TaxTMI Updates e-Newsletter
Oct 06,2021

Classification under Harmonized System Nomenclature - Classification of composite goods - Essential character test - Predominant material versus essential character - HSN 7606 - HSN 3920 - HSN 7610 - Rate of GST on goods

Classification under Harmonized System Nomenclature - Classification of composite goods - HSN 3920 - HSN 7606 - HSN 7610 - Essential character test - Predominant material versus essential character - Aluminium Composite Panel/Sheet is classifiable under HSN Code 7606 and not under HSN Code 3920 or HSN Code 7610. - HELD THAT: - The Authority examined the composition and manufacturing process of the impugned Aluminium Composite Panel (ACP) - a sandwich panel with a polyethylene core laminated on both sides with thin aluminium foil - and the stated uses of the product. Chapter heading 3920 relates to articles of plastic and is inapplicable where the product is plastic laminated with aluminium sheets which do not fall within the description of articles of plastics under that heading. Heading 7610 covers aluminium structures and parts thereof; the applicant's submissions and uses did not establish that the ACP is itself an aluminium structure or part of a structure. Applying the essential character approach and relevant precedents, the Authority observed that the aluminium lamination imparts the essential user characteristics (such as cladding, protective and aesthetic properties) and that the aluminium layer thickness in the product falls within the scope of aluminium plates/sheets exceeding 0.2 mm. Having rejected classification under 3920 and 7610 for the reasons above, the Authority held the product to be covered by HSN 7606 (aluminium plates, sheets and strip of thickness exceeding 0.2 mm). [Paras 5]

Subject product is classifiable under HSN Code 7606.

Rate of GST on goods - HSN 7606 - The rate of GST applicable on the Aluminium Composite Panel/Sheet classified under HSN 7606 is 18% (9% CGST and 9% SGST). - HELD THAT: - Having classified the impugned goods under HSN 7606, the Authority applied the GST tariff rate applicable to that heading. The record and the HSN/SAC tariff position show that goods under the relevant heading attract GST at 18%. The Authority therefore directed levy at the combined rate of 18%, apportioned as 9% CGST and 9% SGST. [Paras 5]

Rate of tax is 18% (9% CGST and 9% SGST).

Final Conclusion: The Advance Ruling holds that Aluminium Composite Panel/Sheet is classifiable under HSN 7606 and is taxable at 18% GST (9% CGST and 9% SGST).

Default bail under Section 167(2) Cr.P.C. - offences under Section 132 of the Central Goods and Services Tax Act, 2017 - authorized officers under the GST law are not police officers and cannot file a final report under Section 173 Cr.P.C. - complaint under Section 190(1)(a) Cr.P.C. by a non police prosecuting agency - right to personal liberty under Article 21 (and Article 19) of the Constitution

Default bail under Section 167(2) Cr.P.C. - right to personal liberty under Article 21 - Whether the petitioners were entitled to default bail under Section 167(2) Cr.P.C. for non filing of a final report/charge sheet within sixty days. - HELD THAT: - The Court held that default bail is an indefeasible right of an accused under Section 167(2) Cr.P.C., intended to prevent malafide or belated detention and to protect personal liberty under Article 21. However, where an authorised prosecuting agency files a complaint under Section 190(1)(a) Cr.P.C. within the sixty day period from arrest, the entitlement to default bail is displaced. On the facts, the authorised officer filed a complaint on the 59th day after arrest, which the Court treated as the appropriate prosecutorial step by a non police agency and within the sixty day period. Applying the principles in the cited Supreme Court decisions (including the law on enforceability of default bail and the continued efficacy of the right despite subsequent filings in certain circumstances), the Court concluded that because a complaint was filed within sixty days, the petitioners were not entitled to be released on default bail under Section 167(2). [Paras 17, 18, 19, 26]

Default bail was refused because a complaint was filed within sixty days of arrest; the petitioners are not entitled to default bail.

Authorized officers under the GST law are not police officers and cannot file a final report under Section 173 Cr.P.C. - complaint under Section 190(1)(a) Cr.P.C. by a non police prosecuting agency - Whether officers authorised under the GST law are police officers required to file a final report under Section 173 Cr.P.C., or whether they may proceed by filing a complaint under Section 190(1)(a) Cr.P.C. - HELD THAT: - The Court examined the scheme of the CGST Act, 2017 and relevant provisions of the Cr.P.C., and applied authoritative precedent to hold that officers authorised under the GST law are not police officers for the purpose of Section 173 Cr.P.C. Consequently they are not required to, and do not, file a final report under Section 173; rather, with prior sanction where required by the statute, they may institute prosecution by presenting a complaint under Section 190(1)(a) Cr.P.C. The Court relied on statutory construction of Sections 69, 70 and 132 of the CGST Act and on Supreme Court and High Court authorities which recognise that specialised enforcement officers may investigate and then initiate proceedings by complaint rather than by a police report under Section 173. [Paras 20, 21, 22, 23, 25]

Authorized GST officers are not police officers for the purposes of Section 173 Cr.P.C.; they may file a complaint under Section 190(1)(a) Cr.P.C., and the complaint filed within sixty days was a valid prosecutorial step.

Final Conclusion: The writ petition was dismissed. The courts below did not err in refusing default bail, the complaint by the authorised GST authority was filed within sixty days, and GST authorised officers are not police officers required to file a Section 173 report.

Provisional release under Rule 140(1) of the CGST Rules - independence of Section 129 and Section 130 - opportunity to deposit tax and penalty under Section 129 - bank guarantee not to be encashed pending appeal - availability of appellate remedy against orders of demand, penalty and confiscation

Provisional release under Rule 140(1) of the CGST Rules - opportunity to deposit tax and penalty under Section 129 - independence of Section 129 and Section 130 - Petitioner entitled to provisional release of seized goods and conveyance on fulfilling conditions of Rule 140(1) despite earlier confiscation proceedings. - HELD THAT: - The Court found that when the order of demand of tax and penalty was issued, the statutory period for depositing (14 days from detention) had already lapsed, resulting in the petitioner not being given an effective opportunity to deposit the tax and penalty as contemplated under Section 129. The Court observed that the powers under Section 129 are independent of those under Section 130 and that Rule 140(1) permits provisional release of seized goods upon execution of bond and furnishing of security (such as a bank guarantee) for the applicable tax, interest and penalty. In the exercise of its discretion the Court directed that, without adjudicating the finality of confiscation or other orders, if the petitioner fulfils the conditions of Rule 140(1) the respondents shall provisionally release the goods subject to the final outcome of proceedings available to the petitioner, including the appellate remedy.

Directed provisional release of goods and conveyance on compliance with Rule 140(1), leaving other orders open to challenge before the appellate forum.

Bank guarantee not to be encashed pending appeal - availability of appellate remedy against orders of demand, penalty and confiscation - Bank guarantee furnished under Rule 140(1) shall not be encashed until final disposal of the appeal/writ petition. - HELD THAT: - The Court ordered that any bank guarantee submitted by the petitioner in terms of Rule 140(1) shall not be encashed by the revenue until the final disposal of the appellate or writ proceedings. The Court also recorded that the petitioner may pursue available statutory appellate remedies against the orders impugned and expressed expectation that the Appellate Authority decide the appeal promptly, though it did not set aside or decide the merits of the confiscation or demand orders themselves.

Bank guarantee to remain unencashed pending final adjudication; petitioner to pursue appellate remedies.

Final Conclusion: Writ petition disposed by directing provisional release of seized goods and conveyance on compliance with Rule 140(1), with a stipulation that any bank guarantee furnished shall not be encashed until final disposal of the appeal/writ; other orders remain open for challenge before the appropriate appellate forum.

Provisional release of seized goods under Rule 140(1) of the CGST Rules - requirement of opportunity to deposit tax and penalty under Section 129 of the CGST Act - confiscation proceedings under Section 130 of the CGST Act - independence of Section 129 from Section 130 - appeal against order of confiscation and interim protection of bank guarantee

Requirement of opportunity to deposit tax and penalty under Section 129 of the CGST Act - confiscation proceedings under Section 130 of the CGST Act - Whether the petitioner was given the statutory opportunity to deposit the tax and penalty prior to initiation of confiscation proceedings and whether non-provision of such opportunity affected the entitlement to provisional relief. - HELD THAT: - The Court found that the goods were seized on 22.01.2021 and that by the time the order of demand of tax and penalty was issued on 08.02.2021 the 14 day period for deposit (meant to be available to the detained person) had already lapsed, so the petitioner was virtually not given any chance to deposit the tax and penalty before notice of confiscation and the final confiscation order. The Court observed that the provisions of Section 129 operate independently of Section 130 and that non-compliance with the opportunity contemplated under Section 129 is a relevant factor in considering provisional release under Rule 140(1). Relying on these findings, the Court held that in the interest of justice the petitioner should be afforded the statutory mechanism for provisional release despite the subsequent confiscation order, subject to compliance with the conditions of Rule 140(1). [Paras 6, 7, 8]

Petitioner was not given the requisite opportunity to deposit the demanded tax and penalty before initiation of confiscation; this justified allowing the petitioner a chance to seek provisional release under Rule 140(1) if he complies with its conditions.

Provisional release of seized goods under Rule 140(1) of the CGST Rules - appeal against order of confiscation and interim protection of bank guarantee - Whether the seized goods and vehicle should be provisionally released and what interim protection should apply to the security furnished by the petitioner. - HELD THAT: - While leaving the substantive challenge to the orders (including the final confiscation order dated 09.03.2021) to be agitated before the Appellate Authority, the Court directed that if the petitioner fulfills the conditions prescribed in Rule 140(1) of the CGST Rules 2017 (execution of bond and furnishing of security in the prescribed form), the respondents shall provisionally release the goods and vehicle pending the final outcome of any appeal. The Court further directed that any bank guarantee furnished in terms of Rule 140(1) shall not be encashed until the appeal is finally disposed of, and expressed an expectation that the Appellate Authority decide the appeal expeditiously, preferably within two months. [Paras 9, 10]

Subject to compliance with Rule 140(1), the respondents are directed to provisionally release the goods and vehicle; any bank guarantee furnished shall not be encashed pending final disposal of the appeal.

Final Conclusion: Writ petition disposed of by directing provisional release of seized goods and vehicle if the petitioner complies with Rule 140(1) CGST Rules; substantive orders including confiscation to be challenged before the Appellate Authority, and the bank guarantee furnished for provisional release shall not be encashed until the appeal is finally decided.

Non-appearance and failure to file reply - Direction to regulatory authorities to furnish affidavit and replies - Court's supervisory power to secure compliance in an ongoing investigation

Non-appearance and failure to file reply - Direction to regulatory authorities to furnish affidavit and replies - Failure of SGST and the Chairperson, CBIC to file replies and appear before the Court remedied by judicial directions to file responses within stipulated time. - HELD THAT: - The Court recorded that representatives of several CGST Commissionerates have filed replies but SGST had neither filed a reply nor was present despite previous appearance. The Court noted the ongoing investigation alleging substantial tax evasion and criticised the parties for engaging in a blame game instead of taking action. To secure the record and progress of proceedings, the Court directed that a reply be filed on behalf of the Chairperson, CBIC within four working days and directed the Commissioner, SGST to file an affidavit setting out the action initiated by SGST in the matter. The order also mandated service of the order on the Commissioner, SGST through multiple modes to ensure receipt and compliance.

Reply on behalf of the Chairperson, CBIC to be filed within four working days and Commissioner, SGST to file an affidavit of action; order to be served on Commissioner, SGST by court, concerned IO and Special Messenger.

Court's supervisory power to secure compliance in an ongoing investigation - Listing of the matter for further proceedings to enable filing of outstanding replies and to monitor compliance. - HELD THAT: - Given the absence of SGST and the outstanding reply from the Chairperson, CBIC, the Court exercised its case-management function to fix a further date for compliance and hearing. The matter was adjourned and listed for further proceedings and filing of the required replies and affidavit on the specified date to enable the Court to proceed in the investigation-linked proceedings.

Matter listed on 05.10.2021 for filing of reply by Chairperson, CBIC and Commissioner, SGST and for further proceedings.

Final Conclusion: Court directed immediate compliance by SGST and Chairperson, CBIC through filing of an affidavit and reply within the stipulated time, ordered service of the order on Commissioner, SGST, and listed the matter on 05.10.2021 for further proceedings to monitor compliance.

