TaxTMI Updates e-Newsletter
Sep 26,2020

Liability under Section 129(1)(a) of the Central Goods and Service Tax Act, 2017 - liability under Section 129(1)(b) of the Central Goods and Service Tax Act, 2017 - detention and interim release of goods on deposit and security - remedy under the GST appellate scheme where Tribunal not constituted

Detention and interim release of goods on deposit and security - liability under Section 129(1)(a) of the Central Goods and Service Tax Act, 2017 - Interim release of the detained goods subject to deposit of disputed tax and penalty under Section 129(1)(a) and furnishing of security for the remaining amount. - HELD THAT: - The Court recorded the petitioner's assertion that valid tax invoice and e-way bill existed and observed that, on the material before it, the petitioner's liability could, at best, be under the head of confiscation/liability contemplated by Section 129(1)(a) rather than conversion to the case under Section 129(1)(b). Taking into account the absence of a constituted GST Tribunal and the pendency of consideration on merits, the Court directed that if the petitioner deposits the disputed amount of tax and penalty corresponding to Section 129(1)(a) and furnishes security for the remainder found due, the detained goods shall be released pending final adjudication. The Court also permitted filing of counter and rejoinder affidavits for adjudication on merits.

Detained goods to be released on deposit of the disputed tax and penalty under Section 129(1)(a) and on furnishing security for the remaining amount, subject to final outcome.

Liability under Section 129(1)(b) of the Central Goods and Service Tax Act, 2017 - remedy under the GST appellate scheme where Tribunal not constituted - Whether the case should be treated as falling under Section 129(1)(b) was not finally adjudicated and requires fresh consideration. - HELD THAT: - The Court declined to decide the substantive question raised by the petitioner that the presence of certain loose invoices should not convert the liability into one under Section 129(1)(b). The matter was left for adjudication after the respondents file a counter affidavit and the petitioner files any rejoinder, reflecting that the question of conversion to Section 129(1)(b) is remitted for determination on the merits rather than disposed of at the interim stage. The Court noted the petitioner retains statutory remedies under the GST appellate scheme but proceeded suo motu because the GST Tribunal has not been constituted.

Substantive dispute as to applicability of Section 129(1)(b) is remanded for consideration after filing of affidavits; no final determination made at this stage.

Final Conclusion: Interim relief granted: detained goods ordered released on deposit of tax and penalty attributable to Section 129(1)(a) and on furnishing security for the balance; substantive issue whether liability falls under Section 129(1)(b) is left for fresh adjudication after exchange of affidavits.

Anticipatory bail - custodial interrogation for investigation of alleged corruption and tax evasion - connivance affecting the GST input-credit chain - risk of tampering with evidence and influencing witnesses - seriousness of allegations affecting the sovereign function of tax collection

Anticipatory bail - custodial interrogation for investigation of alleged corruption and tax evasion - risk of tampering with evidence and influencing witnesses - Prayer for anticipatory bail was rejected and custodial arrest was held to be necessary for fair and full investigation. - HELD THAT: - The FIR alleged systematic evasion of tax through connivance between transporters, passers and officers, with detailed entries in a register seized during investigation showing amounts attributed to the petitioner for the period 13.10.2017 to 20.07.2020. Technical inputs, call detail records and seized documents, together with inspection of files showing irregular handling of detained vehicles, minor penalties imposed and recovered cash not reflected as deposited, provided material to justify deeper probe. The absence of the petitioner's name in recorded conversations was not determinative; the investigating agency relied on a combination of circumstantial indicia, the seized register, frequency of calls from a passer to the petitioner, and documentary discrepancies. Given the potential impact on the GST chain and the sovereign interest in tax collection, the court concluded that custodial interrogation was necessary to go to the root of the matter and to prevent the possibility of influencing witnesses or tampering with evidence.

Petition seeking anticipatory bail dismissed; custodial interrogation of the petitioner permitted for the purposes of investigation.

Final Conclusion: The High Court dismissed the petition for anticipatory bail, holding that the seriousness and multi-dimensional nature of the allegations relating to tax evasion and alleged official connivance, together with material seized and investigative inputs, warranted custodial interrogation and no pre-arrest bail was to be granted.

Compliance with Rule 129(3)(a) and (b) - notice prior to initiation of investigation under Rule 129 - description of goods or services in notice - summary of statement of facts in notice

Compliance with Rule 129(3)(a) and (b) - notice prior to initiation of investigation under Rule 129 - description of goods or services in notice - summary of statement of facts in notice - Whether the notice dated 7th February, 2020 issued by the Directorate General of Anti-Profiteering complied with the requirement of Rule 129(3)(a) and (b) of the Central Goods and Services Tax Rules, 2017. - HELD THAT: - The petition challenges the impugned notice on the ground that Rule 129(3) requires that, before initiation of an investigation, a notice be issued to the interested parties containing inter alia (a) a description of the goods or services in respect of which proceedings have been initiated and (b) a summary of the statement of facts on which the allegations are based. The Court, upon prima facie consideration, construed Rule 129(1) and (2) together with Rule 129(3) to mean that the notice specified in sub rule (3) must precede initiation of investigation under Rule 129(2). Examination of the impugned notice dated 7th February, 2020 disclosed that it did not contain either a description of the goods or services or a summary of the facts supporting the allegations. The Court limited its present scrutiny to this aspect and observed that other substantive challenges to the proceedings are premature and may be raised if an adverse report is submitted or further proceedings are initiated by the Authority.

On prima facie consideration, the notice dated 7th February, 2020 was found not to comply with the requirements of Rule 129(3)(a) and (b); the Court issued notice limited to that question and reserved other challenges for later stages.

Final Conclusion: The High Court, on an interim and prima facie basis, confined its consideration to compliance of the DG's notice with Rule 129(3)(a) and (b), held that the impugned notice lacks the mandated description and summary of facts, issued notice on that limited aspect and reserved all other contentions for consideration at the appropriate stage.

Zero-rated supply - export of goods - input tax credit (ITC) refund - Rule 89 refund procedure - Section 54(3) refund - customs frontier - non-taxable territory - Article 286

Export of goods - zero-rated supply - customs frontier - Whether supply of goods by Duty Free Shops (arrival and departure DFSs at international airports) constitutes export and a zero-rated supply under the IGST/CGST framework. - HELD THAT: - Applying the reasoning in Sandeep Patil and having regard to the definitions in the Customs Act and the IGST Act, the Court accepted that supplies by DFSs to outgoing (and, by legal fiction for the relevant period, arriving) international passengers qualify as export of goods. Goods in duty free warehouses and DFSs lie within the customs area (i.e. before crossing the customs frontier), and transactions effected in that context are to be treated as exports/zero rated supplies for purposes of GST. The Court relied on earlier executive orders and judicial decisions holding that sale to departing passengers amounts to export and that DFSs are to be treated as exporters; this makes such supplies zero rated and eligible for the attendant benefits under the GST law. [Paras 28, 29, 31]

Supply of goods by DFSs to international passengers is an export and a zero rated supply under the IGST/CGST regime.

Input tax credit (ITC) refund - Rule 89 refund procedure - Section 54(3) refund - Whether the petitioners are entitled to refund of unutilised input tax credit and whether the orders rejecting such refunds should be set aside. - HELD THAT: - The Court held that insofar as the supplies by DFSs are zero rated, the petitioners are entitled to 100% ITC and to claim refund of unutilised ITC following the statutory procedure. The impugned orders rejecting refunds were quashed. The Court, following the approach in Sandeep Patil, directed that the petitioners may pay GST on input services (including concession/minimum guarantee payments) and take ITC of the entire tax amount and thereafter claim refund in accordance with Section 54(3) of the CGST Act and Rule 89 of the CGST Rules (and corresponding Kerala provisions). The Court also observed that, by parity, benefits extended to similarly situated DFS operators in other States ought to be available to the petitioners. [Paras 31, 32, 33]

The orders rejecting refund of ITC are set aside and the petitioners are entitled to claim refund of ITC by following Section 54(3) and Rule 89 procedure.

Non-taxable territory - Article 286 - Whether GST (including on concession/minimum guarantee) is leviable on activities carried out by DFSs located in customs areas and whether taxing such transactions by State/other authorities violates constitutional restrictions on taxation of import/export. - HELD THAT: - The Court noted that transactions taking place in the customs area (beyond the customs frontier) are to be regarded, for the purposes of the GST laws as construed in the cited precedents, as outside the taxable reach where they qualify as exports or otherwise fall within non taxable classifications. The Court referenced the constitutional and precedent considerations (including Article 286 and J.V. Gokal/Hotel Ashoka line) and observed that subjecting DFS sales to local/state taxation would frustrate the purpose of prohibitions on taxation affecting imports/exports and prejudice foreign trade. While the Court refrained from granting a sweeping declaration in one petition, it held that no recovery of GST on the concession fee should be directed up to 30.06.2020 in view of the interim orders and the principles adopted. [Paras 29, 33]

Taxing DFS transactions situated within the customs frontier as ordinary intra State supplies is impermissible in the circumstances; no recovery of GST on concession fee is to be directed up to 30.06.2020 and constitutional/precedential protections apply.

Final Conclusion: The writ petitions are allowed: the impugned orders rejecting refunds of unutilised ITC for the specified periods are set aside; supplies by DFSs at international airports are treated as exports/zero rated supplies entitling petitioners to claim 100% ITC and refund under Section 54(3) and Rule 89; and the petitioners are to follow the prescribed procedure (pay GST on input services including concession fees, take ITC and then claim refund). No recovery of GST on concession fee is directed up to 30.06.2020.

Requirement to exhaust statutory alternative remedy before invocation of writ jurisdiction - appeal under the appellate remedy under the CGST Act - revocation of cancellation of registration under Section 30 of the CGST Act read with Rule 23 of the CGST Rules - mandate to decide statutory appeals on merits and in accordance with law within an expeditious timeframe

Requirement to exhaust statutory alternative remedy before invocation of writ jurisdiction - appeal under the appellate remedy under the CGST Act - mandate to decide statutory appeals on merits and in accordance with law within an expeditious timeframe - Whether the writ petition challenging assessment orders was maintainable in view of the alternative statutory remedy of appeal under the CGST Act and what directions should be given. - HELD THAT: - The Court found that Sections providing for appeal against assessment orders constitute an alternative statutory remedy which the petitioner ought to have availed instead of approaching the writ jurisdiction. In exercise of supervisory powers, the Court declined to entertain the writ on merits and directed the petitioner to file an appeal against the impugned assessment orders within a limited period. The appellate authority was directed to decide the appeal on merits and in accordance with law expeditiously, preferably within eight weeks. The Court thus enforced the principle that statutory appellate remedies must be availed and that administrative appellate authorities must adjudicate such appeals on merits within an expeditious timeframe. [Paras 5, 6, 7]

Writ not entertained; petitioner directed to file appeal against the assessment orders within 15 days and appellate authority directed to decide the appeal on merits expeditiously, preferably within eight weeks.

Revocation of cancellation of registration under Section 30 of the CGST Act read with Rule 23 of the CGST Rules - requirement to exhaust statutory alternative remedy before invocation of writ jurisdiction - Whether relief regarding revocation of cancellation of registration should be granted in writ or remitted to the competent authority under the CGST Act and Rules. - HELD THAT: - The Court held that the statutory procedure under Section 30 read with Rule 23 provides the competent authority to decide applications for revocation of cancellation of registration. Rather than decide the matter in writ proceedings, the Court granted liberty to the petitioner to file an application before the competent authority within the same period prescribed for filing the appeal; and directed that such application be decided on merits according to the prescribed procedure. This reflects the Court's insistence that matters falling within the statutory scheme for revocation be processed by the designated authority. [Paras 6, 7]

Petitioner permitted to file application for revocation of cancellation within the specified period; competent authority directed to decide the application on merits per the statutory procedure.

Final Conclusion: The writ petition is disposed of by directing the petitioner to file appeals against the impugned assessment orders within 15 days and permitting simultaneous filing of an application for revocation of cancellation of registration; the appellate authority and the competent authority are directed to decide the respective matters on merits and in accordance with law, expeditiously (preferably within eight weeks).

Writ of mandamus - Cancellation of GST registration - Manual filing of GSTR-3B - Judicial review under Article 226 - Representation to Commissioner for reconsideration

Cancellation of GST registration - Manual filing of GSTR-3B - Representation to Commissioner for reconsideration - Direction to the Commissioner, SGST, Ahmedabad to consider and decide the writ applicant's representation seeking revocation of GST registration cancellation and permission for manual filing of GSTR-3B. - HELD THAT: - The High Court recorded that the writ applicant's GST registration had been cancelled for failure to file returns and that a representation dated 26th August 2020 was pending before the Commissioner, SGST, Ahmedabad asking for revocation of cancellation and permission for manual filing of GSTR-3B. The Court did not adjudicate the merits of those requests; instead it directed the Commissioner to immediately consider the representation and take an appropriate decision in accordance with law within 15 days of receipt of the writ of this order. The Court further clarified that, if necessary, the writ applicant may be heard in person before the Commissioner takes a decision. The order is procedural, directing fresh administrative consideration rather than substituting the Court's view on the merits. [Paras 3, 4]

Commissioner, SGST, Ahmedabad directed to consider the representation dated 26th August 2020 and decide in accordance with law within 15 days, with liberty to hear the applicant; Court did not decide merits.

Final Conclusion: Writ petition disposed by directing the Commissioner, SGST, Ahmedabad to consider and decide the representation seeking revocation of registration cancellation and permission for manual filing of GSTR-3B within 15 days; merits left open and the applicant may be heard.

Maintainability of writ petition - availability of efficacious alternative remedy under Section 107 - non-speaking or cryptic order - remand to appellate authority for fresh adjudication - examination of Circular No.59/33/2018-GST

Maintainability of writ petition - availability of efficacious alternative remedy under Section 107 - Writ petition challenging the refund rejection was not maintainable as an efficacious statutory remedy existed under Section 107 of the Act. - HELD THAT: - The Court accepted the respondents' contention that the petitioner has an adequate and efficacious remedy by way of appeal under Section 107 of the Central Goods and Services Tax Act, 2017. As the petitioner could seek redressal of the grievances arising from the impugned order by availing the statutory appellate remedy, the High Court declined to entertain the writ petition at this stage. The Court observed that the grounds urged before it could be ventilated before the Appellate Authority in proceedings under Section 107 and that no exceptional circumstance was shown to warrant interference by writ jurisdiction. [Paras 4, 6, 7]

Writ petition dismissed without adjudication on merits and liberty granted to the petitioner to file appeal under Section 107.

Non-speaking or cryptic order - remand to appellate authority for fresh adjudication - examination of Circular No.59/33/2018-GST - Matter remitted to the appellate authority to decide the appeal on merits, including consideration of the Board's Circular dated 04.09.2018, within a defined time-frame. - HELD THAT: - Although the High Court did not set aside the impugned order on merits, it noted that the order challenged by the petitioner was cryptic and allegedly passed without affording hearing. Rather than exercising writ jurisdiction, the Court granted the petitioner liberty to prefer an appeal under Section 107. The Court directed that if the petitioner files an appeal within 15 days enclosing a copy of the High Court order, the Appellate Authority shall decide the appeal in accordance with law within three months, specifically examining the applicability of Central Board of Indirect Taxes and Customs Circular No.59/33/2018-GST dated 04.09.2018. No substantive pronouncement was made on the merits of the refund claim; the matter is to be considered afresh by the appellate forum. [Paras 7]

Petition disposed of by leaving the petitioner free to file appeal; appellate authority directed to examine the Circular and dispose the appeal within three months.

