELD THAT: - The Tribunal accepted that the determinative question is whether the tax liability can be sustained when the total tax due has been paid into the government exchequer even though portions were discharged by different persons. Reliance was placed on judicial authorities indicating that once the tax is discharged, irrespective of who discharged it, the assessee cannot be called upon to pay the tax again. The Tribunal noted the Apex Court principle that a single service cannot be subjected to tax more than once and followed decisions of this Tribunal and High Court to hold that where the government has received the entire tax amount, there is no short payment that can be insisted upon. Applying these principles to the facts, where the appellant paid 50% and the service recipient paid the remaining 50% of the tax under the reverse charge arrangement, the Tribunal concluded that the duty liability stood discharged and the demand could not be sustained. [Paras 5, 6, 7, 8]

Demand set aside as the entire tax due was deposited in the government account and the appellant's liability stood discharged.

Levy of interest and penalty - Extended period of limitation - Necessity of adjudicating invocation of extended limitation period and levy of interest and penalty after finding that tax liability is discharged - HELD THAT: - Having held that the tax liability was discharged because the full tax was deposited, the Tribunal observed that it was unnecessary to decide the separate questions of invocation of extended period of limitation or the applicability of interest and penalty. The conclusion on discharge of liability rendered further adjudication on these ancillary allegations redundant. [Paras 9]

Extended limitation, interest and penalty need not be examined once duty liability is held discharged; impugned order set aside.

Final Conclusion: The appeal is allowed: the demand confirmed by the lower authorities is set aside because the entire service tax due for the period July 2012 to March 2016 was deposited in the government account (partly by the appellant and partly by the service recipients), and consequential questions of extended limitation, interest and penalty were not adjudicated.

Includible in the assessable value - leviability of service tax on handling/insurance charges - handling charges as part of sale consideration - compensation for breakages during transit not an insurance service - extended period of limitation - penalty for valuation dispute

Includible in the assessable value - leviability of service tax on handling/insurance charges - handling charges as part of sale consideration - compensation for breakages during transit not an insurance service - Amount collected as handling charges/insurance charges from dealers for compensating breakages is not a taxable service but is includible in the assessable value of goods. - HELD THAT: - The Tribunal held that the sums collected as handling charges, described by the Department as insurance premium, were in substance amounts collected to compensate dealers/customers for breakages and quality defects and formed part of the sale consideration. The decision in Gujarat Borosil Ltd., affirmed by the Apex Court, was held to be squarely applicable: amounts collected for compensating customers for breakage during transit do not constitute an insurance service for which service tax is leviable but are includible in the assessable value for VAT/CST. Applying that reasoning, the impugned demand for service tax on the handling charges could not be sustained. [Paras 7, 9]

Demand of service tax on the handling charges set aside; the amounts are includible in the assessable value and not leviable to service tax.

Extended period of limitation - penalty for valuation dispute - Invocation of the extended period of limitation and imposition of penalty are not sustainable. - HELD THAT: - The Tribunal noted that the controversy related to interpretation of valuation provisions and that the facts were within the knowledge of the Department and continuously disputed; relying on settled legal principles, the invocation of extended limitation and imposition of penalty were held to be unwarranted. Since the substantive demand itself could not be sustained, the extended period and penalty could not stand. [Paras 6, 8]

Extended period of limitation and penalty set aside.

Final Conclusion: The appeals are allowed; the impugned order demanding service tax, interest and penalty on handling/insurance charges for the period 20.12.2013 to December, 2015 is set aside, the amounts being includible in the assessable value and not leviable to service tax, and the invocation of extended limitation and penalties is unsustainable.

Pure agent - valuation of taxable service under Section 67 - Rule 5(1) ultra vires - reverse charge mechanism - avoidance of double taxation