Interpretation of the first proviso to Section 2(15) regarding charitable entities carrying out fee-based activities - distinction between charitable activity and commercial business - recognition and registration under Section 12A and Section 10(23C)(vi) as relevant to charitable character - limits of appellate interference with concurrent findings of fact

Distinction between charitable activity and commercial business - interpretation of the first proviso to Section 2(15) regarding charitable entities carrying out fee-based activities - recognition and registration under Section 12A and Section 10(23C)(vi) as relevant to charitable character - The assessee-association is charitable in nature and its receipts from laboratory testing and consultancy do not convert it into carrying on business with profit motive. - HELD THAT: - The Court accepted the concurrent findings of the Commissioner (Appeals) and the ITAT that the appellant-association, being an apex coordinating body for State Road Transport Undertakings established to improve public transport and road safety, is essentially charitable. The Court applied the settled principle that the first proviso to Section 2(15) excludes entities which are carrying on regular business with a profit motive but does not exclude organizations that are essentially for charitable purposes merely because they conduct some activities for a consideration or fee. Although the association receives revenue from laboratory testing and consultancy, those activities were held to be incidental to its main charitable objects and not carried on with the intent of earning profit for shareholders or owners. The Court also noted that the appellant had itself granted registration under Section 12A and recognition under Section 10(23C)(vi), which reinforced the finding of charitable character. Having found no perversity in the factual conclusions reached by the lower authorities, the High Court declined to re-appreciate evidence or disturb concurrent findings of fact. [Paras 4, 5, 6]

Appeal dismissed; the ITAT and CIT(A) were correct in holding that the association is charitable and its fee based activities do not amount to carrying on business with profit motive.

Final Conclusion: The High Court dismissed the appeal, upholding the concurrent finding that the respondent-association is charitable and that its revenue generating activities do not negate its charitable character; there was no justification to interfere with the factual conclusions of the lower authorities.

Order under Section 264 of the Income Tax Act - reasoned order requirement - non-application of mind - prematurity due to possible departmental appeal - remand for passing reasoned order - opportunity of hearing

Order under Section 264 of the Income Tax Act - prematurity due to possible departmental appeal - non-application of mind - reasoned order requirement - opportunity of hearing - remand for passing reasoned order - Impugned revision order under Section 264 was set aside for want of reasons and remanded for a reasoned decision after hearing. - HELD THAT: - The Commissioner rejected the petitioner's revision petition by characterising it as premature on the ground that the Department still had time to decide on filing an appeal against an ITAT judgment. The Court found that the impugned order did not consider the merits and merely recorded prematurity without application of mind or any reasoned analysis. For these procedural deficiencies the order under challenge was quashed. The matter was remitted to the respondent-PCIT to pass a reasoned order after affording the petitioner an opportunity of hearing within six weeks. The Court expressly refrained from expressing any view on the substantive controversy (including the merits of the claim or questions of DTAA applicability), leaving all rights and contentions open to the parties. [Paras 6, 7]

Impugned order dated 31.03.2021 set aside; matter remitted to respondent-PCIT to pass a reasoned order after hearing within six weeks; no opinion expressed on merits.

Final Conclusion: Writ petition allowed to the extent that the impugned Section 264 order is quashed for lack of reasons; the matter is remanded for a reasoned decision after hearing within six weeks, with the court reserving opinion on the substantive merits and leaving parties free to pursue remedies in law.

Interference by writ court with Settlement Commission orders - decision making process versus decision - finality of Settlement Commission orders - procedural irregularity in settlement proceedings - concession by department representative before the Commission - verification of impounded computer server evidence - delay in challenging settlement order

Interference by writ court with Settlement Commission orders - decision making process versus decision - finality of Settlement Commission orders - Extent to which a writ court may interfere with an order of the Income Tax Settlement Commission. - HELD THAT: - The High Court reiterated the settled principle that a writ court is concerned with the decision making process of the Settlement Commission and not with re adjudicating the merits of the Commission's decision. Absent a procedural irregularity in the Commission's decision making, interference is not warranted where the Commission has reached a final, operative order and the order has been given effect to. The court therefore confined its review to whether any procedural error occurred during the settlement proceedings, and having found none, declined to disturb the Commission's order. [Paras 4, 11]

No interference with the Settlement Commission's order since no procedural irregularity in the decision making process was found.

Delay in challenging settlement order - finality of Settlement Commission orders - Effect of delay of more than six months in filing writ petition challenging the Settlement Commission's order. - HELD THAT: - The Court observed that the writ petition filed by the Department about six months after the Commission's order (and after the order had been given effect to) suffered from inordinate delay. The Court noted that such delay would be fatal and, standing alone, would have been sufficient to dismiss the writ petition. Although the earlier writ court entertained the challenge on the ground that the Commission had become functus officio and could not clarify the matter, the High Court treated the delay as a material factor militating against the Department's belated challenge. [Paras 5, 12]

The delay of more than six months in instituting the writ petition was material and would be sufficient to dismiss the petition.

Concession by department representative before the Commission - verification of impounded computer server evidence - procedural irregularity in settlement proceedings - Whether the Settlement Commission's reference in Para 5.2 amounted to a concession by the Department's representative, thereby vitiating the settlement, or was a factual acceptance of a verification report. - HELD THAT: - The High Court examined the order as a whole, including the Department's recorded stand (Para 3.1.6), the assessee's rejoinder (Paras 4.2 and 4.8), and the Commission's directions to verify data from the impounded computer server. The Court found that Para 5.2 did not record any concession by the CIT(DR) but reflected the Commission's acceptance of the verification report submitted by the Commissioner of Income Tax VIII following inspection of the impounded server. The communication of 11.07.2013 included both the factual verification (seals intact, printouts produced) and the Department's continuing contentions; the Commission used the verification to assess full and true disclosure. Thus Para 5.2 was a finding based on verification, not an admitted concession, and did not constitute a procedural error warranting interference. [Paras 6, 7, 9, 10]

Para 5.2 records acceptance of the verification report and not a concession by the Department; no procedural irregularity arose from that paragraph.

Final Conclusion: The writ appeal is allowed; the High Court set aside the earlier order allowing the Department's writ petition, held that Para 5.2 did not record any concession by the Department but reflected acceptance of the verification report, observed that the Department's delay was material, and concluded there was no procedural error warranting interference with the Settlement Commission's final order; consequently the writ petition is dismissed.

Deductibility of provisions for expenses where liability crystallized but invoices not received - Disallowance under Section 40A(ia) for failure to deduct tax at source - Requirement to deduct tax at source on provisions versus on actual payment or credit to party account - Effect of subsequent deduction of TDS and write-back on revenue loss

Deductibility of provisions for expenses where liability crystallized but invoices not received - Provisions made for expenses relating to the year under consideration, though billed in a subsequent year, are allowable as deduction when the liability crystallized in that year. - HELD THAT: - The CIT(A) accepted and the High Court upheld the assessee's explanation that provisions represented expenses actually incurred during the year, the bills for which were received later. The courts applied the principle that where purchases were made or services were received during the year and the liability crystallized in that year, the provision-although quantified on an estimate basis in the absence of invoices-represents expenditure pertaining to that year and is deductible. Reliance upon precedent recognizing that crystallized liabilities, even if quantified later, give rise to allowable deductions is reflected in the CIT(A)'s reasoning and accepted by the Tribunal and this Court. The fact that bills were received in subsequent years and deductions were not claimed then further supported allowability in the year of crystallization. [Paras 3, 5]

Provisioned expenses pertaining to the year when liability crystallized were held deductible.

Disallowance under Section 40A(ia) for failure to deduct tax at source - Requirement to deduct tax at source on provisions versus on actual payment or credit to party account - Effect of subsequent deduction of TDS and write-back on revenue loss - No disallowance under Section 40A(ia) was warranted where provisions were not credited to any party account, could not be related to any party, TDS was deducted when payments were actually made, and excess provisions were written back in later years. - HELD THAT: - The CIT(A) concluded, and the Tribunal and High Court agreed, that a requirement to deduct tax at source does not extend to provisional entries made for liabilities that are not credited to a party's account and cannot be linked to a specific payee. The admitted facts showed that TDS was in fact deducted when actual payments were made in subsequent years and that provisions were, in some cases, written back, resulting in no loss to revenue. On these factual findings the authorities correctly held that Section 40A(ia) disallowance could not be sustained. The High Court found no perversity or misapplication of principles by the Tribunal in reaching that conclusion. [Paras 3, 4, 5, 6]

Disallowance under Section 40A(ia) was deleted; no requirement to deduct TDS on such provisions and no loss to revenue was shown.

Final Conclusion: The High Court dismissed the appeal, upholding deletion of the disallowance under Section 40A(ia); provisions for crystallized liabilities without invoices were allowable as deductions, no TDS obligation arose on such provisions, and the Tribunal's concurrent factual conclusions did not raise any substantial question of law.

Exercise of revisional powers under Section 263 of the Income tax Act - Disallowance under Section 14A read with Rule 8D - Two possible views / reasonable view doctrine in revisional jurisdiction - Requirement of inquiry before exercise of revisional jurisdiction - Strategic investments and business connection as defence to Section 14A disallowance

Exercise of revisional powers under Section 263 of the Income tax Act - Two possible views / reasonable view doctrine in revisional jurisdiction - Requirement of inquiry before exercise of revisional jurisdiction - Validity of the Principal Commissioner's exercise of powers under Section 263 to set aside the Assessing Officer's order - HELD THAT: - The Court held that revisional powers under Section 263 cannot be exercised where the Assessing Officer has chosen one of two possible and reasonable views after making the necessary inquiry. The PCIT questioned the AO's decision but did not demonstrate that no inquiry was made or that the AO adopted a view which was not permissible; instead the PCIT merely preferred a different legal view on the same set of facts. Where the material supports more than one plausible conclusion and the AO has recorded reasons for the view taken, the scope for revision is curtailed and Section 263 is not properly invoked to direct a fresh assessment merely to re examine an arguable conclusion reached by the AO. [Paras 6, 7, 9]

The PCIT's invocation of Section 263 was unsustainable and the ITAT rightly set aside the PCIT's order.

Disallowance under Section 14A read with Rule 8D - Strategic investments and business connection as defence to Section 14A disallowance - Whether the Assessing Officer was required to make a disallowance under Section 14A read with Rule 8D in respect of interest on funds employed for investments - HELD THAT: - The AO had recorded that the assessee's investments were in associate and subsidiary companies made as strategic, business purpose investments and that there was regular business connection and business income from those companies; on that basis the AO did not make a disallowance under Section 14A. The PCIT did not dispute the factual characterisation of the investments but disagreed with the legal view. The Court accepted the ITAT's conclusion that, given the factual findings and the existence of a reasonable view in favour of the assessee, the PCIT could not set aside the assessment merely because he preferred a different legal approach to Section 14A. [Paras 3, 7, 8]

No disallowance under Section 14A was mandated by the PCIT's revisional order; the Tribunal correctly interfered with the PCIT's order.

Final Conclusion: The appeal is dismissed; the ITAT's order setting aside the PCIT's revision under Section 263 is upheld and there is no interference with the Assessing Officer's order for AY 2011-12.

Allowability of revenue expenditure on abandoned projects - capital work-in-progress - capital expenditure versus revenue expenditure - business expenditure where no enduring asset is created - abandoned project expenditure treated as revenue loss

Allowability of revenue expenditure on abandoned projects - capital work-in-progress - capital expenditure versus revenue expenditure - business expenditure where no enduring asset is created - Whether amounts written off from capital work-in-progress in respect of abandoned website development projects are allowable as revenue/business expenditure or are capital in nature and not deductible as revenue loss. - HELD THAT: - The Court accepted the factual finding that the sums written off related to ongoing projects which were abandoned after reassessment of commercial viability due to recession, and that the expenditures consisted of routine items such as salaries and professional fees which did not result in the creation of any enduring asset. The Assessing Officer and the CIT(A) treated the amounts as capital on the basis that they were recorded under "capital work-in-progress" and that they related to projects that could have been capital assets; the Tribunal, however, found on facts that the expenditure was incurred in connection with the existing business and was revenue in nature. This Court held that where expenditure is incurred to carry on the existing business in a more convenient or profitable manner and does not bring into existence a new enduring asset, such expenditure is properly characterised as business (revenue) expenditure. The Court endorsed the ITAT's application of that test, relied on precedents applying the same principle, observed that the facts of the present case are identical to earlier decisions of this Court, and concluded that the question did not raise any substantial question of law warranting interference with the Tribunal's finding of fact.