Final Conclusion: Writ petition dismissed for want of maintainability in view of the efficacious remedy under Section 107; liberty granted to the petitioner to file an appeal within 15 days and the Appellate Authority directed to decide the appeal in accordance with law within three months, including consideration of Circular No.59/33/2018-GST.

Deemed dividend under Section 2(22)(e) - assessment of deemed dividend in hands of shareholder versus in hands of concern/firm - beneficial owner - payment by company by way of advance or loan - deferred liability versus loan/advance - distinguishing National Travel Services on facts

Deemed dividend under Section 2(22)(e) - assessment of deemed dividend in hands of shareholder versus in hands of concern/firm - beneficial owner - deferred liability versus loan/advance - distinguishing National Travel Services on facts - Whether the payment of Rs. 2 crores by the company to the assessee partnership firm attracts deeming fiction under Section 2(22)(e) and is assessable as deemed dividend in the hands of the firm or the shareholder. - HELD THAT: - The Court held that Section 2(22)(e) applies when a company makes a payment by way of advance or loan to a shareholder who is the beneficial owner of shares (or to a concern in which such shareholder has substantial interest) to the extent of accumulated profits. On the facts, the payment was made to the partnership firm, which is not a shareholder of the company, and the partner's shareholding in the company was held in his individual capacity; the firm was therefore not the beneficial owner of the company's shares. The records before the assessing officer showed the transaction to be a deferred liability rather than a loan or advance. Because the payment was not to a shareholder-beneficial owner nor a loan/advance to a concern in which such shareholder had substantial interest on the facts found, the deeming provision could not be invoked. The decision in National Travel Services and other authorities relied on by the Revenue were held to be distinguishable on the factual matrix of this case. Applying these conclusions, the Tribunal correctly reversed the orders of the assessing officer and the CIT(A). [Paras 11, 12]

Section 2(22)(e) was not attracted on the facts; the Tribunal's reversal was correct and the Revenue's appeals are dismissed.

Final Conclusion: The appeals filed by the Revenue are dismissed; the Tribunal was right in holding that the transaction did not attract the deeming provision of Section 2(22)(e) on the facts and the substantial question of law is answered against the Revenue.

Summary order. Appeal dismissed as withdrawn by the Revenue because the tax effect is below the monetary threshold prescribed by CBDT Circular No.17/2019; substantial questions of law are left open for determination in appropriate cases.

Business expenditure under Section 37 - scientific research expenditure under Section 35 - revenue expenditure versus capital expenditure - residuary provisions permitting deduction - findings of fact and jurisdiction of High Court under Section 260A

Findings of fact and jurisdiction of High Court under Section 260A - Whether the present appeal under Section 260A raised any substantial question of law warranting interference with the Tribunal's order. - HELD THAT: - The High Court examined the orders of the Tribunal and the CIT(A) and recorded that the Tribunal had upheld the CIT(A)'s conclusion treating the expenditure as allowable revenue expenditure. On perusal of the authorities' reasons and the particulars of the expenditure, the Court found the conclusions to be findings of fact; no legal principle was shown to be misapplied or any substantial question of law made out for interference under Section 260A. Consequently the Court held that no question of law arose for its consideration. [Paras 8, 10]

No substantial question of law arises; appeal under Section 260A is without merit and liable to be dismissed.

Scientific research expenditure under Section 35 - business expenditure under Section 37 - residuary provisions permitting deduction - Whether expenditure claimed as scientific research expenditure under Section 35 could alternatively be allowed as business expenditure under Section 37. - HELD THAT: - The Assessee abandoned the Section 35 claim as the statutory conditions for that deduction were not satisfied. The Court applied the residuary principle that Section 37 permits allowance of business expenditure incurred in the ordinary course of business when not covered by Sections 30-36. On the materials before it (including the classification of costs and description of the product perfection process), the Court agreed with the CIT(A) and Tribunal that the amounts were incurred in the ordinary course of the automobile component manufacturing business and constituted revenue expenditure rather than capital outlay, and therefore were allowable under Section 37. [Paras 3, 9]

Expenditure, though not qualifying under Section 35, was rightly treated as revenue/business expenditure allowable under Section 37.

Revenue expenditure versus capital expenditure - Whether there was material to show the payment included capital expenditure or replacement of plant and machinery requiring remand for investigation to the Assessing Officer. - HELD THAT: - Revenue counsel contended that the assessed sum might include capital replacements and therefore the matter should be remanded for further investigation. The Court examined the particulars of the claimed expenditure (raw material, power and fuel, labour, consumables, repairs etc.) and found no material indicating creation of an enduring capital asset. The redesigning of moulds and iterative product perfection activities were held to be part of normal business operations and not capital in nature. In absence of material pointing to capital expenditure, the Court declined to remit the matter for further inquiry. [Paras 6, 9]

No material found to show capital nature of the expenditure; remand to Assessing Officer unnecessary.

Final Conclusion: The High Court dismissed the Revenue's appeal under Section 260A, upholding the CIT(A) and Tribunal findings that the impugned expenditure for AY 2007-08 did not qualify under Section 35 but was a revenue/business expenditure allowable under Section 37, and that no substantial question of law or basis for remand existed.

Inclusion of expenditure incurred in foreign exchange for providing technical services in export turnover for computing deduction under Section 10B - exclusion of expenses incurred in foreign exchange from export turnover - application of Special Bench decision in the assessee's own case - amortization of capital expenditure - remand for fresh adjudication to the Tribunal

Inclusion of expenditure incurred in foreign exchange for providing technical services in export turnover for computing deduction under Section 10B - application of Special Bench decision in the assessee's own case - Expenditure incurred in foreign exchange for providing technical services outside India is includible in export turnover for computing deduction under Section 10B. - HELD THAT: - The Court held that the Tribunal's conclusion that expenses incurred in foreign exchange for providing technical services outside India could not be excluded from export turnover must be answered in favour of the assessee. The Tribunal had followed the Special Bench decision in the assessee's own case, and the same position is supported by subsequent authoritative pronouncements including the decision of the Hon'ble Supreme Court in Commissioner of Income Tax v. Mphasis Ltd., which affirmed that such foreign-exchange expenditure forms part of the definition of 'export turnover' for the purpose of computing deduction under Section 10B. Having regard to those decisions, the expenditure in question cannot be excluded from export turnover and the question is answered for the assessee. [Paras 6]

Question No.1 answered in favour of the assessee; the expenditure incurred in foreign exchange for providing technical services outside India is includible in export turnover for computing deduction under Section 10B.

Amortization of capital expenditure - remand for fresh adjudication to the Tribunal - Special Bench decision not dealing with amortization - The question of amortization of capital expenditure is remitted for fresh adjudication by the Tribunal on merits. - HELD THAT: - The Court found that the Tribunal erred in remitting the amortization issue to the Assessing Officer on the basis of the Special Bench decision because the Special Bench had not addressed the question of amortization of business acquisition expenses. As the issue of amortization was apparently not considered by the Special Bench, it was inappropriate to treat it as covered thereby. Consequently the matter is remitted to the Tribunal to decide the amortization of capital expenditure afresh on merits and in accordance with law, after giving both parties an opportunity to be heard. [Paras 8, 9]

Issue of amortization of capital expenditure remitted to the Tribunal for fresh adjudication on merits.

Final Conclusion: Both appeals disposed: Question No.1 answered in favour of the assessee (foreign-exchange technical-service expenditure is includible in export turnover for Section 10B); the issue of amortization of capital expenditure is remitted to the Tribunal for fresh decision on merits.

Taxation of 'on money' / unaccounted receipts - profit element embedded in undisclosed receipts is taxable, not entire receipt - estimation of reasonable profit from unaccounted receipts - no substantial question of law where appellate forum accepts reasonable profit estimate

Taxation of 'on money' / unaccounted receipts - profit element embedded in undisclosed receipts is taxable, not entire receipt - estimation of reasonable profit from unaccounted receipts - no substantial question of law where appellate forum accepts reasonable profit estimate - Whether the entire seized/impounded 'on money' receipts could be treated as the assessee's income or only the profit element embedded in such receipts was taxable, and whether the Tribunal's estimate of profit gave rise to a question of law. - HELD THAT: - The Court held that the question is no longer res integra in light of earlier decisions of this Court, which consistently apply the principle that detection of on-money or unaccounted cash receipts does not permit taxing the entire receipt as income unless there is specific material to show unexplained investment or costs giving rise to the whole amount as profit. Instead, only the profit embedded in such receipts can properly be brought to tax, and the assessment of a reasonable profit necessarily involves estimation. Applying that principle to the present appeal, the Tribunal's approach in accepting the assessee's disclosed amount as the profit portion out of the total unaccounted receipt was in accordance with the established law and did not raise any substantial question of law warranting interference. Consequently, the Revenue's challenge to direct taxation of the entire extrapolated receipts was rejected and the Tribunal's deletion of the addition was upheld. [Paras 2, 3]

Appeal dismissed; Tribunal's order affirmed that only the profit element embedded in 'on money' receipts is taxable and the Tribunal's estimate does not raise a substantial question of law.

Final Conclusion: Revenue's appeal under Section 260A is dismissed; the High Court affirms the established principle that only the profit element in undisclosed/on-money receipts is taxable and that the Tribunal's estimate of such profit does not constitute a substantial question of law requiring interference.

Deduction under Section 10A - computer software (Explanation 2(i)(b)) - Information Technology Enabled Services (ITeS) - Back Office Operations and Data Processing as IT enabled services - clarificatory notification specifying information technology enabled products or services - concurrent findings of fact and perversity review

Deduction under Section 10A - computer software (Explanation 2(i)(b)) - Information Technology Enabled Services (ITeS) - Back Office Operations and Data Processing as IT enabled services - clarificatory notification specifying information technology enabled products or services - Assessee entitled to deduction under Section 10A for the Assessment Years in question as its activities fall within the scope of computer software/ITeS as clarified by the CBDT notification - HELD THAT: - The Court examined Explanation 2(i)(b) to Section 10A which includes "any customized electronic data" or notified products/services as "computer software". The CBDT notification (clarificatory in nature) specifies that information technology enabled products or services include back office operations and data processing. On the material on record the assessee, a registered STP unit and 100% export oriented unit under the STP scheme, performed back office work for US software companies consisting of preparation, editing and electronic transmission of patent applications (drawings generated by CAD, specifications by word processors) and related electronic data. The tribunal and the CIT(A) categorized these activities as back office operations, data processing and related ITeS covered by the notification. The High Court held that these concurrent findings of fact are based on meticulous appreciation of evidence and are not perverse, and therefore the assessee is entitled to the deduction under Section 10A. [Paras 8, 9, 10, 11]

Assessee's activities qualify as information technology enabled services/computer software under Explanation 2(i)(b) and the CBDT notification, and the assessee is entitled to deduction under Section 10A for AY 2009-10 and 2010-11.

Final Conclusion: Concurrent factual findings that the assessee's back office/data processing activities fall within the scope of "computer software"/ITeS as clarified by the CBDT notification are not perverse; the revenue's appeals are dismissed and no substantial question of law arises.

Levy of penalty under Section 271(1)(c) - quasi-criminal nature of penalty proceedings - requirement of deliberate, contumacious or dishonest conduct for imposition of penalty - remand for verification and fresh adjudication

Levy of penalty under Section 271(1)(c) - quasi-criminal nature of penalty proceedings - requirement of deliberate, contumacious or dishonest conduct for imposition of penalty - Whether the Tribunal was right in deleting the penalty imposed on the assessee under Section 271(1)(c). - HELD THAT: - The Tribunal and the CIT(A) examined the factual matrix and found that the assessee had disclosed the advances to the Assessing Officer during the assessment proceedings (completed under Section 143(3)) and there was no case of reopening under Section 147. Applying the then-prevailing principle that penalties of a quasi criminal character are not ordinarily to be imposed unless the party acted deliberately, contumaciously, or dishonestly, the authorities concluded that penalty was not warranted. The High Court noted that law on the subject had developed subsequently, but declined to reappraise the factual findings of the Tribunal as a third appellate forum under Section 260A and therefore did not interfere with the Tribunal's conclusion deleting the penalty.

Tribunal's deletion of the penalty under Section 271(1)(c) was upheld and not interfered with.

Remand for verification and fresh adjudication - Disposition of the non-inclusion of Rs.22 lakhs in closing stock. - HELD THAT: - The Tribunal, after examining the matter, remanded the issue of non inclusion of the specified amount in closing stock to the Assessing Officer for proper verification and fresh adjudication in accordance with law. The High Court accepted that the Tribunal had directed remand for further factual and statutory scrutiny and declined to substitute its own view on the factual controversy.

The matter concerning the non inclusion in closing stock is remanded to the Assessing Officer for verification and fresh adjudication as directed by the Tribunal.

Final Conclusion: The Tax Case Appeal is dismissed. The order of the Income Tax Appellate Tribunal, Madras 'A' Bench, dated 18.07.2019 in ITA No.2099/Chny/2017 is confirmed; the penalty deletion is sustained and the issue concerning closing stock is remanded to the Assessing Officer for fresh verification.

Capital loss versus business (revenue) loss - investment in wholly owned subsidiary made for business purpose - allowability of write off as business expenditure under Section 37(1) - test of characterisation of receipts/expenditure as capital or revenue

Capital loss versus business (revenue) loss - investment in wholly owned subsidiary made for business purpose - allowability of write off as business expenditure under Section 37(1) - Whether the amount written off in respect of investment in the wholly owned foreign subsidiary is a capital loss or an allowable business (revenue) loss - HELD THAT: - The Court applied the settled principle that classification of a receipt or expenditure as capital or revenue depends on the facts of each case and no single test is decisive. The assessee had set up a wholly owned subsidiary in the USA during the relevant period for the exclusive purpose of marketing, promotion and sales of its products in foreign markets, with RBI approval for the structure and for subsequent winding up. The investment was made to meet the subsidiary's revenue/operational requirements and not to acquire an enduring capital advantage. The Court observed that the decision in COMMISSIONER OF INCOME-TAX VS. COLGATE PALMOLIVE (INDIA) LTD. - holding that loss on investment in a 100% subsidiary made for business purposes is a business loss - is apposite and has been upheld by the Supreme Court; similar precedents were noted where advances or finances made to manage group companies which became irrecoverable were treated as trading losses. Applying those principles to the material facts, the Court concluded that the investment was for extension of the assessee's business activity and the writedown reflected a revenue loss incidental to carrying on the business rather than a capital loss. Given this finding, the Court answered the admitted substantial question of law in the assessee's favour and held that the claimed write off was allowable as a business loss. [Paras 5, 6, 7, 8]

The amount written off in respect of the wholly owned subsidiary is a business (revenue) loss and not a capital loss; the Tribunal's adverse finding is quashed.

Final Conclusion: The appeal is allowed to the extent that the Tribunal's finding treating the write off as a capital loss is quashed; the write off of the investment in the wholly owned subsidiary for the Assessment Year 2004-05 is held to be an allowable business loss.