Pure agent - valuation of taxable service under Section 67 - Rule 5(1) ultra vires - reverse charge mechanism - avoidance of double taxation - Whether amounts reimbursed to the appellant for transportation charges incurred on behalf of principals are includable in the taxable value of clearing and forwarding agency services. - HELD THAT: - The Tribunal found on the record that transportation charges were reimbursed to the appellant by their principals on actuals for services procured by the principals and that the appellant did not derive any monetary benefit over and above the agreed service charges. The Tribunal followed the decision of this Tribunal in M/s. Cosmos Clearing Agencies and the judgment of the Hon'ble Delhi High Court in Intercontinental Consultants and Technocrats Pvt. Ltd., which held that Rule 5(1) of the Valuation Rules is repugnant to and runs counter to Sections 66/67 and is therefore ultra vires insofar as it seeks to include expenditures incurred 'in the course of providing taxable service' in the taxable value. Applying those authorities, the Tribunal held that where the principal arranges and pays for transportation (and pays service tax under reverse charge), the reimbursed amounts received by the agent as pure agent cannot be treated as consideration for the agent's taxable C&F services and therefore are not includable in the gross value for service tax. The Tribunal expressly disagreed with the Commissioner (Appeals)'s reliance on Rule 5 and on the finding that the appellant received excess amounts, holding that the legal principle established by higher precedents precludes inclusion of such reimbursements so as to avoid double taxation and to confine valuation to the quid pro quo for the taxable service.

Reimbursed transportation charges paid to the appellant by their principals on actuals are not includable in the taxable value of the appellant's clearing and forwarding agency service; the impugned order confirming demand is set aside and the appeal allowed.

Final Conclusion: The Tribunal allowed the appeal, holding that transportation reimbursements received as pure agent are not includable in the taxable value of the appellant's C&F services for the period April 2008 to March 2013, and set aside the impugned Order-In-Appeal.

Recovery of duties erroneously refunded - Binding effect of Supreme Court precedent prevailing at the relevant time - Finality of litigation and non-reopening of earlier orders on basis of subsequent overruling - Applicability of a subsequent Supreme Court overruling to past decisions - Section 11A: power to issue show cause for recovery of erroneously refunded duty

Applicability of a subsequent Supreme Court overruling to past decisions - Finality of litigation and non-reopening of earlier orders on basis of subsequent overruling - Subsequent overruling by the Supreme Court does not permit reopening of past finalised refund orders which were correctly made in accordance with the law prevailing at the relevant time. - HELD THAT: - The Court held that where a refund was sanctioned by the executive authority in conformity with the law declared by the Supreme Court as prevailing at the time, a later decision of the Supreme Court overruling that precedent cannot be invoked to reopen or set aside those past final orders. The judgment relied on the principle that litigation must attain finality and on the decision in Commissioner of CGST & C. Excise (J&K) v. M/s Saraswati Agro Chemicals Pvt. Ltd., which explained that a subsequent overruling cannot be used as a ground to revisit earlier judgments or administrative actions that had attained finality. Permitting reopening on the basis of a later overruling would undermine finality, breach public policy favoring an end to litigation, and contravene established maxims such as nemo debet bis vexari. The Tribunal correctly applied this principle in holding the show cause notices unsustainable where refunds had been granted under the then-prevailing Supreme Court precedent. [Paras 9, 10, 11]

The subsequent Supreme Court overruling (Unicorn Industries overruling SRD Nutrients) does not affect past final refund orders made in conformity with the law prevailing at the relevant time; such past orders cannot be reopened.

Section 11A: power to issue show cause for recovery of erroneously refunded duty - Recovery of duties erroneously refunded - Binding effect of Supreme Court precedent prevailing at the relevant time - Section 11A power to recover erroneously refunded duty cannot be exercised to recover refunds that were validly sanctioned in light of the Supreme Court decision prevailing when the refunds were granted. - HELD THAT: - A plain reading of Section 11A authorises recovery of duties erroneously refunded, subject to time limits and specified grounds. However, the Court observed that where the executive sanctioned a refund while applying a binding Supreme Court decision in force at the time, the authority could not later invoke Section 11A to recover amounts on the basis of a subsequent change in law. The Tribunal correctly reasoned that the Excise Officer was bound to follow the then-binding Supreme Court precedent (SRD Nutrients) and his actions were therefore lawful; a later overruling (Unicorn Industries) does not retrospectively render those sanctioned refunds recoverable under Section 11A. Consequently, show cause notices issued to effect recovery in such circumstances were held unsustainable. [Paras 8, 9, 11]

Section 11A cannot be invoked to recover refunds that were validly sanctioned in conformity with the Supreme Court precedent prevailing at the time of sanction; hence the show cause notices seeking recovery are unsustainable.