The Tribunal's conclusion that the amounts written off from capital work-in-progress in respect of the abandoned projects are allowable as revenue/business expenditure is upheld; the departmental appeal is dismissed.

Final Conclusion: The appeal is dismissed. The expenses written off from capital work-in-progress for abandoned projects, being routine revenue items that did not create any enduring asset, are allowable as business expenditure and the Tribunal's order in favour of the assessee is sustained.

Best judgment assessment - service of notice - proceedings under Section 144 of the Income Tax Act, 1961 - Registered Post with Acknowledgement - second proviso to Section 144(1) of the Income Tax Act, 1961 - failure to cooperate in assessment proceedings - liberty to file appeal despite limitation

Service of notice - Registered Post with Acknowledgement - best judgment assessment - proceedings under Section 144 of the Income Tax Act, 1961 - failure to cooperate in assessment proceedings - second proviso to Section 144(1) of the Income Tax Act, 1961 - Validity of the assessment completed on best of judgment basis under Section 144 in view of service of statutory notices and non-participation by the assessee - HELD THAT: - The Revenue produced the assessment file showing that the notice under Section 142(1) dated 14.02.2018, the hearing/show cause notice dated 20.05.2019, and the pre assessment draft order dated 16.09.2019 were dispatched by Registered Post with Acknowledgement and were received by the assessee on 24.02.2018, 25.05.2019 and 27.09.2019 respectively. Having been served with the notices and given a final opportunity to explain the draft assessment, the assessee did not participate or cooperate in the assessment proceedings. In those circumstances, and in the light of the proviso to Section 144(1), there was no infirmity in the Assessing Officer completing the assessment on a best judgment basis. [Paras 3]

The assessment under Section 144 was validly completed on best judgment basis; the Writ Court did not err in dismissing the writ petition.

Liberty to file appeal despite limitation - condonation of delay - Whether the appellant should be permitted to file an appeal to the Commissioner (Appeals) notwithstanding limitation - HELD THAT: - The Court noted that the writ petition was filed within thirty days from receipt of the assessment order and, as a discretionary measure, granted the assessee liberty to prefer an appeal before the Commissioner of Income Tax (Appeals) within 30 days from receipt of this judgment. The appellate authority was directed to entertain the appeal without rejecting it on the ground of limitation. [Paras 4]

Liberty granted to the assessee to file the appeal within 30 days and the Commissioner (Appeals) shall entertain it without rejecting on limitation grounds.

Final Conclusion: Writ appeal dismissed; assessment under Section 144 sustained as notices and draft order were duly served and the assessee did not cooperate, and the assessee is granted liberty to file an appeal to the Commissioner (Appeals) within 30 days, which shall be entertained notwithstanding limitation.

Rectification under Section 154 - apparent error on the face of the record - set off of unabsorbed depreciation - prospective operation of an amendment - precedential reliance on High Court decision

Rectification under Section 154 - apparent error on the face of the record - The validity of the order passed under Section 154 seeking to disallow the set off of unabsorbed depreciation. - HELD THAT: - The Court applied the settled two-fold test for invocation of rectification powers under Section 154: there must be a mistake and that mistake must be apparent on the record. The Tribunal had considered the revenue's contentions and recorded that no error apparent on the face of the record had been shown in its order dated 06.07.2017 which had upheld the Commissioner (Appeals) allowing the unabsorbed depreciation. The Court held that the detection of an apparent error does not permit re-opening issues which admit of two plausible opinions and observed that the Tribunal's order was founded on a relevant precedent and reasoned consideration. Consequently, the revenue failed to establish the existence of an apparent error warranting exercise of rectification powers. [Paras 7]

Rectification under Section 154 was not justified; the miscellaneous petition was rightly dismissed as no apparent error on the face of the record was shown.

Set off of unabsorbed depreciation - prospective operation of an amendment - precedential reliance on High Court decision - Whether the substantial question of law regarding the prospective effect of the amendment to Section 32(2) required determination in the appeal. - HELD THAT: - Although the revenue contended that the amendment removing the eight-year cap in Section 32(2) operated only prospectively from 01.04.2002 and that the Tribunal erred in following the Gujarat High Court decision, the Court noted that the revenue did not challenge the Tribunal's earlier order dated 06.07.2017 on merits. The Tribunal had considered the authorities and recorded reasons why a contrary decision relied upon by revenue did not establish an apparent error. Given that the prerequisite for rectification was not met, the substantial question of law framed for admission did not arise for decision and required no separate adjudication. [Paras 7]

The substantial question of law on prospective operation of the amendment to Section 32(2) did not arise for decision in this appeal.

Final Conclusion: The appeal is dismissed: the Tribunal correctly refused rectification under Section 154 for lack of any apparent error on the face of the record, and the substantial question of law regarding prospective effect of the amendment to Section 32(2) did not require determination.

Percentage completion method - completion contract method - remand for fresh adjudication - quashing of orders

Percentage completion method - completion contract method - remand for fresh adjudication - Whether the percentage completion contract method or the completion contract method is to be adopted for computing income in respect of the developer's project - HELD THAT: - The Court found that the determinative question as to which method (percentage completion or completion contract) applies requires a fair adjudication on factual materials and cannot be resolved on the record before this Court. Consequently, the orders of the Commissioner of Income Tax (Appeals) and the Assessing Officer insofar as they pertain to this issue have been quashed and the matter remitted to the Income Tax Appellate Tribunal for decision afresh in accordance with law. The remand permits both parties to raise all contentions available in law and requires the Tribunal to examine the factual matrix and apply the appropriate method after such consideration. [Paras 9, 10]

Quashed the impugned appellate and assessment orders insofar as they relate to the choice of accounting method and remitted the issue to the Tribunal for fresh adjudication.

Final Conclusion: The appeal is disposed of by quashing the orders of the Assessing Officer and the Commissioner (Appeals) insofar as they concern the choice between percentage completion and completion contract methods, and remitting that issue to the Income Tax Appellate Tribunal for fresh decision in accordance with law.

Section 54F exemption - acquisition within one year before or two years after or construction within three years - beneficial provision - failure to adjudicate grounds - quash and remit - decide afresh in accordance with precedents

Failure to adjudicate grounds - quash and remit - Whether the tribunal's order could be sustained where it adjudicated only certain revenue grounds and failed to adjudicate the assessee's grounds, including the claim under Section 54F. - HELD THAT: - The tribunal, while allowing the revenue's appeal, addressed only grounds 2 and 3 raised by the revenue and did not adjudicate the grounds pressed by the assessee concerning entitlement to exemption under Section 54F. The High Court held that omission to decide the assessee's contentions rendered the impugned order unsustainable. In consequence, the tribunal's order was quashed and the matter remitted for fresh adjudication so that both the assessee's and the revenue's appeals are decided afresh on all contested grounds in accordance with law and the cited precedents. [Paras 8]

Impugned tribunal order quashed; matter remitted to the tribunal to decide the appeals of the assessee and the revenue afresh.

Section 54F exemption - acquisition within one year before or two years after or construction within three years - beneficial provision - decide afresh in accordance with precedents - Legal principle governing entitlement to exemption under Section 54F as noted by the High Court and its relevance to remand. - HELD THAT: - The Court observed that Section 54F is a beneficial provision intended to promote investment in housing and that entitlement arises if the assessee purchases within one year before or two years after the transfer, or constructs within three years thereafter. The Court noted that the assessee had, on the material on record, purchased a property within one year before the transfer; however, since the tribunal failed to adjudicate the assessee's specific grounds, the Court did not finally determine entitlement on merits and directed fresh consideration by the tribunal in the light of applicable decisions. [Paras 7, 8]

Not decided on merits by the High Court; matter remitted to the tribunal to determine entitlement under Section 54F in accordance with law and the cited authorities.

Final Conclusion: The impugned order of the Income Tax Appellate Tribunal is quashed and the matters (appeals filed by the assessee and the revenue) are remitted to the tribunal for fresh adjudication in accordance with law and the precedents cited; the substantial questions of law were not answered.

Applicability of Minimum Alternate Tax under Section 115JB - Comparison of tax under normal provisions and tax on book profit - Binding effect of coordinate bench decision / precedent

Applicability of Minimum Alternate Tax under Section 115JB - Comparison of tax under normal provisions and tax on book profit - Binding effect of coordinate bench decision / precedent - Whether Section 115JB is applicable to the assessee for Assessment year 2011-12 when the tax payable under normal provisions is less than the tax on book profit and the assessing authority invoked Section 115JB. - HELD THAT: - The Court adverted to and relied upon the earlier decision in COMMISSIONER OF INCOME-TAX, BANGALORE Vs. ING VYSYA BANK LTD and held that the substantial question of law framed in the appeal is answered in favour of the assessee. The revenue conceded that the cited coordinate-bench decision governs the question before the Court and did not dispute the applicability of that precedent. For the reasons given in the cited judgment, the Court concluded that Section 115JB would not apply in the circumstances of this case where the tax under the normal provisions was lesser than the tax calculated on the book profit, and therefore the invocation of Section 115JB by the assessing authority could not be sustained.

Substantial question of law answered in favour of the assessee; invocation of Section 115JB set aside for Assessment year 2011-12.

Final Conclusion: The appeal filed by the revenue is dismissed; the substantial question of law is decided in favour of the assessee following the coordinate-bench precedent, with Section 115JB held not to be applicable for Assessment year 2011-12 in the facts of this case.

Penalty under section 271G of Income tax Act - Reasonable cause for non furnishing of information - Substantial compliance with Rule 10D documentation requirements - Determination of arm's length price by Transfer Pricing Officer - Inapplicability/impracticability of internal CUP method in diamond trade

Penalty under section 271G of Income tax Act - Reasonable cause for non furnishing of information - Substantial compliance with Rule 10D documentation requirements - Whether penalty under section 271G was justified for failure to furnish segmental profitability and other particulars called by the TPO - HELD THAT: - The Tribunal upheld the CIT(A)'s finding that, in the context of the diamond manufacturing and trading business, it was practically difficult to maintain and furnish segment wise profit and loss for AE and non AE transactions because diamonds are produced and sold in heterogeneous lots varying in size, colour, shape and clarity and individual tracing from rough to polished piece is normally impracticable. The assessee had maintained primary records, submitted lot wise cost and GP workings and benchmarked transactions under TNMM, and the ALP was ultimately accepted. Given these industry realities, the assessee made substantial compliance with the information requirements and demonstrated a reasonable cause for the deficiency. The Tribunal further noted established precedents of the Bench which held that the penalty is a severe provision and must be invoked with caution where there is substantial compliance and reasonable cause. Applying these principles, the imposition of penalty was held to be neither fair nor justified and therefore rightly deleted by the CIT(A). [Paras 6, 7, 8]

Penalty under section 271G deleted as the failure to furnish certain segmental details was backed by reasonable cause and substantial compliance.

Determination of arm's length price by Transfer Pricing Officer - Inapplicability/impracticability of internal CUP method in diamond trade - Whether the TPO's failure to determine ALP independently or to adopt practicable comparison methods disentitled the assessee to benefit of doubt on penalty - HELD THAT: - The Tribunal agreed with the CIT(A) that the TPO, instead of proceeding to determine ALP by applying an appropriate method or by using available alternative comparisons (e.g., lot wise price comparisons to the extent possible or comparison of AEs' P&L and balance sheets), invoked Rule 10D and immediately proceeded to levy penalty. Where the TPO was not satisfied with the assessee's TNMM benchmarking, nothing precluded him from rejecting it and determining ALP by a practicable method. The TPO's insistence on internal CUP was found to be impractical in the trade context and his failure to attempt a reasonable determination of ALP disentitled Revenue from sustaining the penal levy; the defect in the proceedings could not be fastened on the assessee. [Paras 6]

TPO's failure to determine ALP by feasible alternatives and insistence on impractical internal CUP method militated against imposing penalty; liability could not be fastened on the assessee.

Final Conclusion: Following the CIT(A) and consistent tribunal precedents on the diamond trade, the order deleting the penalty under section 271G for AY 2012 13 is confirmed; the Revenue's appeal is dismissed.