Deduction under Section 10B of the Income Tax Act - treatment of export turnover vis-a -vis total turnover - treatment of telecommunication and foreign currency expenses for turnover computation - inclusion of non-export income in export turnover - treatment of notice pay received from employees

Deduction under Section 10B of the Income Tax Act - treatment of telecommunication and foreign currency expenses for turnover computation - treatment of export turnover vis-a -vis total turnover - Expenditure towards telecommunication charges and expenditure incurred in foreign currency excluded from export turnover is to be excluded from total turnover for computing deduction under Section 10B. - HELD THAT: - The Court held that the question was covered by the decision of the Supreme Court in COMMISSIONER OF INCOME-TAX, CENTRAL-III v. HCL TECHNOLOGIES LTD., and on that basis the revenue's challenge could not be sustained. Accordingly, the appellate authorities' approach-excluding such expenses from total turnover where they had been excluded from export turnover-was affirmed. The determinative legal principle applied is that, following the precedent relied upon by the Court, those expenses need not be included in total turnover for the computation of deduction under Section 10B where they have already been excluded from export turnover.

First substantial question answered against the revenue and in favour of the assessee; such expenses are excluded from total turnover for Section 10B computation.

Treatment of notice pay received from employees - inclusion of non-export income in export turnover - treatment of export turnover vis-a -vis total turnover - Income received by the assessee by way of notice pay from employees leaving service contrary to agreement cannot be included in total turnover or in export turnover. - HELD THAT: - The revenue relied on the Supreme Court decision in COMMISSIONER OF INCOME-TAX v. PUNJAB STAINLESS STEEL INDUSTRIES, but ultimately conceded that the notice pay received by the assessee did not arise from the activity of export and therefore could not form part of total turnover or export turnover. The Tribunal's order was modified to reflect this position, excluding such notice pay from both total turnover and export turnover for the purposes of computing the deduction under Section 10B.

Second substantial question answered in favour of the assessee; notice pay cannot be included in total turnover or export turnover.

Final Conclusion: The appeal is disposed of: the Tribunal's order is affirmed insofar as telecommunication and foreign currency expenses excluded from export turnover are to be excluded from total turnover for Section 10B purposes, and is modified to direct that notice pay received from employees leaving service contrary to agreement shall not be included in total turnover or export turnover.

Set off of losses under Section 70 - deduction under Section 10B and mandatory Form-56G requirement - intra-head aggregation of eligible and ineligible units - binding effect of CBDT circular on aggregation under Sections 70 and 71 - precedential scope of Yokogawa decisions concerning set off

Set off of losses under Section 70 - deduction under Section 10B and mandatory Form-56G requirement - Losses of export-oriented units (EOUs) may be set off against profits of domestic tariff area (DTA) units under Section 70 where the assessee has not claimed deduction under Section 10B and has not furnished the mandatory audit report in Form-56G. - HELD THAT: - Section 10B, as amended w.e.f. 01.04.2001, provides a deduction for profits of hundred per cent export-oriented undertakings but does not contain an express prohibition on intra-head set off under Section 70. Section 10B(5), read with Rule 16E, makes filing of the audit report in Form-56G a mandatory precondition for claiming the deduction. The assessee's return for AY 2008-09 shows nil/not applicable at the entries for deduction under Section 10B, and no Form-56G was produced. Where the assessee does not claim the benefit of the deduction, the benefit cannot be thrust upon it. The CBDT circular (para 5.2) supports aggregation of income/loss from eligible and ineligible units under Section 70 before considering deductions under Chapter VI-A or Sections 10A/10B. Applying these principles, the court held that, on the facts of this case, the assessee was entitled to set off losses of the EOUs against profits of the DTA unit under Section 70. [Paras 7, 8, 9]

Assessee entitled to intra-head set off under Section 70 since no Section 10B deduction was claimed and no Form-56G was filed; Tribunal's contrary finding quashed.

Precedential scope of Yokogawa decisions concerning set off - binding effect of CBDT circular on aggregation under Sections 70 and 71 - The Supreme Court decision in Yokogawa does not preclude an assessee from claiming set off under Section 70 where the assessee has not claimed deduction under Section 10B; the CBDT circular's clarification on aggregation under Section 70 is consistent with this view. - HELD THAT: - The Division Bench decision in Commissioner of Income-Tax v. Yokogawa India Ltd. and other High Court/Bombay High Court decisions were examined. The court observed that Yokogawa is not authority for the proposition that intra-head set off under Section 70 is barred merely because an undertaking is export-oriented. The CBDT circular (para 5.2) affirms that income/loss from eligible and ineligible units under the same head are to be aggregated in accordance with Section 70 before allowing chapter VI-A or Section 10A/10B benefits. The court respectfully agreed with the High Court and Bombay High Court decisions holding that Section 70 operates where the deduction under Section 10B has not been claimed in accordance with statutory preconditions. [Paras 7, 9]

Yokogawa does not negate the assessee's right to set off under Section 70 in the factual matrix where Section 10B was not claimed; the CBDT circular supports aggregation under Section 70.

Assessee's election not to claim statutory deduction - effect of late or unfiled return on entitlement to set off - It was unnecessary for the court to decide the revenue's contention regarding the return being filed beyond the prescribed time or procedural validity of the later-filed return, because the admitted position in the return for AY 2008-09 was that no deduction under Section 10B was claimed. - HELD THAT: - Revenue argued that the return relied upon by the assessee was filed beyond the due date and lacked legal sanctity, and that a declaration under Section 10B(8) must be in writing prior to filing the return. The court noted that it had dealt with the issues on the basis of the return filed for AY 2008-09 and expressly recorded that it was not necessary to decide the contention about late filing. The determinative finding rests on the absence of a claim and absence of Form-56G, making further consideration of the late-filing contention unnecessary for disposal of the appeal. [Paras 4, 9]

Contention about late or invalid return not decided as unnecessary; appeal disposed on the basis that no Section 10B claim was made and no Form-56G was filed.

Final Conclusion: The substantial questions were answered in favour of the assessee: losses of EOUs could be set off against profits of DTA unit under Section 70 where Section 10B deduction was not claimed and no Form-56G was filed; the Tribunal's adverse finding is quashed and the appeal is allowed.

Disallowance of expenditure based on presumption and mathematical comparison with prior year - requirement to prove genuineness and necessity of expenditure - deletion of ad hoc disallowance not supported by evidence - presumption of application of interest free funds to capital work in progress

Requirement to prove genuineness and necessity of expenditure - deletion of ad hoc disallowance not supported by evidence - Deletion of addition made by AO on account of labour charges claimed by the assessee. - HELD THAT: - The AO disallowed labour charges as a fresh and sudden claim and on the basis that the assessee could not establish the requirement of the expenditure, despite TDS having been deducted and details of contract labour being filed and acknowledged. The Tribunal held that the disallowance rested on presumption and surmise rather than on any finding that the expenditure was not incurred or was bogus. The assessee had furnished names, addresses, amounts and TDS particulars and provided an explanation for hiring additional contractual labour during the year. As the fact of incurrence was not challenged and no evidentiary rejection or defect was pointed out by the AO, the ad hoc addition could not be sustained. [Paras 10, 12, 13]

Addition on account of labour charges deleted.

Requirement to prove genuineness and necessity of expenditure - deletion of ad hoc disallowance not supported by evidence - Deletion of addition made by AO on account of increased packing material consumption. - HELD THAT: - The AO computed an ad hoc disallowance by comparing packing material consumption with the prior year and observed an increase despite reduced sales, treating the increase as inflation of expenditure. The assessee, however, explained the reasons for higher packing costs (different types of bags used for different products, party requirements, transport modes) and provided explanations to the AO. The Tribunal found the AO's conclusion to be a presumption not founded on evidence and noted that there was no allegation that the expenditure was not incurred or was bogus. In absence of a contrary finding on the genuineness of the expenditure, the ad hoc disallowance could not be upheld. [Paras 11, 12, 13]

Addition on account of packing material consumption deleted.

Presumption of application of interest free funds to capital work in progress - deletion of ad hoc disallowance not supported by evidence - Deletion of addition by AO disallowing finance cost (interest) claimed by the assessee. - HELD THAT: - The Tribunal examined the balance sheet showing capital work in progress substantially lower than the assessee's capital and reserves (interest free funds). Applying the principle that, where interest free funds exceed the investment in non income yielding assets such as capital work in progress, interest free funds are presumed applied to such assets, the Tribunal concluded that the AO's disallowance of finance cost was not sustainable. On that basis, the disallowance of interest was held to be bad in law and deleted. [Paras 14]

Addition on account of finance cost disallowance deleted.

Final Conclusion: The appeal is allowed in part: the additions made by the AO for labour charges, increased packing material consumption and finance cost are deleted and the grounds raised by the assessee (grounds 2, 3 and 4) are allowed.

Unexplained cash credits - share premium / share application money - best judgment assessment under section 144 - disallowance of expenditure - 10% restriction - admission of additional evidence under Rule 46A - relevant previous year for section 68

Unexplained cash credits - share premium / share application money - relevant previous year for section 68 - Deletion of addition made as unexplained cash credits in respect of the assessee's share premium/share application money - HELD THAT: - The Tribunal upheld the CIT(A)'s deletion of the addition because the share premium of Rs. 2,50,00,000/- appeared in the assessee's balance sheet from earlier assessment years (reflected as on 31.03.2011 and 31.03.2012) and was therefore not raised in the previous year relevant to AY 2013-14. The Tribunal accepted the CIT(A)'s reasoning that the Assessing Officer, while making a best judgment assessment, ought to have examined the audited accounts available on record; the statutory phrase identifying "that previous year" must be read as the previous year relevant to the assessment year in issue, and an addition under the unexplained cash credits head cannot be sustained when the credited amount did not arise in the relevant previous year. [Paras 3, 4]

The deletion of the unexplained cash credits addition in respect of the share premium/share application money was sustained.

Disallowance of expenditure - 10% restriction - Validity of CIT(A)'s restriction of the assessee's claimed expenditure disallowance to 10% - HELD THAT: - The Tribunal noted that the assessee had furnished the corresponding details and evidentiary material which were on record, whereas the Assessing Officer had disallowed the entire claim. In the absence of any effective rebuttal by the Revenue, the Tribunal found no merit in disturbing the CIT(A)'s partial allowance and restriction to 10% as adopted on appeal. [Paras 5]

The CIT(A)'s restriction of the disallowance to 10% was upheld and the Revenue's challenge was rejected.

Unexplained cash credits - Revival of the addition of cash-in-hand discrepancies reduced by the CIT(A.) - HELD THAT: - The Tribunal recorded the assessee's cash-in-hand figures as on 01.04.2012 and 31.03.2013 and observed that only a specified residual amount remained unexplained and was quantified by the CIT(A). As these facts and figures were undisputed by the Revenue, there was no justification to reinstate the entire addition made by the Assessing Officer. [Paras 6]

The CIT(A)'s restricted addition was maintained and the Revenue's attempt to revive the full addition was rejected.

Admission of additional evidence under Rule 46A - Allegation that the CIT(A) admitted additional evidence in violation of Rule 46A - HELD THAT: - The Tribunal found no material on record to demonstrate that the CIT(A) admitted additional evidence in contravention of Rule 46A of the Income Tax Rules. The Revenue's technical objection was therefore unsupported by the record and did not warrant interference. [Paras 7]

The objection alleging breach of Rule 46A was rejected.

Final Conclusion: The Revenue's appeal is dismissed and the appellate order of the CIT(A) is affirmed in the respects considered by the Tribunal.

Notice under Section 143(2) of the Income Tax Act - mandatory nature of Section 143(2) for assessment under Section 143(3) - reassessment notice under Section 148 and its relation to Section 143(2) - operation and limits of Section 292BB - quashing of assessment where mandatory notice not issued

Notice under Section 143(2) of the Income Tax Act - mandatory nature of Section 143(2) for assessment under Section 143(3) - operation and limits of Section 292BB - Whether the assessments for the years 2009-10 and 2010-11 are invalid because no notice under Section 143(2) was issued and whether Section 292BB cures such non-issuance. - HELD THAT: - The Tribunal recorded the admitted fact that no notice under Section 143(2) was issued to the assessee for either assessment year; only notices under Section 148 were issued. Applying the principle in the jurisdictional High Court's decision in Pr. CIT v. Oberoi Hotels Pvt. Ltd., the Tribunal held that issuance of a notice under Section 143(2) is mandatory where the Assessing Officer does not accept the return and proposes to make an assessment under Section 143(3), and that this requirement persists even in reassessment proceedings. Section 292BB operates only to cure defects in service of a notice where the assessee has not objected before completion of assessment; it does not authorise dispensing with the issuance of a notice that is mandatorily required. Because no Section 143(2) notice was issued and the assessee had raised this objection, Section 292BB could not be invoked to validate the proceedings. Following these determinations, the Tribunal concluded that the assessments framed without a Section 143(2) notice are bad in law and must be quashed. [Paras 7, 8]

The assessment orders for AY 2009-10 and AY 2010-11, framed without issuance of the mandatory notice under Section 143(2), are quashed and the appeals are allowed.

Final Conclusion: Following the binding principle that a notice under Section 143(2) is mandatory for an assessment under Section 143(3) (including in reassessment), and that Section 292BB cannot validate non-issuance of such mandatory notice where the objection is raised, the Tribunal quashed the assessment orders for AY 2009-10 and AY 2010-11 and allowed the assessee's appeals.

Deduction under section 80P(2)(a)(i) - profits and gains of business attributable to providing credit facilities - deduction under section 80P(2)(d) - revisional power under section 263-debatable view doctrine - interest on income-tax refund under section 244A

Deduction under section 80P(2)(a)(i) - deduction under section 80P(2)(d) - revisional power under section 263-debatable view doctrine - Validity of revisional order under section 263 insofar as it held interest from co operative banks not deductible under section 80P(2). - HELD THAT: - Clause (d) of section 80P(2) permits deduction only where interest or dividends are derived by a co operative society from investments with another co operative society; interest paid by a co operative bank therefore does not fall within clause (d). The assessee, however, claimed deduction under clause (a)(i) as a co operative society engaged in providing credit facilities to members. The Tribunal accepted the view that the expression "profits and gains of business attributable to" providing credit facilities has a broad compass and includes income generated from temporary deployment of surplus funds so long as a live link with the business of providing credit exists. In that factual matrix - where deposits with co operative banks were short term deployments of surplus funds and no contrary finding was recorded by the Pr. CIT - the question admitted of more than one possible view. Where the Assessing Officer had taken a view reasonably open on the material, the exercise of revisional power under section 263 is precluded by the debatable issue doctrine. The Pr. CIT's conclusion that interest from co operative banks could not qualify under section 80P(2) was therefore not a legally unsustainable view warranting revision. [Paras 6, 7, 8, 10, 12]

Pr. CIT was not justified in invoking section 263 to revise the assessment in respect of interest income earned from co operative banks; the revisional order in that regard is set aside.

Interest on income-tax refund under section 244A - deduction under section 80P(2)(a)(i) - Whether interest received under section 244A on income tax refund was chargeable to tax in a manner prejudicial to the Revenue so as to warrant revision under section 263. - HELD THAT: - The Tribunal applied binding Special Bench authority which held that interest on income tax refund under section 244A falls within "profits and gains of business" for the purposes of section 80P(2)(a). Consequently, although the interest is chargeable to tax, it is simultaneously deductible in full under section 80P(2)(a)(i) for a co operative society engaged in providing credit facilities. Because the assessment did not add this small interest amount, the omission could not be regarded as an error prejudicial to the Revenue in the context of the assessee, the net tax impact being neutral. [Paras 11, 12]

Pr. CIT was not justified in revising the assessment on account of interest under section 244A; the assessment is not prejudicial to the Revenue on this count.