Final Conclusion: The statutory appeal is dismissed; the Tribunal's allowance of the appeals (upholding the sanctioned refunds) is affirmed. The Court refrained from imposing the costs it had proposed.

Clandestine manufacture and removal - reliance on third-party private records - admissibility of statements under Section 9D - requirement of cross-examination in adjudication proceedings - principles of natural justice

Clandestine manufacture and removal - reliance on third-party private records - The allegation of clandestine manufacture and clearance could not be established solely on the basis of private records recovered from a third party and uncorroborated statements. - HELD THAT: - The Tribunal found no independent evidence from the appellant to support the Revenue's allegation that billets clandestinely received from the third party were converted into finished structural items and clandestinely removed. The department's case rested on entries in private note books of the third party and on statements attributed to that third party; there was no evidence of transportation of the alleged quantity from the third party to the appellant, no evidence of manufacture of the finished goods from the alleged billets, no identification of buyers, and no evidence of receipt of payment for the alleged finished goods. In these circumstances third party records and uncorroborated statements standing alone were held insufficient to establish clandestine manufacture and removal of the appellant's goods. [Paras 4, 5]

The demand based on alleged clandestine manufacture and clearance could not be sustained and was set aside.

Admissibility of statements under Section 9D - requirement of cross-examination in adjudication proceedings - principles of natural justice - Statements recorded during investigation could not be relied upon because the persons who made those statements were not examined and cross examined in the adjudication proceedings as required by Section 9D, resulting in violation of principles of natural justice. - HELD THAT: - The Tribunal applied the statutory scheme of Section 9D and settled precedents to hold that a statement recorded before a gazetted officer becomes relevant in adjudication only if the maker is examined as a witness before the adjudicating authority (or exceptional circumstances under clause (a) of Section 9D exist). In the present case none of the deponents appeared for examination and cross examination; the adjudicating authority therefore relied on evidence which had lost its evidentiary value. That failure, amounting to denial of an opportunity to test the evidence, was a grave infirmity and vitiated the impugned order. [Paras 4, 5]

The statements could not be admitted as evidence in the absence of compliance with Section 9D and the adjudication thus violated principles of natural justice.

Final Conclusion: For want of independent corroborative evidence and for non compliance with Section 9D (denying opportunity for examination/cross examination), the Tribunal set aside the order in original and allowed the appeal, holding that the Revenue's demand for clandestine removal was unsustainable.

Personal penalty under Rule 26 of the Central Excise Rules, 2002 - Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 - effect of settlement under SVLDRS on co-noticees' appeals - maintainability of appeals by co-noticees

Personal penalty under Rule 26 of the Central Excise Rules, 2002 - Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 - effect of settlement under SVLDRS on co-noticees' appeals - Whether appeals filed by co-noticees challenging personal penalties survive where the main appellant settled the liability under SVLDRS, 2019. - HELD THAT: - The Tribunal applied its earlier decisions holding that settlement of the principal liability by the main appellant under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 operates to defeat the separate appeals filed by co-noticees against personal penalties arising from the same Order in Original. Having regard to those precedents, the Tribunal concluded that once the main appeal/liability is resolved under SVLDRS, the co-noticees' appeals contesting penalties under Rule 26 cannot be sustained and do not subsist for independent adjudication.

Appeals by the co-noticees challenging the personal penalties set aside and allowed.

Final Conclusion: The Tribunal allowed the appeals, holding that where the principal liability was settled under SVLDRS, 2019, appeals by co-noticees contesting personal penalties under Rule 26 cannot be sustained.

Directions for expeditious disposal - bank guarantee to secure release of goods - non-encashment of bank guarantee without prior court permission - initiation and completion of proceedings under Section 52 of the Uttar Pradesh Value Added Tax Act, 2008

Initiation and completion of proceedings under Section 52 of the Uttar Pradesh Value Added Tax Act, 2008 - directions for expeditious disposal - Whether the respondent-State should proceed with and conclude the proceedings pursuant to the show cause notice under Section 52 of the Uttar Pradesh Value Added Tax Act, 2008 - HELD THAT: - The Court observed that the appeal had been pending since 2011 and, as a consequence, further proceedings pursuant to the show cause notice had not been taken up. In order to avoid further delay and to secure final adjudication on the merits, the State Department was directed to initiate the proceedings, if any, and to pass a final order within three months from the date of the order. The direction is administrative and intended to secure expeditious disposal of the statutory proceedings which had been stalled by the long pendency of the appeal. [Paras 3]