Applicability of section 56(2)(vii)(c)(ii) to right-issue/proportionate allotment of shares - Disproportionate allotment and taxation of deemed income on receipt of property - Anti-abuse purpose of section 56(2)(vii) - Deduction/offset by diminution in value of existing shareholding on fresh allotment

Applicability of section 56(2)(vii)(c)(ii) to right-issue/proportionate allotment of shares - Disproportionate allotment and taxation of deemed income on receipt of property - Whether the provisions of section 56(2)(vii)(c)(ii) are attracted where a company issues fresh shares on rights basis pro rata to existing shareholders but some shareholders do not subscribe, resulting in an increased percentage holding of the subscribing shareholder. - HELD THAT: - The Tribunal found that KFPL offered rights on two occasions strictly on a pro rata basis (ratios 7:8 and 5:8) and at the same price to all existing shareholders; the assessee subscribed only to his entitlement while other shareholders did not subscribe, which resulted in an increased percentage holding at year-end. Applying the coordinate-bench ratio in Sudhir Menon HUF and related decisions, the Tribunal held that where shares are allotted pro rata to existing holdings there is no receipt of a new benefit qua other shareholders but only an apportionment of the value of the existing holding over a larger number of shares; accordingly the anti-abuse provision does not operate adversely in such bona fide right-issues. A higher-than-proportionate or non-uniform allotment would attract the provision, but mere post-offer change in percentage due to non-participation of other shareholders does not convert a proportionate offer into a disproportionate allotment attracting section 56(2)(vii). The Tribunal therefore concluded that the AO's view of disproportionate allotment, based solely on the change in percentage holding, overlooked the two separate pro rata offers and was incorrect. (See paras 2.1-2.5, 3.2-3.6, 4, 4.1) [Paras 2, 3, 4]

Provisions of section 56(2)(vii)(c)(ii) do not apply to the assessee on these facts; the AO's finding of disproportionate allotment is not sustainable.

Anti-abuse purpose of section 56(2)(vii) - Deduction/offset by diminution in value of existing shareholding on fresh allotment - Whether the anti-abuse character of section 56(2)(vii) and the principle of offsetting by diminution in value justify any restricted addition where some benefit is alleged. - HELD THAT: - The Tribunal reaffirmed that section 56(2)(vii) was introduced as an anti-abuse, counter-evasion measure (supported by CBDT Circulars) and is intended to target transactions intended for tax evasion or laundering. On the facts there was no allegation or material of tax evasion or conscious gifting; the transactions were ordinary rights issues in the normal course of business. The CIT(A)'s approach-accepting the principle that any real benefit from disproportionate allotment should be measured after allowing for diminution in value of existing holdings and rejecting claims of deemed gifts by relatives absent evidence-was noted. However, since the Tribunal held the allotments were pro rata, no addition survives. The Tribunal observed that where disproportionate allotment exists the addition would be limited to the disproportionate element after factoring in decline in value of existing shares. (See paras 3.1-3.6, 3.7, 4.2-4.4) [Paras 3, 4]

Anti-abuse provision does not apply to genuine, pro rata right-issues; where disproportionate allotment exists any addition is to be restricted by allowing offset for diminution in value of existing holding, but no such disproportionate allotment is established on these facts.

Final Conclusion: The revenue appeal is dismissed and the assessee's cross-objections are partly allowed: the additions made by the AO under section 56(2)(vii)(c)(ii) are not sustainable on the facts of pro rata right-issues in AY 2014-15, and no taxability arises on the basis of the mere increase in percentage holding caused by non-participation of other shareholders.

Dismissal for want of prosecution - rectification under section 154 - natural justice - remand for fresh consideration - opportunity of being heard

Dismissal for want of prosecution - natural justice - opportunity of being heard - remand for fresh consideration - Validity of the CIT(A)'s ex parte dismissal of the assessee's appeal against the rectification under section 154 and the appropriate remedial direction. - HELD THAT: - The Tribunal found that the CIT(A) dismissed the appeal for want of prosecution after multiple opportunities were afforded but noted that the assessee had not filed detailed written submissions before the CIT(A). Observing that the assessee's counsel before the Tribunal sought one more opportunity to furnish explanations in support of the claim, the Tribunal held that, in the interests of natural justice, the matter should be reheard. Accordingly, the appellate order was set aside and the matter remitted to the file of the CIT(A) with a direction to decide the appeal afresh after considering such submissions as may be filed by the assessee and after affording the assessee an opportunity of being heard. [Paras 4, 5]

The CIT(A)'s ex parte dismissal is set aside and the matter is remitted to the CIT(A) to adjudicate the appeal afresh after affording the assessee an opportunity to file submissions and be heard.

Final Conclusion: Both appeals are allowed for statistical purposes; the appellate order dated 25.06.2019 is set aside and the appeals are remitted to the CIT(A) to be decided afresh after giving the assessee an opportunity of being heard.

Deduction under section 80P - definition of "co-operative society" under section 2(19) - principle of mutuality - entities registered under the Karnataka Souharda Sahakari Act, 1997 as co-operative societies - remand for fresh adjudication

Definition of "co-operative society" under section 2(19) - entities registered under the Karnataka Souharda Sahakari Act, 1997 as co-operative societies - Whether entities registered under the Karnataka Souharda Sahakari Act, 1997 fall within the definition of "co-operative society" for the purposes of claiming deduction under section 80P - HELD THAT: - The Tribunal accepted the view of the Hon'ble Karnataka High Court in M/s. Swabhimani Souharda Credit Co-operative Ltd. that a restrictive reading of 'co-operative society' under section 2(19) would defeat the object of section 80P. After examining the definitions and the legislative scheme the High Court held that entities registered under the Karnataka Souharda Sahakari Act, 1997 fit into the definition of 'co-operative society' under section 2(19) and are, subject to just exceptions, entitled to stake their claim for benefit of section 80P. The Tribunal held that this decision is determinative of the preliminary legal characterisation question and must guide further adjudication of the assessee's claims under section 80P. [Paras 7]

Accepted the Karnataka High Court's conclusion that Souharda-registered entities fall within section 2(19) and therefore may seek benefit under section 80P

Deduction under section 80P - principle of mutuality - remand for fresh adjudication - Whether the CIT(A) was justified in rejecting the assessee's claim for deduction under section 80P on a preliminary finding that a Souharda registered entity is not a co-operative society, without deciding the merits of the 80P(2)(a)(i) and 80P(2)(d) claims - HELD THAT: - The CIT(A) dismissed the assessee's claim on the preliminary ground that a Souharda-registered body cannot be regarded as a co-operative society under the Act and did not decide the substantive questions raised by the assessee (including the applicability of the principle of mutuality to membership and the characterisation of interest on investments). In view of the Karnataka High Court's declaration that Souharda entities fit within section 2(19), the Tribunal held that the CIT(A)'s preliminary dismissal was unsustainable. The Tribunal set aside the CIT(A)'s order and directed that the eligibility for deduction under section 80P, including the specific contentions relating to 80P(2)(a)(i) and 80P(2)(d), be examined on merits by the CIT(A) in accordance with law after affording the assessee an opportunity of being heard. [Paras 8]

Set aside the CIT(A) order and remitted the matter for fresh decision on merits of the section 80P claims after hearing the assessee

Final Conclusion: The CIT(A)'s order is set aside and the matter remitted for fresh consideration of the assessee's entitlement to deduction under section 80P for AY 2015-16 in accordance with law and after giving the assessee an opportunity of being heard; appeal treated as allowed for statistical purposes.

Freezing of bank account - deposit of 7.5% pending appeal - interim recovery measures during pendency of appeal - jurisdiction to issue notice under section 87(b)(i) of the Finance Act,1994 - directions to appellate tribunal for listing - non-consideration of merits

Directions to appellate tribunal for listing - freezing of bank account - Direction to the Customs, Excise and Service Tax Appellate Tribunal to list the petitioner's appeal on or before a specified date and disposal of the writ petition. - HELD THAT: - The Court, without adjudicating the substantive merits of the challenge to the impugned notice or the propriety of freezing the bank account, directed the Registry of the Customs, Excise and Service Tax Appellate Tribunal to place the petitioner's appeal before an appropriate Bench on or before 10th October, 2021. The Court recorded that it had not expressed any view on the merits and left the rights and contentions of the parties open. Consequential procedural relief of communication of this order to the Tribunal registry was also directed and the writ petition together with pending applications was disposed of. [Paras 6, 7]

The Registry of the Customs, Excise and Service Tax Appellate Tribunal was directed to list the petitioner's appeal on or before 10th October, 2021; the writ petition and pending application were disposed of, with no comment on merits.

Deposit of 7.5% pending appeal - interim recovery measures during pendency of appeal - jurisdiction to issue notice under section 87(b)(i) of the Finance Act,1994 - Entitlement to de-freeze the bank account and the merits of the petitioner's challenge to the notice under section 87(b)(i) of the Finance Act, 1994 were not decided. - HELD THAT: - Although the petitioner contended that it had deposited the mandatory 7.5% and relied upon a departmental circular to resist further recovery measures during the pendency of appeal, the Court explicitly refrained from adjudicating these contentions. The Court left open the question of the validity of the impugned notice, the applicability of the circular, and any entitlement to de-freeze the account, reserving consideration of those matters to the appropriate forum and to the adjudication of the appeal itself. [Paras 7]

No adjudication on merits; rights and contentions of the parties on de-freezing and the validity of the notice were left open.

Final Conclusion: Writ petition disposed by directing the Customs, Excise and Service Tax Appellate Tribunal to list the petitioner's appeal by 10th October, 2021; no adjudication on the merits of the challenge to the freezing order or entitlement to de-freeze the bank account, and the parties' rights are left open.

Confiscation and redemption under Section 125 of the Customs Act - pre-deposit requirement under Section 129E of the Customs Act - auction and disposal of seized goods during pendency of appellate proceedings - appellate authority's power in an appeal filed by the respondent and protection against being placed in a worse position - retention of seized goods pending tribunal adjudication

Auction and disposal of seized goods during pendency of appellate proceedings - pre-deposit requirement under Section 129E of the Customs Act - retention of seized goods pending tribunal adjudication - Whether the Department could proceed to auction or otherwise dispose of the seized watches during the pendency of the respondent's appeal before the CESTAT where the respondent had complied with the pre-deposit condition. - HELD THAT: - The court found that the respondent had complied with the pre-deposit requirement for preferring the appeal to the CESTAT and that the Tribunal had directed listing of the appeal before the Division Bench for final hearing. In those circumstances, and particularly during the pendency of the appeal, it would not be appropriate for the Department to dispose of the seized goods. The question whether the Circular dated 10.03.2017 (guidelines for recovery during pendency of litigation) applies need not be determined because the statutory pre-deposit condition was satisfied and the appeal was fixed for hearing. Consequently, coercive steps such as auctioning the watches were to be deferred until the Tribunal decided the appeal; the Department was directed to retain the seized watches and await the Tribunal's decision.

The Department shall not initiate any coercive action, including auctioning the seized watches, and shall await and abide by the decision of the Tribunal, the respondent having complied with the pre-deposit requirement.

Appellate authority's power in an appeal filed by the respondent and protection against being placed in a worse position - confiscation and redemption under Section 125 of the Customs Act - Whether, in an appeal filed by the respondent against the Order in Original, the First Appellate Authority can pass an order adverse to the respondent on a portion of the Order in Original that was not specifically questioned before the First Appellate Authority. - HELD THAT: - The court noted the legal question that may arise before the Tribunal: an appellant (here the respondent in the original proceeding) should not be put in a worse position by an appellate decision in his own appeal on aspects not challenged before the first appellate authority. The judgment recognises that the First Appellate Authority is expected to test the correctness of the original order but emphasises that the respondent cannot be made worse off in his own appeal. The court did not resolve this substantive question on merits; instead it observed that the matter requires to be agitated and decided by the Tribunal in the appeal already filed by the respondent.

Left open for decision by the Tribunal; the question is to be raised and adjudicated in the respondent's appeal before the CESTAT.

Final Conclusion: Writ appeal dismissed. The Department is directed not to take any coercive action (including auction) in respect of the seized watches while the respondent's appeal before the CESTAT (where the pre deposit has been made) is pending; the substantive question whether an appellate authority may make an order more adverse on points not contested before it is left for determination by the Tribunal.