Final Conclusion: The Tribunal allowed the appeal, holding that the revisional order under section 263 was unsustainable both in respect of interest earned on deposits with co operative banks (deduction under section 80P(2)(a)(i) available on the facts) and in respect of interest under section 244A (taxable but fully deductible under section 80P(2)(a)(i)); the impugned order is set aside.

Burden under Section 68 to prove identity, creditworthiness and genuineness of creditors - Appellate authority's duty to record points for determination and reasons for decision under Section 250(6) - Remand for fresh consideration where appellate order lacks reasons and findings - Relevance of findings in preceding assessment year to current year's adjudication

Burden under Section 68 to prove identity, creditworthiness and genuineness of creditors - Relevance of findings in preceding assessment year to current year's adjudication - Remand for fresh consideration where appellate order lacks reasons and findings - Appellate authority's duty to record points for determination and reasons for decision under Section 250(6) - Whether the order of the Ld. CIT(A) deleting the addition made under Section 68 for A.Y. 2013-2014 was sustainable or required reconsideration for want of reasons and findings. - HELD THAT: - The Tribunal recorded that the Assessing Officer had made an addition under Section 68 after noting that the assessee failed to produce the lender's director and the arranger for examination and, therefore, did not discharge the onus to establish identity, creditworthiness and genuineness of the loan. The Ld. CIT(A) deleted the addition by referring to factual findings recorded in the assessment of the lender in the preceding year and observing repayment through banking channels, but the appellate order did not set out contemporaneous findings of fact or address the ingredients of Section 68 in respect of A.Y. 2013-2014. As Section 250(6) mandates that the appellate authority mention points for determination and reasons for decision, an appellate order that merely reproduces facts from a preceding year without evidencing application to the year under appeal lacks the requisite findings. In these circumstances, and without adjudicating the merits afresh, the Tribunal held that reconsideration by the Ld. CIT(A) is necessary: the matter is to be restored to the file of the Ld. CIT(A) for re decision in accordance with law, after giving the assessee and the Assessing Officer reasonable opportunity to be heard and recording reasoned findings on the evidence and applicability of the preceding year's findings to A.Y. 2013-2014. [Paras 3, 6]

Order of the Ld. CIT(A) set aside and the matter restored to the Ld. CIT(A) for fresh decision in accordance with law after giving reasons and opportunity of hearing; Revenue's appeal allowed for statistical purposes.

Final Conclusion: The Tribunal found that the Ld. CIT(A)'s deletion of the addition under Section 68 for A.Y. 2013-2014 did not contain requisite reasons or findings addressing the Section 68 ingredients for that year; the matter is remitted to the Ld. CIT(A) to decide afresh in accordance with law, recording points for determination and reasoned conclusions after affording opportunity of hearing.

Bail under Section 439 of the Cr.P.C. - sanction to prosecute - completed investigation - absence of seizure from the accused - offence under the Customs Act punishable with imprisonment up to five years - personal bond with local surety and conditions under Section 437(3) Cr.P.C. - surrender of passport as bail condition

Bail under Section 439 of the Cr.P.C. - completed investigation - absence of seizure from the accused - sanction to prosecute - Grant of bail to the applicant despite non-obtaining of sanction where investigation as to the applicant is complete and no incriminating goods were seized from him. - HELD THAT: - The Court accepted the prosecution's concession that investigation against the applicant has been completed and observed that no gold was seized from the applicant. In that factual matrix the Court held that continued custodial detention was not justified. The pending requirement of obtaining sanction to prosecute and subsequent filing of charge-sheet was not treated as a bar to grant of bail where investigation in respect of the applicant stood completed and there was no seizure attributable to him. The Court expressly declined to express any opinion on the merits of the case and directed release on bail subject to conditions.

Bail allowed; applicant to be released on execution of a personal bond with one local surety and to comply with conditions including those under Section 437(3) Cr.P.C. and surrender of passport.

Final Conclusion: M.Cr.C. allowed; applicant Rajesh Neema granted bail on conditions (personal bond with local surety, compliance with Section 437(3) Cr.P.C., and surrender of passport), the Court not expressing any view on merits.

Classification of composite metal scrap by dominant base metal - applicability of note no. 7 in Section XV of the First Schedule to Customs Tariff Act, 1975 - reliance on competing laboratory test reports and exercise of discretion under Board Circular No. 30/2017-Cus - transaction value and conditions for rejection under Customs valuation provisions - confiscation and option of redemption under section 125 of the Customs Act, 1962 - penalty under section 114AA of the Customs Act, 1962 - power to remit/refer matter to adjudicating authority for fresh testing and procedure for re adjudication

Classification of composite metal scrap by dominant base metal - classification as copper alloy vs iron/steel scrap - The proposed re-classification of the imported composite bars as 'copper waste and scrap' under the tariff item in chapter 74 is incorrect and, consequently, the declared classification as heavy melting steel scrap under chapter 72 survives. - HELD THAT: - The adjudicating authority's finding that the cylindrical core constituted a copper alloy was not supported by the material: the core lacked the hallmarks of a copper alloy and the second laboratory communication did not establish alloying elements. The Chapter 74 notes distinguish 'copper alloy' by presence of other elements beyond prescribed limits; that condition was not satisfied. Once the classification as 'copper alloy' is ruled out, the legal basis for discarding the declared classification fails and the declared classification must be accepted. [Paras 7]

Re-classification to chapter 74 is unsustainable; declared classification under chapter 72 stands.

Reliance on competing laboratory test reports and exercise of discretion under Board Circular No. 30/2017-Cus - applicability of note no. 7 in Section XV of the First Schedule to Customs Tariff Act, 1975 - The adjudicating authority erred in applying note no. 7 of Section XV and in invoking Circular No. 30/2017-Cus to prefer the first laboratory report where no genuine variance of two complete test reports existed and no justified exercise of discretion was recorded. - HELD THAT: - Circular No. 30/2017 permits choosing between competing complete test reports when they are at variance, subject to reasons. Here, laboratories declined to undertake a retest and the second communication was inconclusive or beyond scope; there was therefore no proper basis of two competing complete reports. The adjudicator's default adoption of the disputed report without satisfying the circular's preconditions and without recording adequate reasons was impermissible. Consequently there was no material permitting application of note no. 7 to displace the declared classification. [Paras 8]

Reliance on the first report under the circular and application of note no. 7 were legally unsustainable.

Transaction value and conditions for rejection under Customs valuation provisions - The adjudicating authority was not entitled to discard the declared transaction value and revise valuation in the absence of evidence that the transaction or contract did not reflect the actual value as required by the valuation provisions. - HELD THAT: - The impugned order did not demonstrate that the invoice transaction or the contract were at variance with the declared value as contemplated by valuation law. The goods were admitted to be 'waste and scrap' and absent material showing that the transaction value was unacceptable under the statutory tests, the declared invoice value could not be set aside merely because of a re-classification attempt which itself was unsound. [Paras 10]

Revision of declared value was not justified; declared value must be accepted in absence of contrary evidence.

Confiscation and option of redemption under section 125 of the Customs Act, 1962 - penalty under section 114AA of the Customs Act, 1962 - The order of absolute confiscation without offering the statutory option of redemption under section 125 was improper; the penalty imposed on the Director under section 114AA was unsustainable and has been set aside. - HELD THAT: - The adjudicating authority's apparent intention of absolute confiscation disregarded the statutory requirement to provide the option of redemption. Further, the record did not establish deliberate concealment by the Director; imposition of penalty under section 114AA on the director was a colourable and casually made exercise of power. In consequence, the penalty on Shri Omprakash Kanungo was set aside. [Paras 4, 18]

Absolute confiscation order is improper for failure to offer statutory redemption; penalty on the Director under section 114AA is set aside.

Final disposal of impugned adjudication - The impugned adjudication order is set aside and the appeals are allowed. - HELD THAT: - For the combined reasons-incorrect re-classification, improper reliance on the laboratory report and circular, unjustified revision of declared value, and procedural defects regarding confiscation and penalty-the adjudication lacked legal authority and must be annulled. The Tribunal allows the appeals and sets aside the impugned order. [Paras 11]

Impugned order set aside; appeals allowed.

Power to remit/refer matter to adjudicating authority for fresh testing and procedure for re adjudication - re-testing during adjudication and limits of show cause notice - Several procedural and factual questions concerning ordering of re-tests during adjudication, scope of facts admissible beyond the show cause notice, and interpretation/application of Circular No. 30/2017-Cus were not finally resolved by the Bench and have been referred to a Third Member under section 129C(5) for determination. - HELD THAT: - The Bench recorded a difference of opinion between the Members on whether (i) the incorrectness of the proposed classification requires immediate acceptance of declared classification or whether re-testing and re-adjudication is warranted; (ii) whether ordering re-tests during adjudication adds facts beyond the show cause notice; (iii) the proper response where laboratories decline re-testing; (iv) the inference to be drawn from the laboratories' claimed inability to perform the requested test; and (v-vi) whether the circular permits choice where the second report is inconclusive and whether the second report was erroneous or merely inconclusive. These points have therefore been referred for determination by a Third Member. [Paras 13, 15, 16, 19]

The specified points of difference are referred to a Third Member for resolution; the matter is not finally decided on these procedural questions.

Final Conclusion: The Tribunal found the re-classification to chapter 74 and the consequent valuation revision and penalties unsustainable, set aside the impugned adjudication order and allowed the appeals, set aside the penalty on the director, and referred specified procedural and re-test questions to a Third Member for determination under section 129C(5).

Classification of goods - General Rules for the Interpretation of Import Tariff (GIR) - Explanatory Notes to the Harmonised System of Nomenclature - prefer specific description over general description - onus on customs authorities to justify reclassification - preferential tariff concession / notification entitlement

Classification of goods - Explanatory Notes to the Harmonised System of Nomenclature - prefer specific description over general description - General Rules for the Interpretation of Import Tariff (GIR) - Whether the imported split air-conditioners of Thai origin were correctly classifiable under tariff item 84151010 of the First Schedule to the Customs Tariff Act, 1975 and thereby eligible for notification exemption. - HELD THAT: - The Tribunal held that the classification exercise must begin with the heading and proceed by hierarchical elimination in accordance with the GIR and the General/Additional Explanatory Notes. The scope of sub-heading 8415.10 (covering window or "split-system" air conditioners) was not shown to be inapplicable to the impugned goods; the adjudicating authority failed to establish that the goods were excluded from tariff item 84151010 before resorting to residuary sub-headings. The presence of heating capability does not, by itself, exclude applicability of 84151010, nor is every cooling system to be assumed to be a special "refrigerant unit" absent proof. The adjudicating authority also did not authenticate the technical basis for treating the goods as incorporating a reversible refrigerant unit, and appears to have applied an eight-digit sub-heading without first conclusively eliminating the six-digit specific entry. Applying the GIR and Explanatory Notes, the Tribunal concluded that the appellant's declared classification under 84151010 was sustainable. [Paras 12, 13, 14, 15, 16]

The impugned goods are classifiable under tariff item no. 84151010; the appellant's claimed classification is upheld.

Onus on customs authorities to justify reclassification - classification of goods - preferential tariff concession / notification entitlement - Whether the adjudicating authority rightly re-determined classification under sub-heading 841581 and denied notification-based exemption, and whether the reclassification procedure satisfied legal standards. - HELD THAT: - The Tribunal found that the adjudicating authority reclassified the goods under sub-heading 841581 without adducing adequate evidence to establish the presence of the distinctive feature (a refrigerant unit with a valve for reversal of the cooling/heat cycle) necessary to exclude the specific six-digit entry. The authorities failed to discharge the burden of proving misclassification and did not follow the required hierarchical comparison of sub-headings at the same level. The technical conclusions relied upon were not authenticated and appeared to be drawn from selective material rather than a proper examination of the goods or reliable catalogues. Consequently, denial of the notification exemption based on the reclassification was unsustainable. [Paras 8, 11, 12, 13, 14]

The re-determination of classification under sub-heading 841581 and resultant denial of the exemption is set aside as legally unsound for failure to justify reclassification.

Final Conclusion: The impugned order is set aside and the appeal is allowed: the imported split air-conditioners are held classifiable under tariff item 84151010 and eligible for the claimed notification exemption; the reclassification to 841581 and the consequential denial of exemption were unwarranted for failure to follow GIR, Explanatory Notes and to discharge the onus of proof.

Conversion of free shipping bill into drawback shipping bill - right to duty drawback as a substantive benefit - procedural irregularities cannot defeat substantive benefit - natural justice - requirement of opportunity of hearing - re-import under Notification No. 158/95 subject to time limit for re-export - remand for fresh consideration after affording hearing

Natural justice - requirement of opportunity of hearing - procedural irregularities cannot defeat substantive benefit - right to duty drawback as a substantive benefit - Rejection of request to convert free shipping bill into drawback shipping bill without affording opportunity of hearing was in violation of principles of natural justice and impermissible where substantive right to drawback is involved. - HELD THAT: - The Tribunal found that the Department rejected the appellant's request for conversion of free shipping bill into a drawback shipping bill without affording the appellant an opportunity of hearing. The Court observed that duty drawback is a substantive benefit and that accepted authorities and CBEC Circular No. 1063/2/2018-CX (16.02.2018) recognise that substantive benefits should not be denied on account of procedural irregularities. In these circumstances, the impugned communication was set aside because the Department did not follow the principles of natural justice before denying the conversion sought by the exporter. The Tribunal emphasised that procedural non-compliance cannot operate to extinguish a substantive claim without giving the claimant a chance to be heard.

Impugned rejection set aside for breach of natural justice and because substantive drawback benefit cannot be denied for procedural irregularities.

Conversion of free shipping bill into drawback shipping bill - re-import under Notification No. 158/95 subject to time limit for re-export - remand for fresh consideration after affording hearing - Claim for conversion of free shipping bills into drawback shipping bills remanded to the Commissioner for fresh consideration after affording opportunity of hearing and verifying compliance with conditions (including any time-limit-related consequences). - HELD THAT: - Although the Tribunal noted that a portion of the re-export was effected beyond the permissible period under Notification No. 158/95 and that the appellant had paid the departmental demand (duty and interest), the Tribunal did not finally adjudicate entitlement to drawback on merits. Instead, relying on accepted case law and the CBEC circular, the Tribunal directed that the Commissioner should reconsider the appellant's application for conversion after following principles of natural justice and after affording the appellant an opportunity to be heard. The remand expressly contemplates verification of facts and conditions relevant to conversion (including time-limit issues) and fresh disposal by the Commissioner.

Matter remanded to the Commissioner to reconsider conversion claim after affording hearing; to be disposed of within two months of receipt of certified copy of order.

Final Conclusion: The Tribunal set aside the departmental communication dated 12.03.2019 for failure to afford hearing and, treating drawback as a substantive right not to be defeated by mere procedural irregularity, remanded the claim for conversion of free shipping bills into drawback shipping bills to the Commissioner for fresh consideration after hearing the appellant, to be completed within two months.