Respondent directed to initiate and conclude the proceedings under Section 52 within three months

Bank guarantee to secure release of goods - non-encashment of bank guarantee without prior court permission - Whether the bank guarantee furnished for release of the goods should remain encashable or require renewal pending finalisation of proceedings - HELD THAT: - The Court recorded that goods had been released pursuant to an earlier order of this Court upon the appellant furnishing a bank guarantee in favour of the Commissioner. As the State is directed to conclude the proceedings within three months, the Court held that the Commissioner shall not encash the bank guarantee without prior permission of this Court and that the bank guarantee need not be renewed after the three-month period. This preserves the security provided earlier while ensuring that no further renewal burden is imposed on the appellant during the limited period fixed for final disposal. [Paras 2, 3]

Bank guarantee to remain unencashed without court permission and need not be renewed after three months

Final Conclusion: Civil Appeal disposed of with directions for the State to complete proceedings under Section 52 within three months; goods released earlier on bank guarantee need not be secured by renewal and the guarantee shall not be encashed without this Court's prior permission.

Penalties relating to returns and assessment under Section 72(2) of the Karnataka Value Added Tax Act, 2003 - opportunity of showing cause in writing before imposition of penalty - discretionary imposition of penalty - automatic penalty - suo moto revision under Section 64 of the Karnataka Value Added Tax Act, 2003

Penalties relating to returns and assessment under Section 72(2) of the Karnataka Value Added Tax Act, 2003 - opportunity of showing cause in writing before imposition of penalty - discretionary imposition of penalty - Section 72(2) requires issuance of a show-cause notice and affords the assessee an opportunity in writing before any decision to impose penalty, rendering the imposition non-automatic and subject to the authority's discretion. - HELD THAT: - The Court examined Section 72(2) and noted that the provision expressly contemplates that a dealer who understates liability or overstates tax credit shall, after being given the opportunity of showing cause in writing against the imposition of a penalty, be liable to a penalty equal to ten per cent. The statutory language mandating an opportunity to show cause indicates that the decision to impose a penalty is not automatic; the authority must first issue a show-cause notice and consider the written response before determining whether to impose the prescribed penalty. Consequently, the imposition of penalty under Section 72(2) is an exercise of discretion informed by the facts and the assessee's written explanation, rather than an immediate automatic consequence of understatement or overstatement. [Paras 3]

Section 72(2) entails a non-automatic, discretionary imposition of penalty after affording the assessee an opportunity to show cause in writing.

Suo moto revision under Section 64 of the Karnataka Value Added Tax Act, 2003 - automatic penalty - The suo moto revision under Section 64 was unnecessary and the High Court was justified in setting aside the Joint Commissioner's order and restoring the First Appellate Authority's order. - HELD THAT: - Having held that Section 72(2) requires a show-cause opportunity and is discretionary, the Court found the suo moto revision initiated under Section 64 to be unwarranted in the circumstances. The absence of a lawful and proper exercise of discretion to impose penalty rendered the revision unnecessary. On that basis, the High Court's interference in setting aside the Joint Commissioner of Commercial Taxes' order dated 31.03.2017 and restoring the First Appellate Authority's order dated 27.11.2012 was held to be correct. [Paras 4]

The suo moto revision under Section 64 was wholly unnecessary; the High Court rightly set aside the Joint Commissioner's order and restored the First Appellate Authority's order.

Final Conclusion: The Special Leave Petition is dismissed; the Court affirmed that penalty under Section 72(2) of the Karnataka VAT Act is not automatic but requires a show-cause opportunity and that the High Court correctly set aside the revisionary order and restored the appellate order.