Violation of principles of natural justice - opportunity of personal hearing - adjournment and extensions in adjudication - functus officio - availability of alternate remedy - remand for fresh consideration and verification - CBEC master circular on show cause notices and personal hearing

Violation of principles of natural justice - opportunity of personal hearing - CBEC master circular on show cause notices and personal hearing - availability of alternate remedy - Whether the writ petition could be entertained despite the availability of alternate statutory remedies on the ground of violation of principles of natural justice. - HELD THAT: - The Court held that the pre-fixing of three hearing dates in the show cause notice and the failure to issue separate communications for each hearing/extension ran counter to the procedure envisaged in the CBEC master circular regarding personal hearings. The appellant had sought and been granted an extension by the concerned officer until 06.04.2021 to produce the Bank Realization Certificate, but the Order-in-Original was passed on 17.03.2021 before that extended date. On these facts the Court found that adequate opportunity to be heard was not afforded and that there had been a breach of principles of natural justice. Consequently, the exception to the general rule of restraint in entertaining writ petitions in taxing statutes applied and the writ could be maintained notwithstanding the availability of alternate remedies. [Paras 3, 5, 6]

The writ petition was maintainable and the Order in Original dated 17.03.2021 was set aside for violation of principles of natural justice.

Functus officio - remand for fresh consideration and verification - adjournment and extensions in adjudication - What consequential relief should follow and whether the material (BRC Negative Statement) needs verification and fresh adjudication. - HELD THAT: - The Court noted that after the officer had granted an extension to 06.04.2021 the first respondent became functus officio upon passing the Order in Original on 17.03.2021 and therefore could not act on the material subsequently filed by the appellant. The BRC Negative Statement filed by the appellant on 05.04.2021 (date stamped 07.04.2021) must be verified by the competent authority. The matter was remitted to the first respondent to afford a proper opportunity of personal hearing and to adjudicate the case afresh on merits in accordance with law, including verification of the submitted negative certificate. [Paras 3, 6, 7]

Order in Original set aside and matter remanded for verification of the BRC Negative Statement, fresh personal hearing and de novo adjudication in accordance with law.

Final Conclusion: Writ appeal allowed; Order in Original dated 17.03.2021 set aside. The BRC Negative Statement filed by the appellant shall be verified and, after affording a proper opportunity of personal hearing, the first respondent shall adjudicate the matter afresh in accordance with law.

Writ jurisdiction under Article 226 - Maintainability of writ challenging show-cause notice - Jurisdictional fact for issuance of show-cause notice - Interim relief and non-justiciability in absence of imminent threat - Forum for initial adjudication of jurisdictional issues - Application of Canon India precedent to investigatory jurisdiction

Writ jurisdiction under Article 226 - Maintainability of writ challenging show-cause notice - Interim relief and non-justiciability in absence of imminent threat - Maintainability of the writ petition challenging the show-cause notice. - HELD THAT: - The Court held that a writ under Article 226 may be entertained to challenge a show-cause notice only where there is either an infringement or a real and imminent threat of infringement of legal or constitutional rights, or where the notice is wholly non est for absolute want of jurisdiction. The petition here was filed seven years after issuance of the show-cause notice and no action has been taken by the respondents nor is there any real threat of infringement. In these circumstances the petitioner lacks a present cause of action and the writ is not maintainable as a matter of routine. The Court emphasised that jurisdictional objections to a notice can be raised before the issuing authority and that High Court intervention is discretionary and limited where no imminent injury is shown.

Writ petition dismissed as not maintainable in absence of a real and imminent threat or present infringement; not a fit case to examine legality of the show-cause notice.

Jurisdictional fact for issuance of show-cause notice - Application of Canon India precedent to investigatory jurisdiction - Forum for initial adjudication of jurisdictional issues - Procedure to be followed for adjudication of the question whether the authority issuing the show-cause notice had jurisdiction in view of Canon India. - HELD THAT: - Rather than decide the substantive question whether the Directorate had jurisdiction under Canon India, the Court directed that the petitioner may respond to the show-cause notice and raise the jurisdictional objection before the authority. On receipt of the response, the authority was to consider the point and pass appropriate orders (preliminary or final) in accordance with law and the ratio of Canon India. The Court thus left the question of jurisdiction open for decision by the respondents in the first instance, granting the petitioner liberty to reply within four weeks.

Jurisdictional issue left open and to be considered by the issuing authority upon the petitioner's response; petitioner granted four weeks to reply and liberty to urge Canon India before the authority.

Final Conclusion: The writ petition challenging the 23rd June 2014 show-cause notice is disposed of as not maintainable in the absence of any present infringement or real threat; the petitioner may respond to the notice within four weeks and the issuing authority shall decide the jurisdictional question in accordance with law and the ratio of Canon India, all contentions on merit remaining open.

Advance licence regularisation under para 4.28 of the Handbook of Procedures - statutory interest under the Customs Act - judicial review under Article 226 of the Constitution of India - delay in exercise of statutory power not automatically waiving statutory interest - equity cannot override clear statutory provision

Advance licence regularisation under para 4.28 of the Handbook of Procedures - judicial review under Article 226 of the Constitution of India - Validity of the decision of the Policy Relaxation Committee and applicability of clause 4.28 for regularisation of the petitioner's default under the advance licence - HELD THAT: - The Policy Relaxation Committee recorded that the petitioner admitted zero exports within the original validity and that an extension and further period up to 30-09-2008 yielded no exports. On the admitted facts the Committee properly concluded that the petitioner's case did not fall within clauses 4.28(i) or 4.28(ii) but within clause 4.28(iii), which requires calculation as provided in clauses 4.28(i) and 4.28(ii) and contemplates payment of interest where regularisation is sought. The petitioner did not apply for regularisation under clause 4.28; therefore there was no demonstrable vice in Ext.P5 warranting interference under Article 226. The Committee's decision to direct regularisation under para 4.28 was consistent with the Handbook and the Foreign Trade Policy and is not amenable to judicial overturn on the present record. [Paras 4]

Ext.P5 is upheld and the petitioner is not entitled to have Ext.P5 quashed on the grounds advanced.

Statutory interest under the Customs Act - delay in exercise of statutory power not automatically waiving statutory interest - equity cannot override clear statutory provision - Whether delay in disposal of the review petition or pendency of proceedings relieves the petitioner from payment of statutory interest demanded by the Customs authorities - HELD THAT: - Interest under the Customs Act is statutory and the court cannot, in exercise of Article 226, waive such statutory interest unless the statute itself permits waiver. While statutory powers must be exercised within a reasonable time, unreasonable delay by the authority does not automatically absolve a party from payment of interest which is compensation for use or retention of money. The petitioner remained in possession of the benefit of deferred payment and paid the duty only in 2013 though the export obligation period had effectively ended by 2006. The petitioner could have remitted the duty earlier (including under protest) but did not; interim relief which restrained invocation of the bank guarantee did not amount to waiver of statutory interest. Equity cannot be invoked to defeat clear statutory obligations; consequently the petitioner is liable to interest as demanded. [Paras 5, 6]

The petitioner must pay the statutory interest; delay in disposal of the review petition does not relieve the petitioner of that liability.

Final Conclusion: Writ petition dismissed; Ext.P5 and the demand for interest upheld and no relief granted to the petitioner.

Liability to pay interest under Section 27-A of the Customs Act, 1962 - refund of extra duty deposit (EDD) - provisional assessment and finalization of assessment - requirement of submission of requisite documents for refund application - appellate/tribunal duty to examine and not substitute findings of fact

Liability to pay interest under Section 27-A of the Customs Act, 1962 - refund of extra duty deposit (EDD) - requirement of submission of requisite documents for refund application - Entitlement to interest under Section 27-A where refund was sanctioned within three months from receipt of last requisite document but the refund application was initially defective or premature. - HELD THAT: - The Court found that the original refund application filed on 22.4.2016 was premature because the bills of entry were provisionally assessed and assessment had not been finalized. A show-cause notice dated 7.7.2017 was issued for non-submission of required documents. The importer furnished the certified documents on 11.10.2017 and the Department sanctioned the refund after due verification within three months from that date. The Appellate Authority concurred with the Original Authority that the refund was sanctioned within the prescribed three-month period from receipt of the last document and therefore interest under Section 27-A was not payable. The Court rejected the respondent's contention that defects in the application amount only to an irregularity that cannot defeat interest; the Court held that where the claimant fails to submit requisite documents and thereby delays finalization, the claimant cannot claim interest for a delay caused by its own lapses. Applying these findings, the Court concluded that the Tribunal erred in ordering payment of interest on the ground only that the application was not decided within three months from the date of application without regard to the date of completion of the application by submission of requisite documents. [Paras 3, 10, 11, 13]

Where the refund was sanctioned within three months from the date of receipt of the last requisite document and the delay resulted from the claimant's failure to submit required documents, interest under Section 27-A is not payable.

Appellate/tribunal duty to examine and not substitute findings of fact - provisional assessment and finalization of assessment - Whether the CESTAT erred by setting aside the orders of the Original Authority and Appellate Authority without examining or recording perversity in their factual findings. - HELD THAT: - The Court observed that the Tribunal relied on precedent to order interest solely because the application was not decided within three months, but did not engage with the specific findings of the Original Authority and Appellate Authority that the application was premature and that requisite documents were produced only on 11.10.2017. The Tribunal neither recorded any finding of perversity in the lower authorities' conclusions nor discussed the material facts of the case. The High Court held that a tribunal must examine and confront the factual findings it proposes to set aside; it cannot simply apply precedent without considering whether those findings are perverse. Because the Tribunal failed to do so, its order directing payment of interest was illegal. [Paras 12, 13]

The Tribunal erred in directing payment of interest without examining or recording perversity in the findings of the Original and Appellate Authorities; its order was set aside.

Final Conclusion: The appeal is allowed; the CESTAT order directing payment of interest is set aside because the refund was sanctioned within three months of receipt of the last requisite documents and the Tribunal erred in overturning concurrent findings of the Original Authority and Appellate Authority without recording perversity or engaging with the factual matrix.

Admission of application under Section 9 of the Insolvency and Bankruptcy Code, 2016 - existence of operational debt and default - effect of demand notice under Section 8 and absence of notice of dispute - appointment of interim resolution professional - public announcement and commencement of CIRP - moratorium on proceedings and preservation of assets - direction to deposit interim IRP expenses recoverable as CIRP cost

Existence of operational debt and default - effect of demand notice under Section 8 and absence of notice of dispute - The Operational Creditor established existence of the operational debt and default and there was no notice of dispute from the Corporate Debtor. - HELD THAT: - The Corporate Debtor admitted receipt of office management services and the invoice dated 25.09.2019 and acknowledged receipt of the demand notice dated 05.01.2020. The Corporate Debtor did not raise any pre existing dispute to the claim and admitted inability to pay due to commercial difficulties. The Operational Creditor produced the demand notice and supporting evidence, and the application fell within limitation. On these facts, the requirements for filing under Section 9-namely delivery of the demand notice and absence of a notice of dispute under Section 8-were satisfied and the Operational Creditor established debt and default. [Paras 2, 5]

Debt and default established; no notice of dispute; petition is within limitation.

Admission of application under Section 9 of the Insolvency and Bankruptcy Code, 2016 - The Section 9 application was to be admitted and CIRP initiated against the Corporate Debtor. - HELD THAT: - Having found that the application was complete, that there was non payment of the unpaid operational debt, that the invoice/demand notice had been delivered and that no notice of dispute had been received, the Adjudicating Authority was obliged to admit the application. Applying the statutory criteria in Section 9(5), the Tribunal admitted the petition and directed commencement of the corporate insolvency resolution process with immediate effect. [Paras 5, 6]

Application admitted and CIRP initiated against the Corporate Debtor.

Appointment of interim resolution professional - The proposed interim resolution professional was appointed. - HELD THAT: - The Operational Creditor proposed an interim resolution professional and produced his consent in the prescribed Form 2 together with a declaration of eligibility and absence of disciplinary proceedings. Satisfied with the proposal and the declarations, the Tribunal appointed the proposed IRP and directed him to perform duties under the Code and file reports within the statutory time frame. [Paras 7]

Mohd Nazim Khan appointed as Interim Resolution Professional; directed to act and file reports within 30 days.