Interpretation of duty-free import authorisation (DFIA) scheme - eligibility for exemption under notification issued for DFIA - permissibility of wheat gluten as substitute for flour under SION E5 - transferability of DFIA licences and actual user condition - requirement of specification/technical characteristics for inputs in shipping bills - binding effect of coordinate bench decision of the Tribunal

Permissibility of wheat gluten as substitute for flour under SION E5 - interpretation of duty-free import authorisation (DFIA) scheme - Import of 'wheat gluten amygluten 160' qualifies as import of 'flour' for the purposes of entitlement under the DFIA notifications. - HELD THAT: - The Tribunal examined the nature and processing of the imported product and held that wheat gluten is produced by removing starch from wheat flour and therefore represents a depleted form of the same essential product rather than an altogether different ingredient. The adjudicating authority's distinction based on tariff heading was not treated as determinative against entitlement where classification declared at import was accepted and not impugned for misdeclaration. The Tribunal further held that a coordinate-bench decision in Uni Colloids Impex P Ltd (Tri-Ahmd) finding the same imports permissible binds the present adjudication. Reliance on ejusdem generis or on decisions interpreting intended use did not warrant departing from the earlier Tribunal precedent or from the conclusion that the product falls within permissible imports under the DFIA norms. [Paras 10, 11, 15]

The imports of wheat gluten are within the scope of 'flour' permitted under the DFIA notifications and the Tribunal's prior decision on the point binds this case.

Transferability of DFIA licences and actual user condition - eligibility for exemption under notification issued for DFIA - A transferee of a DFIA licence endorsed post-export is not, merely by reason of transference, disqualified by an unexpressed 'actual user' condition unless such a condition is specifically imposed by the policy or notification. - HELD THAT: - The Tribunal noted that the DFIA scheme permits transfer of licences and that neither the Foreign Trade Policy nor the corresponding notification annexed to the Customs Act imposed an enduring 'actual user' restriction on transferees. There was no allegation of unlawful procurement of endorsements. Consequently, in the absence of an express condition making entitlement limited to original actual users, transferees who obtain licences lawfully remain eligible for the exemption; moreover, ultimate use by an actual user undermines Revenue's logic for denial. [Paras 12]

Transfers of DFIA licences endorsed post-export do not carry an implicit actual-user restriction and do not, by themselves, defeat entitlement to the notification benefit.

Requirement of specification/technical characteristics for inputs in shipping bills - eligibility for exemption under notification issued for DFIA - Absence of declared technical specifications or composition in the original shipping bills, and lack of credible evidence as to the inputs actually used, is insufficient to deny entitlement to DFIA benefits in the circumstances of these cases. - HELD THAT: - The Tribunal observed that the relevant policy, circulars and Handbook of Procedures do not mandate correlation of technical specifications for all inputs except those specifically enumerated in paragraph 4.55.3. The original licence-holder had not declared detailed composition in the shipping bills and there was no material to show appellants were aware of such composition. In consequence, Revenue failed to demonstrate non-conformity with any stipulated specification that would disentitle the appellants to the exemption, and the record did not support recovery on reassessment of duty based on misdeclaration of classification or value. [Paras 8, 9, 13]

Denial of entitlement on the ground of non-declared technical characteristics or composition is not sustainable absent specific prescription or credible evidence of non-conformity.

Final Conclusion: In view of the Tribunal's findings that the imported wheat gluten is within the ambit of 'flour' permissible under the DFIA notifications, that transferees of lawfully endorsed DFIA licences are not disqualified by an implicit 'actual user' condition, and that Revenue has not produced credible evidence of non conformity with any mandated specification, the impugned order imposing duty recovery and penalties is unsustainable and the appeals are allowed.

Corporate Insolvency Resolution Process - Notice of dispute under Section 8(2) and rejection under Section 9(5)(ii)(d) - IBC is not a recovery law - Buyer's right to sue for damages after acceptance under the Sale of Goods Act - Settlement/compromise communications made without prejudice not admissible as admissions

Notice of dispute under Section 8(2) and rejection under Section 9(5)(ii)(d) - Corporate Insolvency Resolution Process - IBC is not a recovery law - Existence of a pre existing dispute raised by the corporate debtor in response to the demand notice and its effect on the maintainability of the application under Section 9. - HELD THAT: - The Tribunal found on the material before it - notably the emails exchanged and the corporate debtor's timely reply to the demand notice - that a plausible pre existing dispute regarding quality of supplied goods was brought to the operational creditor's attention. Relying on the standard in Mobilox, the Adjudicating Authority is required at the admittance stage only to determine whether a notice of dispute exists or whether there is a record of dispute in the information utility and whether the dispute is a bona fide one requiring further investigation rather than being a patently feeble contention. Given the email dated 06.07.2017 and the reply to the demand notice, the Tribunal concluded that the dispute was neither spurious nor merely an afterthought to delay recovery. The Tribunal also emphasised that the Code is not a recovery statute but a mechanism to rescue viable concerns, and therefore an operational creditor's application must be rejected where a bona fide dispute is shown at this stage. [Paras 11, 12, 13]

The application for initiation of CIRP should have been rejected because a pre existing, plausible dispute was shown; the impugned admission of the Section 9 petition was set aside.

Settlement/compromise communications made without prejudice not admissible as admissions - Buyer's right to sue for damages after acceptance under the Sale of Goods Act - Whether the settlement proposal and other communications by the corporate debtor amounted to an admission extinguishing the dispute. - HELD THAT: - The Tribunal accepted the corporate debtor's position that the settlement proposal was made in the context of ongoing negotiations and humanitarian concerns for employees and was expressed without prejudice to its legal contentions. Reliance was placed on established authorities that communications during compromise negotiations ordinarily cannot be used as admissions where they were made to effect a settlement and were not intended to be evidence against the maker. Separately, the Tribunal noted the legal position under the Sale of Goods Act that a buyer who uses goods may still have an alternative remedy in damages for breach of warranty; that legal position, however, did not render the dispute non existent at the stage of Section 9 admittance. On these bases the Tribunal rejected the submission that the settlement proposal constituted an admission sufficient to oust the dispute. [Paras 8, 13]

The settlement proposal and compromise communications did not amount to an admission negating the dispute; they could not be used to defeat the corporate debtor's plea of dispute.

Final Conclusion: The appeal is allowed: the National Company Law Tribunal's order admitting the Section 9 petition, appointing an interim resolution professional and imposing moratorium and related CIRP actions is set aside on the ground that a bona fide pre existing dispute was shown; the corporate debtor is restored to management and shall initially bear the CIRP costs incurred, with liberty to recover them from the operational creditor.

Obligation under Section 19 of the I&B Code to cooperate with the Resolution Professional - Power of the Adjudicating Authority to direct compliance and to recommend consideration of action under Section 70 read with Section 236 - Liability of Independent and non executive directors for acts of the company where knowledge or attribution arises through board processes - Limited scope of MCA circular No.1/2020 (02.03.2020) - applicability confined to protection under the Companies Act, 2013 - Non recognition of the concept of 'sleeping director' as a statutory defence under the Companies Act or the I&B Code

Obligation under Section 19 of the I&B Code to cooperate with the Resolution Professional - Whether the Adjudicating Authority was justified in concluding that the suspended directors did not comply with their obligation under Section 19 to furnish books, records and information to the Resolution Professional. - HELD THAT: - The Tribunal noted that Section 19 imposes an obligation on personnel of the corporate debtor (including directors and key managerial personnel) to extend assistance and cooperation to the interim/Resolution Professional and that the burden to establish the need for information is on the office holder. The record showed that specific notices were issued (including the notice dated 12.10.2019) calling for books, financial statements, computer records and other information and that the directors either failed to furnish the required material or sought to refer the Resolution Professional to another director. The Tribunal found that adequate opportunity was given to the appellants to respond (including the show cause procedure) and that the Adjudicating Authority's prima facie conclusion of non compliance was supported by the material on record. [Paras 36, 42, 43, 44]

The conclusion of the Adjudicating Authority that the suspended directors had not delivered requisite books and information and had failed to cooperate under Section 19 is sustained.

Power of the Adjudicating Authority to direct compliance and to recommend consideration of action under Section 70 read with Section 236 - Scope of Section 70 and Section 236 regarding prosecution - Whether the Adjudicating Authority exceeded its jurisdiction in recommending the matter to the IBBI/Central Government for consideration of action under Section 70 read with Section 236. - HELD THAT: - The Tribunal analysed the statutory scheme and observed that Section 70 prescribes punishment for misconduct and Section 236 contemplates trial by a Special Court on complaint by the IBBI or Central Government (or authorised person). The Tribunal held that the Adjudicating Authority is competent to make a recommendation or refer information to the IBBI/Central Government for consideration; such reference is for the IBBI/Central Government to take an independent decision whether to initiate prosecution. The Adjudicating Authority's recommendation was therefore procedural in nature and did not equate to initiation of prosecution by the Adjudicating Authority itself. [Paras 37, 38, 39, 49]

The Adjudicating Authority did not exceed its jurisdiction in directing that the matter be sent for consideration under Section 70 r/w Section 236; the recommendation is within its ambit and the IBBI/Central Government must take an independent call.

Liability of Independent and non executive directors for acts of the company where knowledge or attribution arises through board processes - Limited scope of MCA circular No.1/2020 (02.03.2020) - applicability confined to protection under the Companies Act, 2013 - Whether the appellants could be shielded by the MCA circular No.1/2020 or by the protection accorded to independent/non executive directors under Section 149(12) of the Companies Act from the Adjudicating Authority's recommendation. - HELD THAT: - The Tribunal observed that the protection envisaged by the MCA circular and Section 149(12) is available under the Companies Act, 2013, and that such circular cannot be invoked to restrict actions under other statutes. The Tribunal reiterated that independent and non executive directors remain part of the board and may be held liable for acts within their knowledge or attributable through board processes; the burden of proving lack of knowledge lies on such directors. Accordingly, the circular could not be used as a shield before the Adjudicating Authority under the I&B Code, and the appellants' contention that their independent/non executive status immunised them was rejected. [Paras 40, 41, 45]

The MCA circular and protections under Section 149(12) are confined to the Companies Act; they do not preclude the Adjudicating Authority from forming a prima facie view under the I&B Code that may be referred to the IBBI/Central Government for consideration.

Non recognition of the concept of 'sleeping director' as a statutory defence under the Companies Act or the I&B Code - Whether the appellants' plea of being 'sleeping directors' absolved them of the duty to cooperate or of exposure to recommendation for misconduct. - HELD THAT: - The Tribunal observed there is no statutory recognition of a 'sleeping director' under either the Companies Act or the I&B Code. Section 19 extends to directors and other personnel and does not confine cooperation obligations to managing or executive directors alone. The appellants' averments that they were mere 'sleeping directors' were unsupported by evidence and thus insufficient to rebut the Adjudicating Authority's prima facie finding of non cooperation. [Paras 14, 46, 47]

The defense of being a 'sleeping director' is not a recognised statutory shield and is rejected; the appellants remain liable to the obligations under Section 19.

Final Conclusion: The Tribunal dismissed the appeals, upholding the Adjudicating Authority's prima facie findings of non cooperation by the suspended directors under Section 19 and its competence to refer the matter to the IBBI/Central Government for consideration under Section 70 r/w Section 236; the MCA circular was held to be confined to the Companies Act and did not bar the Adjudicating Authority's recommendation. The listed interim applications for placing the circular on record were allowed/closed as recorded.

Pre-existing dispute - operational creditor - admission of application under Section 9(5) of the Insolvency and Bankruptcy Code, 2016 - moratorium under Section 14(1) of the Insolvency and Bankruptcy Code, 2016 - limitation for filing under Section 9 - jurisdiction of Adjudicating Authority - appointment of Interim Resolution Professional - proof of debt evidenced by a decree

Pre-existing dispute - proof of debt evidenced by a decree - Mobilox principle on plausible contention - The contention of a pre-existing dispute raised by the corporate debtor is not a genuine dispute and does not bar admission of the Section 9 application. - HELD THAT: - The Tribunal found no admissible material placed on record by the corporate debtor to demonstrate a plausible, pre-existing dispute which required further investigation. The earlier decree passed by the learned ADJ, Rohini Court, New Delhi dated 08.09.2016 recording recovery in favour of the applicant, undermines the corporate debtor's averments of a dispute and indicates admission of liability. Applying the principle that only a plausible contention supported by evidence can constitute a pre-existing dispute, the Tribunal held the corporate debtor's assertions to be spurious and legally insufficient to defeat the claim. [Paras 14, 15, 16]

Pre-existing dispute held to be frivolous; does not bar the Section 9 application.

Operational creditor - admission of application under Section 9(5) of the Insolvency and Bankruptcy Code, 2016 - The Section 9 application filed by the applicant is complete and the applicant qualifies as an operational creditor; the application is admitted under Section 9(5). - HELD THAT: - Having considered the record, including the decree for recovery and the applicant's affidavits (including the bank statement and affirmation under Section 9(3)(b)), the Tribunal concluded that the applicant had established its claim as an operational debt payable by the corporate debtor. In absence of any valid notice of dispute or record in an information utility, and given the decree in favour of the applicant, the requirements for admission under Section 9(5) were satisfied and the application was admitted. [Paras 16, 17]

Application held complete; applicant recognised as operational creditor and application admitted under Section 9(5).

Limitation for filing under Section 9 - date of default - The application is within limitation; the date of default is the date of the decree, and the Section 9 application was filed within the limitation period. - HELD THAT: - The Tribunal recorded the date of default as 08.09.2016, being the date of the decree passed by the learned ADJ. The present application filed on 06.06.2019 was held not to be time-barred. The Tribunal therefore rejected the limitation objection raised by the corporate debtor. [Paras 18]

Application not barred by limitation; filed within the permissible period from date of default.

Jurisdiction of Adjudicating Authority - registered office - The Tribunal has jurisdiction to entertain the Section 9 application. - HELD THAT: - The registered office of the corporate debtor is situated in Delhi. On that basis the Tribunal concluded that it has territorial jurisdiction to try and dispose of the application. [Paras 19]

NCLT New Delhi Bench has jurisdiction to hear the application.

Appointment of Interim Resolution Professional - An Interim Resolution Professional is appointed and the applicant directed to deposit funds to meet initial IRP expenses. - HELD THAT: - Since the Section 9 application was admitted, the Bench appointed Mr. Manish Kumar Aggarwal as Interim Resolution Professional subject to the usual conditions. The Tribunal directed the applicant to deposit a sum to cover IRP expenses, to be adjusted by the Committee of Creditors as accounted for by the IRP. The IRP was directed to file consent and disclose as required under the applicable IBBI regulations within one week. [Paras 20, 21]

IRP appointed; applicant directed to deposit amounts to meet IRP expenses and comply with disclosure and consent requirements.

Moratorium under Section 14(1) of the Insolvency and Bankruptcy Code, 2016 - Upon admission of the application, the moratorium under Section 14(1) follows and the provisions of Sections 14(2) to 14(4) shall apply. - HELD THAT: - As a statutory consequence of admitting the Section 9 application, the Tribunal noted that the moratorium envisaged under Section 14(1) is triggered in relation to the corporate debtor, with the provisos and the ensuing provisions applicable during the moratorium period. [Paras 22]

Moratorium under Section 14(1) declared; Sections 14(2) to 14(4) to operate during pendency.

Final Conclusion: The Tribunal admitted the Section 9 application filed by the operational creditor, finding no genuine pre-existing dispute and holding the application to be within limitation and within the Tribunal's jurisdiction; an Interim Resolution Professional was appointed, the applicant ordered to deposit funds to meet IRP expenses, and the moratorium under Section 14(1) was declared.