Works contract - interstate works contract - non taxability of pre amendment works contracts - taxability under the Central Sales Tax Act - deemed sale in execution of works contract - cut off date 11.05.2002

Works contract - interstate works contract - non taxability of pre amendment works contracts - deemed sale in execution of works contract - Whether works contracts executed outside the State of Tamil Nadu in Assessment Year 1999-2000 are taxable under the Central Sales Tax Act. - HELD THAT: - The Court found on the material placed before it (contract documents for works executed at Mumbai and Secunderabad) that the activities undertaken by the petitioner were work contracts executed outside the jurisdiction of Tamil Nadu during Assessment Year 1999-2000. The Court observed that the amendment to the definition of "sale" in the Central Sales Tax Act, 1956 (which expressly encompassed contracts) took effect only from 11.05.2002, and therefore contracts executed prior to that cut off could not be brought within the taxable purview as deemed sales. The Court accepted the petitioner's reliance on Sundaram Industries Limited and the Supreme Court precedents followed therein, and held that the Tribunal was in error in treating the transported materials as sales when the contracts established the existence of out of state work contracts for the pre amendment period. Consequently the Tribunal's conclusion was set aside.

Works contracts executed outside Tamil Nadu in Assessment Year 1999-2000 are not taxable under the Central Sales Tax Act; the Tribunal's order is reversed.

Final Conclusion: Tax Case Revision allowed in favour of the petitioner; impugned Tribunal order set aside; no order as to costs.

Compliance with Section 42 of the NDPS Act (recording and transmission of secret information) - Requirement of recording "personal knowledge" and "information taken in writing" under Sections 41(2) and 42(1) NDPS Act - Distinction between acts forming part of the same transaction (res gestae) under Section 6 of the Indian Evidence Act - Admissibility of statements recorded under Section 67 of the NDPS Act

Distinction between acts forming part of the same transaction (res gestae) under Section 6 of the Indian Evidence Act - Search of the abandoned auto-rickshaw and subsequent search of the house of the accused do not constitute the same transaction and are not continuations of one another. - HELD THAT: - Applying the test of spontaneity and immediacy for acts forming part of the same transaction, the Court found an admitted interval of some 40-45 minutes and that the decision to search the house was an afterthought aimed at recovering further contraband rather than a direct continuance of the action on the auto-rickshaw. Consequently the search of the house could not be treated as res gestae or part of the same transaction as the search of the vehicle. [Paras 28, 29]

Search of the house and search of the abandoned auto-rickshaw were different transactions; the house-search was not a continuance of the vehicle-search.

Compliance with Section 42 of the NDPS Act (recording and transmission of secret information) - Requirement of recording "personal knowledge" and "information taken in writing" under Sections 41(2) and 42(1) NDPS Act - The search of the house failed to satisfy the mandatory statutory safeguards under Sections 41(2) and 42(1)/(2) of the NDPS Act and was not justified by personal knowledge of the Gazetted Officer. - HELD THAT: - The Court reviewed the statutory text and authoritative precedents (including Karnail Singh and Balbir Singh) and rejected the respondents' contention that the raid was based on the Gazetted Officer's personal knowledge or constituted substantial compliance. Testimony showed inconsistencies about the source of information, lack of prior written information relating to the house, and admissions that the decision to search the house arose after recovery from the vehicle. The Court held that the raid at the house was not based on personal knowledge of the Gazetted Officer and that statutory requirements for recording/taking down information and sending it to the superior were not met in relation to the house-search; therefore the search violated Sections 41(2) and 42 and the recovery from the house could not support conviction. [Paras 31, 44, 45, 46, 47]

Raid/search of the house did not comply with Sections 41(2) and 42(1)/(2) of the NDPS Act; the recovery from the house cannot sustain conviction.

Admissibility of statements recorded under Section 67 of the NDPS Act - Statements recorded under Section 67 of the NDPS Act are inadmissible as confessional statements for the purpose of convicting an accused; such statements do not qualify to be used as confessions. - HELD THAT: - Relying on the majority view in Tofan Singh, the Court held that officers empowered under Sections 41 and 42 (and acting under Section 67 enquiries) do not have the investigatory status of police officers for Section 25 of the Indian Evidence Act; statements under Section 67 are antecedent-stage enquiry material and are not confessional statements admissible to convict. Consequently, the confessional statements relied upon by the High Court could not form the basis for conviction. [Paras 50, 51, 52, 53]

Statements recorded under Section 67 NDPS Act are not admissible as confessions; they cannot be used to convict.

Final Conclusion: The appeals are allowed. Concurrent convictions and sentences based on the impugned recovery and on statements under Section 67 are set aside; the appellants are acquitted and the judgments below are quashed and remitted to the extent indicated. Pending applications stand disposed of.