Public announcement and commencement of CIRP - moratorium on proceedings and preservation of assets - Public announcement to be made and moratorium imposed consequent to admission of CIRP. - HELD THAT: - Pursuant to the admission, the Tribunal directed the IRP to make the public announcement within the period specified by the Code. The statutory moratorium under Section 14 was declared, with its prohibitions on institution or continuation of suits, transfer or disposal of assets, enforcement of security interests and recovery of property in the possession of the Corporate Debtor. The Tribunal also reiterated that essential supplies shall not be terminated during the moratorium and restated the duties of the IRP and cooperation obligations of those connected with the Corporate Debtor. [Paras 8, 9, 10, 11]

IRP to make public announcement; moratorium declared and IRP duties and protections under the Code directed to be observed.

Direction to deposit interim IRP expenses recoverable as CIRP cost - The Operational Creditor was directed to deposit interim expenses for the IRP, recoverable later as CIRP cost. - HELD THAT: - To meet the immediate expenses of the IRP, the Tribunal directed the Operational Creditor to deposit an interim fee within two weeks. The order specified that such amount shall be accountable to the IRP and ultimately reimbursable by the Committee of Creditors as part of CIRP costs, thereby ensuring availability of funds for the IRP to discharge statutory functions pending constitution of the CoC. [Paras 12]

Operational Creditor directed to deposit interim IRP expenses to be accounted for and recoverable as CIRP cost.

Final Conclusion: The Section 9 petition was admitted and CIRP initiated against the Corporate Debtor; the proposed IRP was appointed, public announcement directed and moratorium declared; the Operational Creditor was ordered to deposit interim IRP expenses recoverable as CIRP cost.

Amendment of pleadings - cause of action - prejudice and costs - amendment before issuance of notice to respondent - Rule 155 of NCLT Rules - non specific extension/exclusion applications

Amendment of pleadings - cause of action - amendment before issuance of notice to respondent - Prayer to amend IA 1317/2019 by incorporating averments made in para 11 of the amendment application (IA/4674/2020). - HELD THAT: - The Tribunal observed that the respondent had not yet been issued notice nor had appeared in IA 1317/2019. In that factual position the applicant was entitled to seek amendment of its application before notice was served; the right of the respondent to oppose accrues only upon appearance and filing of a reply. Although the respondent relied on settled principles limiting amendments (not altering cause of action, avoiding contradictory allegations, preventing irremediable prejudice, and not defeating legal rights by lapse of time) and referred to Rule 155 of the NCLT Rules, the Tribunal found that those objections did not bar amendment prior to issuance of notice and therefore allowed the proposed amendment and directed filing of the amended IA 1317/2019. [Paras 6, 7]

Amendment allowed; applicant directed to incorporate proposed amendment and file amended IA 1317/2019.

Amendment of pleadings - Application for permission to file the amended copy of IA 1317/2019 as allowed in IA 4674/2020. - HELD THAT: - Following allowance of IA 4674/2020, the Tribunal permitted filing of the amended application and listed IA 1317/2019 for further hearing on the specified date. [Paras 9]

Permission granted to file the amended copy; IA 1317/2019 listed.

Non specific extension/exclusion applications - IA 5552/2020 seeking exclusion of lockdown and illness periods from liquidation timeline and extension of the liquidation period. - HELD THAT: - The Tribunal noted the IA did not specify the period for which exclusion or extension was sought and therefore found the prayer non specific and not maintainable. The application was dismissed but liberty was granted to file a fresh application in accordance with law. [Paras 10, 11, 12]

IA 5552/2020 dismissed as non specific; liberty to file a fresh application.

Final Conclusion: The Tribunal allowed the amendment of IA 1317/2019 prior to issuance of notice to respondents and permitted filing of the amended application; a separate application seeking unspecified exclusion and extension of the liquidation timeline (IA 5552/2020) was dismissed with liberty to file a fresh, specific application.

Distinction between custody and arrest - PMLA scheme on search, seizure and arrest under Sections 17, 18 and 19 - time of arrest for purpose of production within twenty-four hours under Section 19(3) - illegality in inception vitiating subsequent proceedings

Distinction between custody and arrest - PMLA scheme on search, seizure and arrest under Sections 17, 18 and 19 - time of arrest for purpose of production within twenty-four hours under Section 19(3) - Whether the petitioner was arrested when restraint was first imposed during the search at 8:30 AM or only when formal arrest was recorded at 7:55 PM, and whether he was required to be produced before the Special Court within twenty-four hours from 8:30 AM. - HELD THAT: - The Court applied the settled distinction that custody and arrest are not synonymous: custody or restraint may exist without a formal arrest, and an 'arrest' in the statutory/procedural sense requires intent and seizure/detention under legal authority. Under the Prevention of Money Laundering Act, arrest is to be effected under Section 19(1) after process under Sections 17(1) and 18(1) (search and seizure and collection of material) is complete. Section 19(3) obliges production before the Court within twenty four hours of the arrest made under Section 19(1). On the admitted facts the authorised officers entered under Section 17(1) at 8:30 AM, conducted search and seizure under Section 18(1) until mid afternoon, recorded statements and only thereafter, at 7:55 PM, arrested the petitioner under Section 19(1). The production before the Special Court on 04.08.2021 at about 4 PM was within twenty four hours of that formal arrest. The Court therefore held that the petitioner's contention that the earlier restraint during the search converted into an arrest for the purpose of the twenty four hour rule was not tenable in the context of the PMLA scheme and the established jurisprudence distinguishing custody from formal arrest. [Paras 11, 13, 15, 16, 17]

The arrest was effected at 7:55 PM under Section 19(1) after completion of Sections 17 and 18 processes, and the petitioner was produced within twenty four hours as required by Section 19(3); petition dismissed.

Final Conclusion: The High Court dismissed the petition: the court found that under the PMLA arrest occurs under Section 19(1) after search and seizure under Sections 17 and 18 are complete, and the petitioner was produced within twenty four hours of that formal arrest, hence no illegality was made out.

Condonation of delay - statutory limitation for filing appeal under Section 85(3) of the Finance Act, 1984 - jurisdiction to condone delay by the Appellate Authority - extraordinary writ jurisdiction under Article 226 - entertainment of belated appeal in peculiar circumstances where prerequisite deposit was paid and appeal was mistakenly filed in wrong forum - pre requisite deposit for preferring an appeal

Condonation of delay - statutory limitation for filing appeal under Section 85(3) of the Finance Act, 1984 - jurisdiction to condone delay by the Appellate Authority - pre requisite deposit for preferring an appeal - entertainment of belated appeal in peculiar circumstances where prerequisite deposit was paid and appeal was mistakenly filed in wrong forum - extraordinary writ jurisdiction under Article 226 - Whether the Appellate Authority must be directed to entertain and decide on merits an appeal filed beyond the statutory limitation where the assessee paid the prerequisite deposit and initially filed the appeal before the wrong forum through inadvertence. - HELD THAT: - The Court examined the sequence of events: the order in original was served on the assessee; the assessee paid the prescribed 7.5% deposit within the limitation period and, due to inadvertence or staff error, filed the appeal before the original authority. The assessee thereafter filed a fresh appeal before the Appellate Authority after a delay of 815 days. While the Appellate Authority correctly observed that, under Section 85(3) of the Finance Act, it lacks power to condone delay beyond the prescribed period and therefore rejected the condonation petition, the High Court accepted the factual premise that the assessee had the intention to prefer an appeal within time (as evidenced by timely payment of the prerequisite deposit) and that the initial misfiling was an inadvertent error. Balancing the statutory limitation and the peculiar factual circumstances, the Court, exercising its extraordinary jurisdiction under Article 226, held that it was appropriate to direct the Appellate Authority to entertain the appeal and decide it on merits. The Court confined its intervention to directing entertainment and adjudication on merits and did not traverse or set aside the order in original itself.

Direction issued to the Appellate Authority to entertain the belated appeal filed by the petitioner (filed after mistaken initial filing) and decide it on merits; the challenge to the order in original was not considered further.

Final Conclusion: Writ petition disposed by directing the Appellate Authority to entertain and decide the petitioner's appeal on merits despite the delay, in view of the admitted timely payment of the prerequisite deposit and the peculiar factual circumstances; no costs.

Condonable procedural lapse - Composition scheme for Works Contract Services - Taxable value for Works Contract under composition scheme

Condonable procedural lapse - Composition scheme for Works Contract Services - Non-intimation to the Department of the option to pay Service Tax under the composition scheme is a condonable procedural lapse and cannot, by itself, deny the benefit of the composition scheme. - HELD THAT: - The Tribunal examined the adjudicating authority's conclusion recorded in paragraph 37 that the appellant was ineligible for the composition scheme because it had not intimated the Department of its option. Relying on earlier decisions of the Tribunal in M/s. Vaishno Associates and M/s. Kunnel Engineers and Contractors, the Tribunal held that failure to file intimation is only a procedural deficiency which can be condoned. Applying those precedents, the Tribunal found no justification to sustain denial of the composition benefit solely on the ground of non-intimation and therefore allowed the appellant to pay Service Tax under the reduced composition rate for Works Contract Services. [Paras 7]

The non-intimation is a condonable lapse; appellant entitled to pay Service Tax under the composition scheme for Works Contract Services.

Taxable value for Works Contract under composition scheme - Composition scheme for Works Contract Services - The Tribunal did not disturb the taxable value assessed in the Annexure to the Show Cause Notice; tax liability is to be computed on that taxable value but at the reduced rate applicable under the composition scheme. - HELD THAT: - While allowing the appellant to avail the composition scheme despite the procedural lapse, the Tribunal expressly refrained from altering the taxable value determined by the adjudicating authority (as reflected in the Annexure to the Show Cause Notice). The correct consequence, as directed, is that Service Tax shall be payable on the said taxable value, but calculated at the reduced composition rate. This preserves the adjudicated taxable base while changing only the applicable rate. [Paras 7, 8]

Taxable value as per the Annexure to the Show Cause Notice remains undisturbed; Service Tax to be paid on that value at the reduced composition rate.

Final Conclusion: The impugned order is modified to allow the appellant to discharge Service Tax under the composition scheme for Works Contract Services (non-intimation being a condonable procedural lapse); the taxable value determined in the Show Cause Notice remains unchanged and Service Tax is to be paid on that value at the reduced composition rate. The appeal is disposed of with consequential benefits, if any.

Admissibility of Cenvat credit on inputs and capital goods used in fabrication, erection and installation of towers and shelters - qualification of towers and prefabricated shelters as capital goods under Rule 2(a) and as inputs under Rule 2(k) of the Credit Rules - permanency test / immovable property doctrine - functional utility / nexus test for inputs - entitlement to credit determined at time of receipt - scope of definition of input services prior to 01.04.2011 as "activities relating to business" - invocation of extended period of limitation in subsequent show cause notices - penalty not leviable where order fails on merits

Admissibility of Cenvat credit on inputs and capital goods used in fabrication, erection and installation of towers and shelters - qualification of towers and prefabricated shelters as capital goods under Rule 2(a) - permanency test / immovable property doctrine - Credit on goods and capital goods used in fabrication, erection and installation of towers and shelters is admissible to the appellants. - HELD THAT: - The Tribunal applied the principles in the subsequent Delhi High Court decisions which rejected the narrow "immovable property"/annexation approach adopted by the Bombay High Court and held that towers and prefabricated shelters received in CKD/SKD condition are not per se immovable property. The Court analysed the definitions in Rule 2(a) and concluded that towers and shelters fall within the scope of capital goods and their components, spares and accessories where they fall under the relevant tariff chapters and are used for providing the output service. The Court emphasised that entitlement to Cenvat credit is to be determined at the time of receipt; goods that qualify as inputs or capital goods when received do not lose that character by later being fastened at site. Applying the functional and permanence tests, the Tribunal found towers and shelters are integral to the BTS system and thereby qualify as capital goods. [Paras 9]

Credit on inputs and capital goods used in fabrication, erection and installation of towers and shelters is admissible.

Qualification of towers and prefabricated shelters as inputs under Rule 2(k) - functional utility / nexus test for inputs - Towers and prefabricated shelters also qualify as inputs for providing output services under Rule 2(k). - HELD THAT: - The Court construed Rule 2(k) broadly, holding that the phrase "all goods" used for providing output services covers goods used for rendering the telecommunication service unless specifically excluded. Applying the functional utility test, the Court concluded the towers and shelters are used in conjunction with antennae and BTS equipment and are essential to provision of the output service; accordingly they satisfy the definition of inputs. The Tribunal's contrary finding that there was no nexus was held to be erroneous in view of the integrated nature of BTS and the settled meaning of "used" including passive and active use. [Paras 9]

Towers and prefabricated shelters qualify as inputs under Rule 2(k) and credit is allowable.