Initiation of Corporate Insolvency Resolution Process under Section 9 of the Insolvency and Bankruptcy Code, 2016 - Operational debt and default - Service and effect of Section 8 demand notice - Notice of dispute to operational debt - Limitation and date of default - Jurisdiction of the Adjudicating Authority - Appointment of Interim Resolution Professional - Moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016

Operational debt and default - Service and effect of Section 8 demand notice - The applicant established default in payment of an operational debt and the Section 8 demand notice was not disputed, entitling admission of the Section 9 application. - HELD THAT: - The Tribunal found on the record that the applicant supplied materials and raised invoices, issued a demand notice in Form 3 under Section 8, and that no reply to the Section 8 notice was received. The corporate debtor's reply to the Section 9 application alleged a pre-existing dispute about quality and existence of the debt but failed to produce supporting documents or contemporaneous correspondence. The Tribunal held that the corporate debtor did not dispute service of the Section 8 notice and that the so-called dispute was raised only after institution of the Section 9 petition without evidence, so the default is established and the applicant is entitled to claim its dues. [Paras 7, 8, 9, 11, 13]

Section 9 application is maintainable as default in payment of the operational debt is established and the Section 8 notice was not disputed.

Notice of dispute to operational debt - The alleged pre-existing dispute raised by the corporate debtor is not a plausible notice of dispute under the Code. - HELD THAT: - The corporate debtor asserted a dispute regarding quality and existence of the debt but did not place any documentary evidence or prior correspondence on record to substantiate that contention. The Tribunal treated the assertions as unsubstantiated and arising only after the Section 9 petition was filed, concluding there was no valid notice of dispute which could defeat the petition. [Paras 7, 8, 9, 11]

The contention of a pre-existing dispute is rejected for want of evidence; no notice of dispute is recorded.

Limitation and date of default - The application was filed within the period of limitation as the date of default is 01.09.2018 and the petition was filed on 01.11.2018. - HELD THAT: - The Tribunal noted the date of default as recorded and compared it with the filing date of the Section 9 application, finding that the petition was within the permissible period and therefore not time-barred. [Paras 10]

The application is within limitation and not time-barred.

Jurisdiction of the Adjudicating Authority - This Tribunal has jurisdiction to entertain the Section 9 application. - HELD THAT: - The Tribunal observed that the registered office of the corporate debtor is situated within its territorial limits and therefore the Adjudicating Authority is competent to hear and decide the application. [Paras 12]

The Tribunal has jurisdiction to entertain and try the application.

Appointment of Interim Resolution Professional - An Interim Resolution Professional (IRP) is appointed and duties and conditions for assumption of office are prescribed. - HELD THAT: - As the applicant had not named an IRP, the Tribunal appointed Mr. Jayprakash Bansilal Somani subject to there being no pending disciplinary proceedings and subject to his filing the required consent and disclosures in Form 2 and under the relevant IBBI regulations within one week. The Tribunal also directed the operational creditor to deposit an amount with the IRP to meet initial expenses, to be adjusted by the Committee of Creditors later. [Paras 14, 15]

Mr. Jayprakash Bansilal Somani is appointed as Interim Resolution Professional subject to conditions, and the operational creditor is directed to deposit funds for IRP expenses.

Moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 - On admission of the Section 9 application, the moratorium under Section 14(1) is declared and its consequences will follow as per the Code. - HELD THAT: - The Tribunal ordered that, consequent to admission under Section 9(5), the moratorium envisaged by Section 14(1) shall apply to the corporate debtor, and that the provisions of Sections 14(2) to 14(4) shall operate during the moratorium period as provided in the Code. [Paras 16]

Moratorium under Section 14 follows consequent to the admission of the petition.

Final Conclusion: The Section 9 application is admitted: default in payment of the operational debt is established, the corporate debtor's alleged dispute is rejected for want of evidence, the petition is within limitation and the Tribunal has jurisdiction; an Interim Resolution Professional is appointed on specified conditions and initial deposit directed; and the moratorium under Section 14 of the Code is declared.

Admission of Section 9 application under IBC - existence of operational debt and default - limitation and date of default - jurisdiction of Adjudicating Authority based on registered office - ex-parte proceedings - appointment of Interim Resolution Professional - moratorium under Section 14 - security/deposit for IRP's expenses

Admission of Section 9 application under IBC - existence of operational debt and default - Application under Section 9 was maintainable and admitted on the basis that operational debt and default were established. - HELD THAT: - The Tribunal examined the invoices, part payments, demand notice under Section 8 and the Form V annexed to the application. The applicant demonstrated supply of goods, issuance of VAT sales invoices, partial payments by the corporate debtor and the balance outstanding. The applicant also filed the requisite affidavit in compliance with Section 9(3)(b). On the basis of these documents and submissions the Bench found that the applicant had established operational debt and default and that the application was otherwise complete and in prescribed form under Rule 6. Consequently the application was admitted. [Paras 5, 7, 9, 13, 14]

The Section 9 application was admitted as the applicant proved an operational debt and default and complied with procedural requirements.

Limitation and date of default - The application was not barred by limitation having been filed within time from the date of default. - HELD THAT: - The Tribunal recorded the date of default as 22.12.2016 and noted that the present application was filed on 17.12.2019. On that basis the Bench was satisfied that the application lay within the period of limitation and therefore was maintainable on limitation grounds. [Paras 11]

Application held to be within limitation.

Jurisdiction of Adjudicating Authority based on registered office - This Adjudicating Authority had jurisdiction to entertain the application. - HELD THAT: - The Tribunal noted that the registered office of the corporate debtor is situated in Delhi and, accordingly, the NCLT Bench in Delhi has territorial jurisdiction to entertain and try the Section 9 application. [Paras 12]

The Tribunal exercised jurisdiction on account of the corporate debtor's registered office being in Delhi.

Ex-parte proceedings - Proceedings were continued ex-parte against the corporate debtor. - HELD THAT: - The record shows service of the demand notice and the Section 9 application; the corporate debtor did not appear or file any reply. The Tribunal therefore proceeded ex-parte against the corporate debtor as recorded in the order dated 12.02.2020. [Paras 8, 10]

Proceedings were conducted ex-parte against the corporate debtor.

Appointment of Interim Resolution Professional - An Interim Resolution Professional (IRP) was appointed on admission of the application. - HELD THAT: - As the applicant had not proposed an IRP, the Bench appointed Mr. Sanjay Garg as Interim Resolution Professional subject to the condition that no disciplinary proceedings are pending against him. The IRP was directed to file the requisite consent and disclosures under the IBBI regulations within one week. [Paras 15]

Mr. Sanjay Garg appointed as IRP with directions to file consent and disclosures.

Moratorium under Section 14 - On admission, the moratorium under Section 14(1) of the Code commenced with consequential application of Sections 14(2) to 14(4). - HELD THAT: - The Tribunal recorded that upon admission of the Section 9 application the moratorium envisaged under Section 14(1) of the Insolvency and Bankruptcy Code follows, with the provisos and related provisions (Sections 14(2)-14(4)) becoming operative for the corporate debtor during the moratorium period. [Paras 16]

Moratorium under Section 14 commenced on admission, with consequential application of related provisions.

Security/deposit for IRP's expenses - Applicant was directed to deposit a sum to meet IRP's initial expenses. - HELD THAT: - The Tribunal directed the applicant to deposit Rs. 1 lakh with the appointed IRP within one week to meet out expenses and to enable the IRP to perform functions under the Regulations. The amount was ordered to be subject to adjustment by the Committee of Creditors as accounted by the IRP and refundable to the applicant. [Paras 17]

Applicant directed to deposit the specified sum with the IRP for initial expenses, subject to adjustment by the Committee of Creditors.

Communication of order and statutory compliances - The Registry was directed to communicate the order and to forward copies to the IRP, IBBI and ROC with statutory compliances. - HELD THAT: - The Tribunal ordered that a copy of the order be communicated to the applicant and the corporate debtor, the IRP be intimated of his appointment, the applicant provide the paper book to the IRP, and that the order be forwarded to the IBBI and the Registrar of Companies for updating records and compliance reporting. [Paras 18]

Registry to communicate the order and forward necessary documents to the IRP, IBBI and ROC.

Final Conclusion: The Tribunal admitted the Section 9 application on the ground that an operational debt and default were established, held the application within limitation, proceeded ex-parte against the corporate debtor, appointed an Interim Resolution Professional, directed commencement of the moratorium under Section 14, ordered an initial deposit for IRP's expenses, and directed communication of the order to relevant authorities.

Entitlement to fair value and liquidation value - confidentiality obligation under Regulation 35 of IBBI (CIRP) Regulations, 2016 - status of suspended board/promoters as invitees and non-members of the Committee of Creditors - right to receive copy of resolution plan - disclosure of admitted claims to participants and in information memorandum/website

Entitlement to fair value and liquidation value - confidentiality obligation under Regulation 35 of IBBI (CIRP) Regulations, 2016 - status of suspended board/promoters as invitees and non-members of the Committee of Creditors - Applicant is not entitled to directions to the Resolution Professional to furnish the fair value and liquidation value of the corporate debtor. - HELD THAT: - The Tribunal examined Regulation 35 of the IBBI (CIRP) Regulations, 2016 which contemplates disclosure of fair value and liquidation value to members of the Committee of Creditors upon receipt of an undertaking to maintain confidentiality, and imposes confidentiality obligations on the Resolution Professional and registered valuers. The applicant was held to be only an invitee of the COC without voting rights or member status; accordingly the RP is bound to disclose such valuation information to members of the COC on the conditions prescribed by Regulation 35, but not to invitees or suspended board members lacking COC membership. The Court rejected the contention that precedents relied upon entitled the applicant to the valuation details in the present facts and concluded that the directions sought to compel disclosure of the valuation information to the applicant could not be granted. [Paras 8, 9, 13]

Direction to furnish fair value and liquidation value to applicant refused; applicant not entitled to such disclosure.

Disclosure of admitted claims to participants and in information memorandum/website - participation in COC meetings and access to information - No direction was required to be issued to the Resolution Professional to furnish details of claims admitted, as the applicant participated in COC meetings and had access to minutes and disclosures. - HELD THAT: - The Tribunal noted that issues of claims were placed before the COC, minutes had been filed, and admitted claims are disclosed on the corporate debtor's website and through the information memorandum. Since the applicant attended the COC meetings and had access to the minutes, the Court found that he was already privy to the claims information and therefore no further direction for disclosure was necessary. [Paras 10]

No direction to RP to furnish details of admitted claims; applicant had access through attendance and published disclosures.

Right to receive copy of resolution plan - participation rights of suspended board representatives - The suspended board's representative is entitled to participate in meetings and to receive copies of the resolution plan, but that entitlement does not extend to confidential valuation data. - HELD THAT: - The Tribunal accepted the respondent's submission and relied on authority that erstwhile members of the board (suspended board representatives) may participate in COC meetings and obtain copies of the resolution plan when filed, but such participation does not confer a right to receive confidential materials like fair value and liquidation value, which Regulation 35 restricts to COC members subject to confidentiality undertakings. [Paras 5, 11, 12]

Applicant may receive copy of resolution plan when available but is not entitled to confidential valuation information.

Final Conclusion: The interlocutory application seeking directions to the Resolution Professional to furnish fair value/liquidation value and claim details is dismissed; the applicant, being an invitee/suspended board representative without COC membership, is not entitled to the confidential valuation information though he may receive the resolution plan when provided to participants.

Liquidator's duty to scrutinise claims in liquidation - right of the liquidator to require supporting documents to substantiate a claim - submission and reconsideration of claims to the liquidator under the Code - requirement of a speaking order on reconsideration of claims

Right of the liquidator to require supporting documents to substantiate a claim - liquidator's duty to scrutinise claims in liquidation - Whether the Liquidator was entitled to ask the Applicant to furnish additional documentary evidence before admitting the claim. - HELD THAT: - The Tribunal held that an authority considering a claim is entitled to require a party to substantiate its claim by producing relevant documents in addition to those already filed. The Liquidator, acting in liquidation, has a statutory obligation to scrutinise claims against the available records of the corporate debtor, and may-within his rights-request further documents which are prima facie relevant. The Applicant's contention that the documents filed with the claim should have been sufficient was rejected as not tenable. The Tribunal therefore validated the Liquidator's correspondence asking for certified statements, ledger extracts, auditor certificates and judicial precedents to enable proper scrutiny of the claim. [Paras 6]

The Liquidator was entitled to request the additional documents and to withhold final admission of the claim pending production and verification of those documents.

Submission and reconsideration of claims to the liquidator under the Code - requirement of a speaking order on reconsideration of claims - Whether the Applicant may re-submit its claim with the requested documents and the Liquidator's corresponding obligations on receipt of such representation. - HELD THAT: - The Tribunal directed that the Applicant may, if so advised, submit a representation to the Liquidator within two weeks along with the requisite documents earlier sought. On receipt, the Liquidator is required to reconsider the claim in accordance with law and to pass a speaking order within two weeks thereafter, communicating the decision to the Applicant. The order emphasises procedural fairness by providing the claimant an opportunity to substantiate its claim and by mandating a reasoned decision by the Liquidator upon reconsideration. [Paras 7]

The Applicant is permitted to submit the additional documents and representation; the Liquidator must reconsider the claim and pass a speaking order within the stipulated time.

Final Conclusion: I.A. No. 93 of 2020 is disposed of by permitting the Applicant to submit the requested documents within two weeks and directing the Liquidator to reconsider the claim and pass a speaking order within two further weeks; no order as to costs.

Financial debt - Financial Creditor - maintainability of Section 7 application - distinction between loan and margin-money/consortium arrangement - requirement of assignment under Section 5(7) - jurisdiction of the Adjudicating Authority - effect of pre-existing arbitration on initiation of insolvency proceedings

Financial debt - Financial Creditor - distinction between loan and margin-money/consortium arrangement - Whether the amounts advanced under the Memorandum of Understanding (and promissory notes) constitute a financial debt and the respondent is a financial creditor entitled to maintain a Section 7 application. - HELD THAT: - The Tribunal held that the MOU comprised two independent transactions - a loan/financial assistance and a separate SPV formation arrangement - and that the loan transaction was not made for equity but retained the character of a financial debt. The Adjudicating Authority's finding that promissory notes and the terms of the MOU (including a promise to repay with bank rate of interest within a stipulated period) establish a debt due and payable was endorsed. The Tribunal rejected the appellants' characterisation of the advances as merely margin money or part of a consortium arrangement contingent on business generation, observing that the loan component is separable and dischargeable as a debt. Consideration of precedents and the definition of financial debt under the Code was noted, but the determinative finding was that a debt exists and was due, supporting respondent's status as a Financial Creditor. [Paras 35, 36]

The advances under the MOU are financial debt and the respondent is a Financial Creditor; the Section 7 application was maintainable on this ground.

Requirement of assignment under Section 5(7) - maintainability of Section 7 application - Whether the absence of a legal assignment of debts from related/group entities to the respondent defeats maintainability of the Section 7 petition. - HELD THAT: - The Tribunal accepted that while Section 5(7) contemplates that a person to whom a financial debt is owed includes one to whom the debt has been legally assigned, the record did not show any such assignment in respect of the other two group entities. However, this did not vitiate the petition because the loan given by the applicant (respondent) itself exceeded the statutory threshold, and the other parties could lodge their claims before the resolution professional. Thus the lack of assignment of third party claims did not render the Section 7 application invalid where the applicant's own claim satisfied the Code's requirements. [Paras 35]

Absence of assignment by the other entities did not defeat maintainability because the applicant's own claim exceeded the threshold; other entities may file claims with the IRP/RP.