Admissibility of credit on various input services - scope of input services prior to 01.04.2011 as "activities relating to business" - Cenvat credit on the various disputed input services (as considered) is admissible, except credit on services relating to dismantling of towers. - HELD THAT: - Relying on this Bench's earlier order in the sister company's case, the Tribunal held that a wide ambit attached to the definition of input services prior to 01.04.2011 (including "activities relating to business") and that most of the services listed in the Show Cause Notices have a direct nexus with the telecommunication output service. The Bench applied precedents and its earlier findings to allow credit on the listed services (erection, construction, installation, collection charges, freight, insurance, rent, manpower, cleaning, etc.), but found the appellant had not demonstrated that dismantling-of-towers services were required for and in furtherance of their business and therefore disallowed credit for that specific service. [Paras 10]

Credit on the disputed input services is allowable except for dismantling-of-towers services which is disallowed.

Invocation of extended period of limitation in subsequent show cause notices - suppression of facts and extended period - Extended period of limitation could not be invoked in respect of the subsequent show cause notices dated 14.10.2010 and 13.10.2011. - HELD THAT: - The Tribunal applied settled precedent that extended limitation for suppression cannot be invoked in subsequent notices where the department had earlier issued show cause notices and the assessee had been regularly filing returns and disclosing facts. Given earlier SCNs issued to the appellants and the complex legal controversy with conflicting judicial views, the Bench held it was not open to the department to invoke extended period in the later notices. The Court further observed that, having allowed credit on merits for the major part of the claim, the limitation issue becomes redundant. [Paras 12, 13]

Extended period cannot be invoked in respect of the subsequent show cause notices; limitation invocation is not sustainable.

Penalty not leviable where order fails on merits - Imposition of penalty does not arise in view of the order being set aside on merits. - HELD THAT: - Since the Tribunal has allowed the appellants' principal claims of credit (except as to dismantling-of-towers services), the substantive demand fails and, accordingly, the question of imposing penalty is rendered academic. The Bench therefore held that penalty could not be sustained. [Paras 13]

Penalty is not justified and does not survive once the substantive order is set aside.

Adequacy and specificity of show cause notices - The Show Cause Notice dated 14.10.2010 was defective in not indicating service wise break up of alleged inadmissible credit and the department failed to discharge its onus of identification. - HELD THAT: - The Tribunal noted that although the notice listed specific services, it provided only period-wise amounts without service-wise breakup and that the department's verification exercise was frustrated by non-production of invoices; the Bench observed that the onus of identifying irregular credit rests on the department and found it difficult to uphold orders issued without clear allegations or confirmations service wise. [Paras 11]

The 14.10.2010 Show Cause Notice (and the order based on it) suffers from lack of clarity in service wise allegations; department's onus to identify irregular credit was not met.

Final Conclusion: The impugned Order in Original is set aside except insofar as it confirmed denial of credit for services relating to dismantling of towers; the appeal is allowed in the above terms, extended period invocation is unsustainable and penalty is not leviable.

Valuation for service tax on renting of immovable property service - remand for fresh adjudication in light of a subsequent order - liability to deposit amounts collected as representing service tax

Valuation for service tax on renting of immovable property service - remand for fresh adjudication in light of a subsequent order - Remand of the dispute on valuation and service tax liability to the Original Authority for fresh decision in conformity with the order-in-original dated 27 January 2016. - HELD THAT: - The Tribunal recorded that the parties and the Department had reached a common understanding on the method of calculation of service tax for a subsequent period as reflected in the Commissioner's order dated 27 January 2016, which has attained finality in the absence of departmental appeal. In view of that, and without adjudicating the merits of valuation for the earlier period before it, the Tribunal set aside the impugned order and remanded the matter to the Original Authority to decide afresh in accordance with the approach adopted in the subsequent order. The Tribunal also noted the Department's contention that the assessee had collected service tax on the full rent but deposited tax after deducting property tax, and recorded that the Original Authority should examine the documents and ensure deposit of any amounts actually collected as representing service tax. [Paras 4]

Impugned order set aside and the matter remanded to the Original Authority to re-adjudicate the valuation and service tax liability in accordance with the Commissioner's order dated 27 January 2016, with directions to examine and ensure deposit of any tax amounts collected.

Final Conclusion: Both appeals disposed of by remand: the impugned order is set aside and the matter is remitted to the Commissioner for fresh adjudication in conformity with the Commissioner's order dated 27 January 2016, including verification of any amounts collected as service tax and their deposit.

Exemption from Rule 6(1)-(4) of the Cenvat Credit Rules for supplies to SEZ developers - Clarificatory and retrospective nature of amendment to Rule 6(6)(i) - Liability to pay 10% under Rule 6(3) where inputs are used for exempted clearances - Disallowance of Cenvat credit and requirement to maintain separate accounts under Rule 6(2) - Imposition of interest and penalty under Rule 14/Rule 15 of CCR read with Sections 11AB/11AC of the Central Excise Act

Exemption from Rule 6(1)-(4) of the Cenvat Credit Rules for supplies to SEZ developers - Clarificatory and retrospective nature of amendment to Rule 6(6)(i) - Liability to pay 10% under Rule 6(3) where inputs are used for exempted clearances - Whether supplies made by the assessee to SEZ developers during 28.12.2006 to 30.12.2008 attracted the requirement to maintain separate accounts or to pay an amount equal to 10% under Rule 6(3) of the Cenvat Credit Rules. - HELD THAT: - The Tribunal applied the ratio of the jurisdictional High Court in Fosroc Chemicals (India) Pvt. Ltd and subsequent High Court decisions which held that the inclusion of SEZ developers within clause (i) of sub rule (6) of Rule 6 by Notification No. 50/2008-C.E. (N.T.) dated 31.12.2008 is clarificatory and therefore operates retrospectively. That reasoning rests on the SEZ Act's scheme treating supplies to a Unit or Developer as exports and on Section 151 of the SEZ Act overriding inconsistent statutory provisions. Consequently, Rule 6(6)(i) must be read as if supplies to SEZ developers were always excluded from the operation of sub rules (1) to (4). Following those authorities, supplies made to SEZ developers during the period in dispute were not liable to reversal or payment of 10% under Rule 6(3), and the ancillary demands for interest and penalty based on the disallowance also could not be sustained. [Paras 6, 7]

The appellant was not required to follow Rule 6(1)-(4) in respect of supplies to SEZ developers for the period 28.12.2006 to 30.12.2008; the demand, interest and penalty set aside.

Final Conclusion: The impugned order is set aside; the appeal is allowed and the demand, interest and penalty relating to supplies to SEZ developers for the period 28.12.2006 to 30.12.2008 are quashed, with consequential relief if any.

Levy of central excise duty requires manufacture or production of an excisable good - no levy on presumption of manufacture - burden of proof lies on Revenue to establish manufacture and clandestine clearance - acceptance of explanation for stock shortage by adjudicating authority - clandestine manufacture and clearance - CENVAT credit admissible only if input used in or in relation to manufacture - limestone not a cenvatable input

Levy of central excise duty requires manufacture or production of an excisable good - no levy on presumption of manufacture - burden of proof lies on Revenue to establish manufacture and clandestine clearance - Whether central excise duty can be levied on the basis of shortage of raw material without evidence of manufacture of excisable goods - HELD THAT: - The Tribunal held that imposition of central excise duty presupposes that an excisable good has been produced or manufactured and is leviable only if the taxable event has taken place. There is no provision in the statute to charge duty on the basis of a presumption of manufacture. Where the Department alleges clandestine manufacture and clearance, it bears the burden of proving that clinker was actually manufactured and cleared without payment of duty. Mere unaccounted procurement or physical shortage of raw material, even if unexplained or subsequently explained by the assessee, does not by itself establish manufacture of an excisable product. The Court noted that additional ingredients and factors (other inputs, power consumption, corresponding shortages) would ordinarily be expected if the raw material had been converted into finished goods; absence of such corroboration weakens the case for inferring manufacture. The Tribunal therefore agreed with the Commissioner that no duty could be demanded on the basis of presumed manufacture from the shortage of limestone alone. [Paras 8, 9, 10]

Demand could not be sustained in the absence of evidence of manufacture; duty cannot be charged on mere presumption of manufacture.

Acceptance of explanation for stock shortage by adjudicating authority - clandestine manufacture and clearance - CENVAT credit admissible only if input used in or in relation to manufacture - limestone not a cenvatable input - Whether the Commissioner erred in dropping the show cause notice after accepting the assessee's explanation for the shortage of limestone and payment of duty on clinker found short - HELD THAT: - On the facts, the respondent itself detected the shortages on physical verification, paid duty on the clinker found short, and furnished an explanation for the limestone shortfall which the Commissioner examined and accepted. The Committee of Chief Commissioners disagreed, viewing the explanations as afterthoughts and noting absence of contemporaneous entries in accounts or returns. The Tribunal, however, found no reason to disbelieve the assessee's explanation that limestone had been used for various non-manufacturing purposes or was lost/ unmeasured during handling, and observed that had such uses been recorded there would have been no discrepancy. The Tribunal reiterated that limestone is not a cenvatable input and that CENVAT rules are irrelevant unless it is shown the input was used in manufacture. In absence of evidence proving conversion of the missing limestone into clinker and clandestine clearance thereof, the Commissioner rightly dropped the proceedings. [Paras 9, 10, 11]

The Commissioner did not err in dropping the show cause notice; the adjudication accepting the explanation was sustainable.

Final Conclusion: The impugned order dropping the show cause notice is upheld. Revenue's appeal is dismissed as duty cannot be levied on mere shortage of raw material in the absence of evidence of manufacture and clandestine clearance; consequential relief, if any, shall follow.

Condonation of delay - stay of coercive proceedings - expeditious consideration of pending petitions by appellate tribunal - extension of limitation by higher court decision

Condonation of delay - extension of limitation by higher court decision - Appellate Tribunal directed to consider and pass appropriate orders on the petitions seeking condonation of delay in filing second appeals. - HELD THAT: - Petitioner had filed second appeals and accompanying delay petitions against first appellate orders for the assessment years specified. The High Court declined to adjudicate the merits of the condonation applications and instead directed the Kerala Value Added Tax Appellate Tribunal to consider Exts.P4, P4(a) and P4(b) (delay petitions) on their own merits. The Tribunal is required to bear in mind the authoritative declaration of law in the cited higher court decision concerning extension of limitation while deciding the delay petitions. The consideration is to be completed expeditiously and within the timeline fixed by this Court. [Paras 4, 6]

Tribunal to consider and decide the delay petitions bearing in mind the higher court's extension of limitation and to do so expeditiously within three months.

Stay of coercive proceedings - expeditious consideration of pending petitions by appellate tribunal - Interim suspension of further coercive recovery proceedings until the Appellate Tribunal decides the pending stay and delay petitions. - HELD THAT: - While the Tribunal is directed to decide the delay and stay petitions, the High Court ordered that all further coercive proceedings initiated pursuant to Ext.P6 series shall be kept in abeyance pending the Tribunal's decision on Exts.P5, P5(a) and P5(b) (stay petitions). The abeyance is purely interim and lasts until the Tribunal renders its orders as directed; the writ court did not rule on the substantive merits of the stay applications. [Paras 6, 7]

All further coercive proceedings pursuant to Ext.P6 series are stayed temporarily and shall remain in abeyance until the Tribunal decides the pending delay and stay petitions.

Final Conclusion: Writ petition disposed by directing the Appellate Tribunal to consider and decide the delay and stay petitions relating to the specified assessment years expeditiously and within three months, with interim abeyance of further coercive proceedings until such decision.