Effect of pre-existing arbitration on initiation of insolvency proceedings - maintainability of Section 7 application - Whether the existence and pendency of arbitration proceedings between the parties barred the respondent from filing the Section 7 application. - HELD THAT: - The Tribunal observed that pending arbitration was not a limiting factor to the maintainability of the insolvency application. While arbitration clause in the MOU was noted, the adjudicatory scheme under the Code and precedent indicate that a pre-existing arbitration does not automatically preclude initiation of insolvency proceedings when the statutory tests for default and financial debt are met. The Tribunal relied on relevant authorities cited to hold that arbitration proceedings do not oust the jurisdiction of the Adjudicating Authority to admit a Section 7 petition. [Paras 32, 36]

Pending arbitration did not preclude admission of the Section 7 application.

Jurisdiction of the Adjudicating Authority - maintainability of Section 7 application - Whether the National Company Law Tribunal, Kolkata Bench had jurisdiction to entertain the Section 7 application. - HELD THAT: - The Tribunal held that Part II of the Code applies to insolvency and liquidation of corporate debtors and ousts parallel proceedings in civil courts or other fora. Given that the corporate debtor's registered office was in Kolkata, the NCLT Kolkata Bench had territorial jurisdiction to adjudicate the Section 7 petition. The appellant's contention that proceedings ought to have been instituted in Chennai was rejected on this basis. [Paras 34, 36]

NCLT Kolkata had jurisdiction and the Section 7 application was maintainable before it.

Final Conclusion: The Appellate Tribunal upheld the Adjudicating Authority's admission of the Section 7 application: the respondent's advances under the MOU were held to be financial debt, the respondent qualified as a Financial Creditor, the absence of assignment by related entities did not defeat maintainability, pending arbitration did not bar initiation of insolvency proceedings, and the NCLT Kolkata had jurisdiction. The appeal was dismissed and the impugned order dated 25.10.2019 was affirmed.

Operational Debt - Operational Creditor - definition of 'Operational Debt' under Section 5(21) - definition of 'Operational Creditor' under Section 5(20) - corporate insolvency resolution process under Section 9 - non-payment of lease rent - meaning of 'goods or services' in relation to lease/letting of immovable property - Central Goods and Services Tax Act classification of lease as supply of services - Bankruptcy Law Reforms Committee recommendations on lessors/landlords as operational creditors - requirement of undisputed debt / pre-existing dispute as bar to initiation of CIRP

Operational Debt - Operational Creditor - definition of 'Operational Debt' under Section 5(21) - meaning of 'goods or services' in relation to lease/letting of immovable property - Central Goods and Services Tax Act classification of lease as supply of services - Bankruptcy Law Reforms Committee recommendations on lessors/landlords as operational creditors - Debt arising from non-payment of lease rent is not an 'Operational Debt' and the lessor is not an 'Operational Creditor' for the purposes of initiating CIRP under the Code. - HELD THAT: - The Tribunal examined the definitions of 'Operational Creditor' and 'Operational Debt' and held that the latter covers claims in respect of provision of goods or services which are inputs directly linked to the recipient's output in a business context. Letting immovable property on lease for running a hospital does not constitute provision of goods or services within that commercial input-output nexus. The Tribunal relied on consistent decisions of different benches and the NCLAT which reached the same conclusion, noting that the taxing statute's (CGST Act) wider definition for levy purposes cannot be uncritically imported into the I&B Code. The report of the Bankruptcy Law Reforms Committee recommending treatment of lessors as operational creditors was considered, but the Tribunal observed that the Legislature did not adopt that recommendation in the statutory definitions and therefore rent dues are not covered by Section 5(21). The Supreme Court's Mobilox decision was noted to have referred to BLRC recommendations but did not decide that rent automatically constitutes operational debt. Applying these legal principles to the admitted facts of non-payment of lease rent, the Tribunal concluded the debt cannot be treated as an operational debt under the Code. [Paras 13, 14, 15, 16, 17]

The claim for unpaid lease rent does not fall within the definition of 'Operational Debt' under Section 5(21) and the Petitioner is not an 'Operational Creditor' under Section 5(20); the petition cannot proceed on that basis.

Requirement of undisputed debt / pre-existing dispute as bar to initiation of CIRP - corporate insolvency resolution process under Section 9 - A pre-existing dispute and pendency of civil proceedings over the claimed arrears prior to the demand notice precludes initiation of CIRP under Section 9. - HELD THAT: - The Tribunal found that the Petitioner had earlier instituted civil proceedings and obtained a settlement in Lok Adalat which was subsequently annulled, and cheques issued were dishonoured. Those proceedings and the factual controversy over payments constituted a pre-existing dispute existing before the demand notice under the Code was issued. The Tribunal applied the established principle that an undisputed debt is a prerequisite for a petition under Section 9 and, in the presence of a pre-existing dispute and pending suit, the petition must be rejected. [Paras 18, 19]

Because a substantial dispute and pending civil suit over the same claim existed prior to the demand notice, the Section 9 petition is not maintainable on this ground as well.

Final Conclusion: The Company Petition under Section 9 is dismissed: the unpaid lease rent does not qualify as an 'Operational Debt' and, in any event, a pre-existing dispute/pending civil proceedings barred initiation of CIRP. The petitioner remains free to pursue recovery by other lawful remedies; no order as to costs.

Deemed provider under section 66A of Finance Act, 1994 - place of supply and receipt of services provided from outside India (Taxation of Services (Provided from Outside India and Received in India) Rules, 2006) - works contract service and composition scheme - eligibility for CENVAT credit - penalty under section 78 of Finance Act, 1994 - remand for fresh quantification and verification

Deemed provider under section 66A of Finance Act, 1994 - place of supply and receipt of services provided from outside India (Taxation of Services (Provided from Outside India and Received in India) Rules, 2006) - Whether the appellant could be treated as a provider from outside India and escape liability, or was assessable under the Finance Act, 1994 as the taxable person. - HELD THAT: - The Tribunal held that the appellant, having acknowledged, responded to the show cause notice and placed itself in adjudicatory and appellate proceedings, could not rely on extra-territorial obscurity to invoke the fiction under section 66A. The legislative scheme contemplates deeming the recipient as provider only where the provider is jurisdictionally non-existent; that fiction is not available where the actual provider's identity and presence are not obscured. The adjudication record and contract particulars (including project office and contractual tax obligation) demonstrated sufficient nexus with India to treat the appellant as an assessee under the Act and to proceed under section 66A read with the Rules for services procured from outside India. [Paras 9, 10, 11, 15]

Appellant is assessable under the Finance Act, 1994 and cannot avoid liability by treating itself as a provider from outside India; the liability must be considered under section 66A read with the Rules.

Works contract service and composition scheme - classification of taxable service - Whether the adjudicating authority validly taxed the activity as 'works contract service' (including invocation of composition scheme) despite the show cause notice referring to 'erection, commissioning or installation service'. - HELD THAT: - The Tribunal observed that the appellant itself had raised applicability of the 'works contract service' entry before the adjudicating authority; therefore the alternative classification was not a surprise and could be adopted in adjudication. The incorporated definition of 'works contract service' subsumed 'erection, commissioning or installation service' and the Supreme Court's interpretation in Larsen & Toubro (as discussed) meant the alternative entry could determine taxability for composite contracts. The Tribunal further noted that the option to compute tax under the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 could not be foisted against the appellant and that the appellant should be permitted to avail the more favourable computation if supported by data. [Paras 12, 13, 14]

Taxation as 'works contract service' was lawfully open and the appellant must be afforded the option to claim abatement/composition as per the Rules; classification did not vitiate the demand.

Penalty under section 78 of Finance Act, 1994 - penalty mitigation where no unpaid tax remains on notice date - Whether penalties under section 78 (and other penalties) were maintainable in the circumstances of this case. - HELD THAT: - The Tribunal found the adjudicating authority had uncertainty in law and computation; the appellant had contested classification and fact questions, and there was no clear evidence of intent to evade tax, suppression, fraud or misrepresentation. Further, substantial amounts of tax and interest had already been deposited and appropriated such that no unpaid tax remained on the date of the show cause notice. In these circumstances, imposition of penalties under section 78 and other penalties was not warranted. The Tribunal set aside the penalties and dismissed Revenue's appeal against the restriction of penalty. [Paras 16, 17, 18, 20]

Penalties under section 78 and other penalties imposed by the adjudicating authority are set aside; Revenue's appeal in respect of restricted penalty is dismissed.

Eligibility for CENVAT credit - abatement for value of material in composite contracts - remand for fresh quantification and verification - Matters remanded for fresh consideration: quantification of tax net of exclusions, entitlement to abatement of material value, validation of CENVAT credit claims, and scrutiny of whether specified imported services (including vessel charter and other named services) are taxable. - HELD THAT: - The Tribunal directed remand because material facts and evidence relevant to quantification were not fully considered: appellant's claim for abatement under notification and option under composition rules lacked documentary comparison before the authority; the appellant's entitlement to CENVAT credit was denied without full verification; and specific contentions (e.g., vessel charter delivery/return outside India, performance-based services rendered entirely outside India) were either not adjudicated or were first raised and required factual scrutiny. The Tribunal ordered that the original authority re-quantify the liability after affording opportunity to the assessee to furnish data, exercise the option for abatement/composition, and establish CENVAT credit and exclusions; consequential set-off against amounts already paid must be given effect to; penalties, if any, to be limited to any tax found unpaid after recomputation. [Paras 14, 19, 20, 21]

Matter remanded to the original authority for fresh quantification net of exclusions, verification of CENVAT credit and abatement claims, and re-computation with opportunity to the assessee; consequential set-off to be allowed and penalty, if any, limited to any remaining unpaid tax.

Final Conclusion: The Tribunal held the appellant liable to tax under the Finance Act, 1994 (including on services procured from outside India) and affirmed the adoption of 'works contract service' classification while allowing the appellant the option to claim abatement/composition and CENVAT credit; penalties were set aside for lack of unpaid tax and manifest intent to evade, and the matter was remanded to the original authority for fresh quantification and verification with directions for consequential set-off and limited imposition of penalty only on any residual unpaid tax.

Refund of accumulated Cenvat credit under Rule 5 of the Cenvat Credit Rules, 2004 read with Notification No.5/2006-C.E.(N.T.) - scope of input service and nexus test between input services and exported output services - retrospective amendment replacing "used in" with "used for" and its effect on admissibility of input services for refund - availability of refund where exported output service was not taxable during the relevant period - registration as a pre-condition for claiming refund of Cenvat credit - estoppel/consequence of Department not disputing availment of Cenvat credit earlier

Availability of refund of accumulated Cenvat credit where exported output service was not taxable during the relevant period - Entitlement to refund of accumulated Cenvat credit in respect of exported information technology software services which were not chargeable to service tax during the relevant period. - HELD THAT: - The Tribunal held that Notification No.5/2006-C.E.(N.T.), issued under Rule 5 of the Cenvat Credit Rules, 2004, permits refund of Cenvat credit availed on inputs or input services that have been used for providing exported output services and does not make refund contingent upon the exported service being chargeable to service tax. Reliance was placed on earlier decisions including mPortal and Axa Business Services and the Tribunal's view in KPIT that refund is available even where the exported service was exempt or not taxable during the relevant period. Consequently, the rejection of refund claims merely because export of software was not taxable was held to be without basis.

Refund allowable notwithstanding that export of the information technology service was not taxable during the relevant period; impugned rejections on this ground set aside.

Scope of input service and nexus test between input services and exported output services - Whether the various services availed by the appellant qualify as input services with requisite nexus to the exported IT services for purposes of refund. - HELD THAT: - The Tribunal applied the broad interpretation of input service as endorsed by decisions such as Ultratech Cement and other cited authorities, and the CBEC Circular explaining that services which affect the quality or efficiency of the exported service qualify as input services. The Tribunal examined the authorities holding that a wide range of services (for example, recruitment, telecom, maintenance, rent-a-cab, outdoor catering where relevant, cleaning, courier, etc.) can be admissible as input services for IT/service exporters. On the factual material and the explanations furnished by the appellants before lower authorities, the Tribunal found the disputed services to be integral or necessary for rendering the output IT services and thus qualifying as input services with sufficient nexus.

Services utilized by the appellants are, on the record and in law, input services with sufficient nexus to the exported output services and therefore eligible for refund.

Retrospective amendment replacing "used in" with "used for" and its effect on admissibility of input services for refund - Effect of the Finance Act, 2010 amendment (substituting "used for" in place of "used in") on the scope of admissible input services for refund and alignment with Cenvat Credit Rules. - HELD THAT: - The Tribunal noted that Section 74 of the Finance Act, 2010 amended the opening portion of Notification No.5/2006 by substituting "used for" for "used in" with retrospective effect, and that departmental clarifications (D.O.F. No.334/1/2010-TRU and Circular No.120/1/2010) indicate the amendment was to align the refund notification with the Cenvat Credit Rules and broaden admissibility. The Tribunal treated this amendment and the accompanying clarifications as reinforcing the view that input services used for providing exported services are refundable and that the nexus requirement must be construed harmoniously and not restrictively.

Retrospective substitution of "used for" expands the scope of admissible input services for refund and supports allowance of the appellants' claims.

Registration as a pre-condition for claiming refund of Cenvat credit - Whether absence of registration under the relevant scheme is a valid ground to deny refund of accumulated Cenvat credit. - HELD THAT: - Relying on mPortal and related reasoning, the Tribunal observed that there is no provision in the Cenvat Credit Rules that makes registration a condition precedent to claiming refund of accumulated Cenvat credit. The authorities below erred in rejecting refund claims solely for lack of registration. However, the Tribunal also noted that entitlement to refund remains subject to the claimant proving payment of service tax on input services by producing relevant invoices and records as called for by the original authority.

Refund cannot be denied merely for non-registration; the appellant remains required to substantiate payment of input service tax through records.

Estoppel/consequence of Department not disputing availment of Cenvat credit earlier - Whether the Department may deny refund on input services when it has not previously challenged the availment of the corresponding Cenvat credit. - HELD THAT: - The Tribunal accepted the appellants' contention that the Department did not dispute the availment of credit earlier and, in such circumstances, it is not open to the Department to deny the credit at the refund stage. The Tribunal treated prior non-challenge of credit by the Department as a factor militating in favour of allowing the refund, subject to the appellant's production of supporting documents as required by the original authority.

Where the Department has not earlier disputed the availment of credit, it cannot refuse refund on that basis at the refund stage; refund allowed subject to verification of supporting documents.

Final Conclusion: The appeals are allowed: the Tribunal held that refund of accumulated Cenvat credit under Notification No.5/2006 read with Rule 5 CCR, 2004 is available to the appellants for the specified periods despite export of IT services not being taxable then; the challenged orders rejecting refunds on grounds of non-taxability, lack of registration and insufficient nexus are set aside, and the appellants are entitled to refund subject to production and verification of supporting invoices/records and consequential relief as per law.

Admissibility of Cenvat credit on input services - nexus between input service and output service - input service definition (post-amendment) and its scope - exclusion for services availed for personal consumption - rent-a-cab service as eligible input service - outdoor catering service as eligible input service - short-term hotel accommodation as eligible input service

Short-term hotel accommodation as eligible input service - exclusion for services availed for personal consumption - nexus between input service and output service - Cenvat credit availed on short-term hotel accommodation for personnel awaiting approvals and clearances is admissible. - HELD THAT: - The Tribunal accepted the appellant's evidence that personnel deployed offshore required pre-deployment training, police clearance and approvals; while such permissions were being processed the appellant was obliged to accommodate its personnel in hotels. This accommodation was held not to be for personal consumption but to be in relation to and in pursuance of the output service rendered by the appellant. The Adjudicating Authority's reliance on omission of the phrase "activities relating to business" from the amended definition of input service did not preclude credit where a factual nexus to the output service exists. Applying these principles the Tribunal allowed the Cenvat credit on short-term hotel accommodation. [Paras 5, 6, 7]

Cenvat credit on short-term hotel accommodation is admissible.

Rent-a-cab service as eligible input service - input service definition (post-amendment) and its scope - nexus between input service and output service - Cenvat credit availed on rent-a-cab services for transport of surveyors, officers and inspection agencies is admissible. - HELD THAT: - The Tribunal noted the operational necessity of hiring vehicles to transport surveyors, naval officers and inspection agencies to the rigs. Relying on precedent that the amended definition of input service does not effect a total exclusion and that motor transport services can be eligible from the recipient's perspective, the Tribunal found no reason to deny credit. Applying that ratio, the Tribunal allowed Cenvat credit on rent-a-cab services. [Paras 8]

Cenvat credit on rent-a-cab services is admissible.

Outdoor catering service as eligible input service - nexus between input service and output service - input service definition (post-amendment) and its scope - Cenvat credit availed on outdoor catering services (including hire of refrigerated containers to preserve food for offshore personnel) is admissible. - HELD THAT: - The Tribunal emphasised that personnel deployed on rigs are dependent on the appellant for access to safe and non-spoilt food; provision of such food is essential to maintain the health and efficiency of the workforce and thereby to the appellant's output service. The Commissioner (Appeals) erred in treating the food as purely personal consumption. The Tribunal also relied on authoritative high court decision (and dismissal of revenue's appeal to the Supreme Court) holding outdoor catering eligible post-amendment where it is required for the process of manufacture/delivery. On these facts, credit on outdoor catering and hire of chillers/reefers was held admissible. [Paras 9, 10]

Cenvat credit on outdoor catering services is admissible.

Final Conclusion: The appeal is allowed; Cenvat credit availed by the appellant on short-term hotel accommodation, rent-a-cab and outdoor catering services for the period April 2016 to June 2017 is held admissible.

Entitlement to Declaration in 'C' forms for concessional inter state purchases - in rem binding effect of High Court precedents - continuity of registration and rights of purchasing dealers under the CST Act post GST amendments - inclusion of specified commodity (High Speed Diesel Oil) in dealer's CST registration - obligation on revenue authorities to permit online download and use of 'C' forms - freedom of trade under Article 301 read with Article 304(b) as limiting revenue restriction - interpretation of registration provisions of the CST Act (Section 7(1) and 7(2)) in relation to purchasing dealers

Inclusion of specified commodity (High Speed Diesel Oil) in dealer's CST registration - entitlement to Declaration in 'C' forms for concessional inter state purchases - The petitioner is entitled to have 'High Speed Diesel Oil' included in its registration certificate and to obtain 'C' forms to claim concessional tax on inter state purchases. - HELD THAT: - The writ court applied the rationale of the decision in M/s Ramco Cements Ltd. and related High Court authorities, which hold that dealers purchasing specified commodities from other States are entitled to concessional treatment by producing Declaration in 'C' forms. Until any higher court stays or reverses that precedent, assessing authorities within the State must extend the benefit to all eligible dealers. The petitioner, being a dealer purchasing High Speed Diesel Oil inter state, is therefore entitled to inclusion of that commodity in its registration and consequential issuance of 'C' forms so as to claim the concessional rate in accordance with those rulings.

Allowed; inclusion of High Speed Diesel Oil in registration and issuance of 'C' forms directed.

In rem binding effect of High Court precedents - obligation on revenue authorities to permit online download and use of 'C' forms - The decision in the cited High Court cases operates in rem and revenue authorities are bound to apply that precedent statewide and permit online downloading and use of 'C' forms. - HELD THAT: - The Court held that the Single Judge and Division Bench decisions addressing entitlement to concessional rate against 'C' forms are decisions in rem applicable to all dealers seeking the benefit. The State cannot confine the benefit to parties to those writs or block online access to 'C' forms; departmental instructions that restrict use to parties are unacceptable. Consequently, assessing authorities are directed to act in conformity with those decisions and to restore online functionality to enable issuance/download of 'C' forms to eligible dealers.

Directed revenue to apply precedent statewide and to permit online downloading and use of 'C' forms.

Continuity of registration and rights of purchasing dealers under the CST Act post GST amendments - interpretation of registration provisions of the CST Act (Section 7(1) and 7(2)) in relation to purchasing dealers - freedom of trade under Article 301 read with Article 304(b) as limiting revenue restriction - Registration and rights of purchasing dealers under the CST Act, including entitlement to concessional purchases against 'C' forms for the specified commodities, continue despite amendments effected on 1.7.2017 limiting the definition of 'goods'. - HELD THAT: - Relying on the Division Bench reasoning in the Ramco Cements appeals, the Court accepted that Section 7(1) and 7(2) of the CST Act permit dealers to obtain registration even if the liability to pay tax initially lies on the selling dealer; registration is not limited solely to sellers. The 2017 amendment restricting the definition of 'goods' to six commodities did not eliminate the purchasing dealer's right to buy at concessional rates under Section 8(3)(b), and the legislative changes were not intended to disrupt inter state trade freedoms guaranteed by Article 301 read with Article 304(b). Denial of such rights would produce arbitrary classification and is unsustainable.

Confirmed that purchasing dealers retain registration rights and entitlement to concessional 'C' form benefits for the specified commodities despite the 2017 amendments.

Final Conclusion: The writ petition is allowed: the petitioner must be permitted to include High Speed Diesel Oil in its CST registration and to obtain 'C' forms; revenue authorities are directed to apply the High Court precedents in rem, restore online issuance/download of 'C' forms to eligible dealers and act in accordance with the Division Bench reasoning that purchasing dealers retain registration rights and concessional entitlements post GST amendments. No costs.

Entitlement to concessional rate by Declaration in 'C' form for inter State purchases - right of purchasing dealers to obtain registration under the Central Sales Tax regime notwithstanding amendments restricting 'goods' - applicability of precedential in rem decisions to all similarly situated dealers - obligation of tax authorities to permit online access and downloading of 'C' forms

Entitlement to concessional rate by Declaration in 'C' form for inter State purchases - applicability of precedential in rem decisions to all similarly situated dealers - Entitlement of the petitioner to receive 'C' forms and claim concessional tax rate for purchase of High Speed Diesel from other States in light of this Court's decisions in Ramco Cements Ltd. and allied authorities. - HELD THAT: - The Court applied the ratio of the earlier Single Judge and Division Bench decisions which held that dealers purchasing specified commodities from other States are entitled to claim the concessional rate against Declaration in 'C' forms. Those decisions were held to be in rem and binding on the Assessing Authorities within the State until stayed or reversed. The Division Bench reasoning, including that the right of a purchasing dealer to registration and concession survives the 2017 amendments and that Section 8(3)(b) continues to permit concessional purchases against 'C' forms, was followed. On that foundation the petitioner, who purchases High Speed Diesel by inter State sale, is entitled to the benefit of 'C' forms in accordance with law. [Paras 13, 14, 15, 40, 41]

The writ petition is allowed insofar as the petitioner is entitled to 'C' forms and the concessional rate for inter State purchase of High Speed Diesel, applying the precedent decisions to all similarly situated dealers.

Right of purchasing dealers to obtain registration under the Central Sales Tax regime notwithstanding amendments restricting 'goods' - obligation of tax authorities to permit online access and downloading of 'C' forms - Obligation of the departmental authorities to include 'High Speed Diesel Oil' in the petitioner's registration certificate and to enable issuance/download of 'C' forms online. - HELD THAT: - Relying on the Division Bench's directions and the in rem character of the earlier rulings, the Court directed that the petitioner's registration certificate be amended to include 'High Speed Diesel Oil' as a commodity and that the department permit online downloading of 'C' forms. The Court observed that departmental practice of restricting the benefit only to parties to the earlier writs was impermissible; the direction to give effect to the precedent extends to all eligible dealers and to administrative facilitation including unblocking online forms. The petitioner was given a limited time for compliance. [Paras 5, 6, 41]

The department is directed to include High Speed Diesel Oil in the petitioner's registration certificate and to permit issuance and online downloading of 'C' forms; the exercise to be completed within four weeks from uploading of the order.

Final Conclusion: The Writ Petition is allowed. Applying the cited precedents, the petitioner is entitled to inclusion of High Speed Diesel Oil in its registration certificate and to obtain 'C' forms for inter State purchases at the concessional rate; the department is directed to carry out the registration amendment and enable online issuance/download of 'C' forms within four weeks. No costs.

Assessment vitiated for non-consideration of evidence - inter-State job work transactions - F-Forms evidence - non-consideration of material - limitation under Sub-Rule (5A) of Rule 14A - right to personal hearing - reasoned order - remand for fresh consideration

F-Forms evidence - inter-State job work transactions - assessment vitiated for non-consideration of evidence - remand for fresh consideration - reasoned order - right to personal hearing - Impugned assessment order was set aside and remitted for fresh consideration of the F-Forms and related job-work transactions. - HELD THAT: - The assessment order dated 11.03.2020 did not advert to or consider the F-Forms and other material filed by the petitioner on 28.11.2019, 24.02.2020 and 10.03.2020. The respondents did not dispute that those F-Forms were not considered. For want of consideration of this material evidence, the assessment has been held to be vitiated. The matter is therefore remitted to the first respondent to consider the F-Forms and all related submissions, to afford the petitioner a personal hearing, and thereafter to pass a reasoned order in accordance with law and communicate the same to the petitioner. [Paras 4, 6, 8]

Impugned assessment order set aside; matter remitted to the first respondent for fresh consideration of the F-Forms, provision of personal hearing and passing of a reasoned order.

Limitation under Sub-Rule (5A) of Rule 14A - assessment vitiated for non-consideration of evidence - remand for fresh consideration - The question of whether assessment proceedings for April, 2015 to February, 2016 are barred by limitation under Sub-Rule (5A) of Rule 14A was left open and remitted for fresh consideration. - HELD THAT: - The petitioner contended that assessment proceedings for the period April, 2015 to February, 2016 are time-barred under Sub-Rule (5A) of Rule 14A. The Court did not decide this contention on merits but held that the petitioner is entitled to make submissions on the limitation point before the first respondent. The first respondent is directed to consider the limitation plea afresh while passing the reasoned order after hearing the petitioner. [Paras 5, 8]

Limitation plea under Sub-Rule (5A) of Rule 14A to be considered afresh by the first respondent after hearing the petitioner.

Final Conclusion: Writ petition allowed; assessment order dated 11.03.2020 set aside and remittted to the first respondent for fresh consideration of the F-Forms and the petitioner's limitation plea under Sub-Rule (5A) of Rule 14A for April, 2015 to February, 2016; petitioner to be afforded personal hearing and the first respondent to pass a reasoned order in accordance with law.

Natural justice / reasonable opportunity to be heard - Ex-parte decision - Service of material relied upon - Remand for fresh consideration

Natural justice / reasonable opportunity to be heard - Ex-parte decision - Service of material relied upon - Remand for fresh consideration - Whether the Tribunal's order dated 13.3.2020 is vitiated for proceeding ex parte and for relying upon a remand report that was not served on the revisionist, and what relief follows. - HELD THAT: - The Tribunal recorded that no one appeared for the revisionist and proceeded to confirm the assessment relying on a remand report dated 6.3.2020. The revisionist, however, contends that counsel had appeared and the matter was to be adjourned, and that the remand report relied upon was never served on it. The Court noted there is nothing on record to show service of the remand report upon the revisionist. Where material is relied upon against a party, a copy must be served so that the party has an opportunity to meet it; failure to do so and proceeding ex parte thereby results in denial of a reasonable opportunity of contest and vitiates the order. In these circumstances the appropriate relief is to set aside the Tribunal's order and remit the matter to the Tribunal for fresh consideration after affording the revisionist an opportunity of hearing and after serving the copy of the remand report relied upon.

Tribunal's order dated 13.3.2020 set aside; matter remitted to the Tribunal to afford hearing afresh and after service of the remand report relied upon; question of law answered in favour of the assessee and against the revenue.

Final Conclusion: The Tribunal's ex parte order is quashed for denial of reasonable opportunity and reliance on an unsupplied remand report; the matter is remitted to the Tribunal for rehearing after service of the remand report, and the question of law is decided in favour of the assessee.

Vicarious liability under Section 141 of the Negotiable Instruments Act - offence under Section 138 of the Negotiable Instruments Act - in-charge and responsible for the conduct of the day-to-day affairs of the company - resignation and Form 32 as public document - materials beyond suspicion or doubt - summoning order - application of mind by the Magistrate - quashing of criminal proceedings under Section 482 Cr.P.C.

Resignation and Form 32 as public document - in-charge and responsible for the conduct of the day-to-day affairs of the company - vicarious liability under Section 141 of the Negotiable Instruments Act - summoning order - application of mind by the Magistrate - quashing of criminal proceedings under Section 482 Cr.P.C. - Validity of summons issued under complaints under Section 138 of the NI Act against the petitioner who had resigned as Director and filed Form 32. - HELD THAT: - The Court found on the undisputed record that the petitioner resigned as a Director with effect from October 27, 2010 and a Form 32 was filed with the Registrar of Companies; the agreement and issuance/presentation of the cheques occurred much later. Settled principles require specific averments showing how a director was "in charge of and responsible" for the company's day-to-day affairs at the time the offence was committed; mere reproduction of statutory language is insufficient. Where the accused places on record public documents or materials beyond suspicion or doubt which demolish the foundation of the accusations, the High Court may in exercise of its inherent jurisdiction under Section 482 CrPC look into such documents at the prima facie stage rather than relegating the accused to trial. The learned Magistrate, had he called for and considered the latest Company Master Data and the Form 32, would have seen that the petitioner was not a director at the relevant time; issuance of summons without such consideration was therefore not justified. Applying these principles and the precedents on which the Court relied, the complaints insofar as they relate to the petitioner could not be allowed to proceed. [Paras 18, 19, 21, 22, 28]

Proceedings in complaint case nos. 2863 of 2019, 2851 of 2019, 2856 of 2019, 2869 of 2019 and 2873 of 2019 under Section 138 of the NI Act and the summons issued thereon as against the petitioner are quashed.

Final Conclusion: On the undisputed filing of Form 32 showing the petitioner had ceased to be a director prior to the execution of the agreement and issuance/presentation of the cheques, and in view of settled law requiring specific averments to fasten vicarious liability, the High Court quashed the summons and entire complaint proceedings against the petitioner under Section 138 of the Negotiable Instruments Act and allowed the petition under its inherent jurisdiction.