Definition of 'amusement' under the Tamil Nadu Entertainment Tax Act - entertainment tax on admission to amusement - liability to pay entertainment tax - clarificatory order in tax administration

Definition of 'amusement' under the Tamil Nadu Entertainment Tax Act - entertainment tax on admission to amusement - liability to pay entertainment tax - Live western classical music concert conducted on specified dates falls within the definition of 'amusement' and is subject to entertainment tax leviable on each payment for admission. - HELD THAT: - The Court examined the statutory definitions of 'Entertainment' and the separately inserted definition of 'Amusement' and concluded that amusement includes any amusement for which persons are required to make payment for admission to events such as concerts. Section 4(F) levies a tax at ten per cent on each payment for admission to an amusement and makes the tax recoverable from the proprietor. Applying these provisions to the facts, the live music concert conducted under the name 'Yanni Concert' on the specified dates at the stadium falls within the statutory meaning of amusement and hence attracts the entertainment tax under the Act. [Paras 6]

The concert is taxable as an 'amusement' and entertainment tax is leviable on each admission payment.

Clarificatory order in tax administration - liability to pay entertainment tax - The clarificatory order issued by the first respondent determining that the concert is taxable is valid and the authorities may proceed with assessment and recovery in accordance with the Act. - HELD THAT: - The Court found the impugned clarificatory order to be self-speaking and consistent with the statutory definitions and the levy provision. There being no ambiguity in the relevant provisions, the order correctly clarified that the concert would fall within the meaning of amusement and that entertainment tax at the prescribed rate should be levied and paid. Consequently, the stay of assessment caused by the challenge to the clarification is lifted and the respondents are directed to proceed with the petitioner's case following the procedure under the Act. [Paras 6, 7, 8]

The clarificatory order is upheld; respondents may proceed with assessment and recovery under the Act.

Final Conclusion: Writ petition dismissed; the High Court upholds the clarification that the live concert is taxable as an amusement and directs the tax authorities to proceed with assessment and recovery in accordance with the Tamil Nadu Entertainment Tax Act.

Section 141 of the Negotiable Instruments Act - vicarious liability of persons in charge and responsible - Issuance of summons in complaints under Section 138 of the Negotiable Instruments Act - Application of K. K. Ahuja principles for fixing liability of directors/officers - Quashing powers under Section 482 of the Code of Criminal Procedure

Section 141 of the Negotiable Instruments Act - vicarious liability of persons in charge and responsible - K. K. Ahuja principles - Quashing powers under Section 482 of the Code of Criminal Procedure - Validity of the trial court's order issuing summons against the petitioners (accused nos.3 and 4) in the complaint under Section 138 read with Section 141 of the Negotiable Instruments Act and whether that order should be quashed under Section 482 CrPC. - HELD THAT: - The High Court examined the trial Court's reasoning and the averments/documents relied upon in the complaint. The trial Judge categorised the role of each accused after perusal of the agreement of sale and company records, recording that accused nos.3 and 4 (petitioners) were shown as key persons handling affairs of the accused company and thus vicariously liable. The Court applied the principles summarised in K. K. Ahuja regarding Section 141 - namely that liability under subsection (1) may be inferred by the status and averments showing a person was in charge and responsible for the conduct of the company's business, while directors/officers require specific averments or may be proceeded against under subsection (2) by alleging consent, connivance or negligence. Having found that the complaint and documents provided specific averments as to the petitioners' role and that the trial Judge gave reasons for issuing summons, the High Court concluded there was no basis under Section 482 CrPC to quash the proceedings. The Court also observed that contention regarding issuance of process beyond territorial limits under Section 202 CrPC was not a matter for disposal under Section 482 in the present petition. [Paras 16, 17, 23, 24, 25]

The trial Court's issuance of summons against accused nos.3 and 4 is upheld; the petition under Section 482 CrPC to quash the proceedings is dismissed.

Final Conclusion: The High Court declined to interfere with the Magistrate's order issuing summons against the petitioners as accused nos.3 and 4 under Section 138 read with Section 141 NI Act, applying the principles in K. K. Ahuja, and dismissed the petition under Section 482 CrPC.

Condonation of delay - compromise between parties - quashing of conviction and sentence pursuant to compromise - release of court-deposited amount on identification - conditional release from custody - transmission of lower court records

Condonation of delay - Delay of 159 days in filing the criminal revision application is condoned. - HELD THAT: - The Court, after hearing the parties and being satisfied with the explanation set out in the interlocutory application, exercised its discretion to condone the delay in filing the revision. There was no serious objection from the opposite parties to the condonation application and the explanation was accepted for the ends of justice. [Paras 4]

I.A. No.2585 of 2020 is allowed and the delay of 159 days is condoned.

Withdrawal of interlocutory application - I.A. No.3001 of 2021 (joint compromise petition) is dismissed as withdrawn and I.A. No.4664 of 2021 and I.A. No.4772 of 2021 are allowed/disposed with identical prayers. - HELD THAT: - Opposite party No.2 had inadvertently executed a second vakalatnama in favour of another advocate and filed a joint compromise petition; on realizing the duplication a petition was filed to withdraw the earlier compromise petition and to withdraw the second vakalatnama. No serious objection was raised by the opposite parties, and the Court permitted withdrawal as prayed. [Paras 6, 7, 8]

I.A. No.4664 of 2021 is allowed; I.A. No.3001 of 2021 stands dismissed as withdrawn; I.A. No.4772 of 2021 is disposed of.

Compromise between parties - quashing of conviction and sentence pursuant to compromise - The criminal revision is disposed of in terms of the joint compromise and the convictions and sentences recorded by the trial and appellate courts are set aside. - HELD THAT: - Petitioner had been convicted under Section 138 of the Negotiable Instruments Act and sentenced, and the appeal had affirmed conviction. During pendency of the revision the parties entered into a settlement: the petitioner deposited part of the compensation with the court and paid the balance directly to the complainant. The State raised no objection to recording the compromise. Considering the nature of the offence, the complete settlement between the parties and the joint compromise petition, the High Court allowed disposal of the revision in terms of the compromise and set aside the judgments of conviction and sentence to meet ends of justice and secure peace between the parties. [Paras 12, 13, 14, 15, 16]

Criminal Revision disposed of on the basis of the compromise; the conviction and sentence dated 04.04.2018 and the appellate order dated 28.06.2019 are set aside.

Release of court-deposited amount - Amount deposited before the trial court is to be released in favour of the opposite party upon due identification. - HELD THAT: - The Court recorded that the petitioner had deposited a portion of the agreed amount before the learned court below and had paid the remainder directly to the opposite party. In consequence of the settlement and setting aside of conviction, the Court directed that the amount deposited in court be released to the opposite party on proper identification. [Paras 17]

The Rs. 1,00,000/- deposited before the learned court below is directed to be released to opposite party No.2 upon due identification.

Conditional release from custody - Petitioner to be released from jail immediately, subject to not being wanted in any other case. - HELD THAT: - Having disposed of the revision in terms of the compromise and set aside the convictions and sentences, the Court directed immediate release of the petitioner from custody if there are no other cases in which he is wanted. This disposition follows the remedial effect of quashing the conviction and sentence. [Paras 18, 19]

I.A. No.5153 of 2021 is allowed; the petitioner is to be released from custody immediately, if not wanted in any other case.

Transmission of lower court records - Lower court records are to be sent back to the court concerned. - HELD THAT: - Following disposal of the criminal revision in terms of the compromise and the consequent setting aside of the conviction and sentence, the High Court directed that the records of the lower court be transmitted back to the court concerned for compliance and record. [Paras 21]

Lower court records to be sent back to the court concerned.

Final Conclusion: The High Court allowed condonation of delay, permitted withdrawal of the erroneously filed compromise petition, disposed of the criminal revision in terms of the joint compromise by setting aside the conviction and sentence, directed release of the court-deposited amount to the complainant upon identification, ordered the petitioner's release from custody if not wanted elsewhere, and directed transmission of the lower court records.

Presumption under Section 118 of the Negotiable Instruments Act, 1881 - Rebuttal of statutory presumption and burden of proof - Non-adherence to Section 269SS of the Income Tax Act, 1961 does not extinguish civil right to recover loan - Non-disclosure in income-tax returns not a bar to civil recovery - Consequences of delay in prosecuting appellate remedy - forfeiture of interest for delayed period

Presumption under Section 118 of the Negotiable Instruments Act, 1881 - Rebuttal of statutory presumption and burden of proof - Whether the court below was justified in displacing the presumption in favour of the holder of the promissory note and non-suiting the plaintiff on the basis that the presumption under Section 118 was rebutted. - HELD THAT: - The promissory note (Ex.A.1) bore the defendant's signature which was not denied; the trial court rightly invoked the presumption under Section 118 that a negotiable instrument was made for consideration. The appellate court's task was to determine whether the defendant had rebutted that presumption. The defendant advanced alternate explanations (alleged handing over of blank signed notes to third parties) and produced the scribe as witness, but the trial court found the defence inconsistent and non-specific (notably the non-examination of a key person referred to in the defence). The testimony of the scribe did not negative the loan but rather corroborated aspects of the plaintiff's case; minor discrepancies as to venue were held immaterial. Applying the statutory rule that the court must presume the fact until contrary is proved, the appellate court erred in displacing the presumption without adequate basis. The finding that the presumption was rebutted was perverse and was set aside, restoring the trial court's decree. [Paras 8, 9, 13, 15]

The appellate court wrongly held that the presumption under Section 118 was rebutted; the presumption ought to have been applied and the trial court's decree restored.

Non-adherence to Section 269SS of the Income Tax Act, 1961 does not extinguish civil right to recover loan - Non-disclosure in income-tax returns not a bar to civil recovery - Whether non-compliance with the mode prescribed by Section 269SS and non-disclosure of the transaction in income-tax returns disentitles the lender from civil recovery of the loan. - HELD THAT: - Section 269SS prescribes the mode in which certain loans are to be taken by the borrower; judicial precedent and statutory construction show that the obligation in Section 269SS is on the borrower to take the loan in prescribed manner and does not confer on a court a power to extinguish the lender's civil remedy for recovery. Failure to disclose the transaction in income-tax returns or non-adherence to Section 269SS may invite departmental penal consequences against the lender but does not, in itself, render the loan irrecoverable in a civil suit. The appellate court's approach of denying the presumption under Section 118 on the ground of non-compliance with Section 269SS lacked statutory foundation and amounted to judicial innovation. The court therefore held that non-compliance with Section 269SS or non-disclosure in returns does not operate to defeat the plaintiff's right to recover the lent amount. [Paras 10, 11, 14, 15]

Non-adherence to Section 269SS and omission in income-tax returns do not bar civil recovery; the appellate court erred in treating such non-compliance as extinguishing the plaintiff's claim.

Consequences of delay in prosecuting appellate remedy - forfeiture of interest for delayed period - Whether the appellant is entitled to interest for the period attributable to delay in filing the appeal. - HELD THAT: - Although the appellate challenge succeeded and the trial court's decree was restored, the court noted that the appellant had delayed in filing the appeal. As a consequence of that delay the appellant was denied any interest for the period of delay. This is a remedial, procedural consequence distinguished from the substantive right to recover the loan. [Paras 15]

The second appeal allowed and trial court decree restored, but no interest is granted for the period of delay in filing the appeal.

Final Conclusion: The impugned first appellate judgment and decree are set aside; the trial court's decree in favour of the plaintiff on the promissory note is restored. Non-compliance with Section 269SS of the Income Tax Act and omission in income-tax returns do not extinguish the civil right to recover a loan, and the appellate court erred in denying the statutory presumption under Section 118 of the Negotiable Instruments Act on that basis. The appellant is not entitled to interest for the period of delay in prosecuting the appeal.

Extension of time for payment - withdrawal of application - compliance with court order - affidavit undertaking by directors - costs

Extension of time for payment - withdrawal of application - costs - Application for extension of time to make the first installment under the order dated 1st September, 2021 was dismissed following withdrawal, and costs were imposed. - HELD THAT: - The petitioner sought an extension of the deadline for payment of the first installment from 4th September, 2021 to 15th September, 2021. The court indicated that any extension would be subject to the filing of an affidavit by the company's directors undertaking that the first and all future instalments would be paid in accordance with the earlier order. After being given a passover to obtain instructions, counsel for the petitioner withdrew the application. The court noted that the withdrawal created doubt as to the petitioner's intention to honour the order dated 1st September, 2021 but observed that the respondent retains remedies under law if payments are not made. In the circumstances the court dismissed the applications and imposed costs of Rs. 10,000 on each application.

Applications dismissed on withdrawal with costs of Rs. 10,000 each.

Final Conclusion: The petitions seeking enlargement of time to pay the first instalment were dismissed following withdrawal of the applications; the court had proposed a directors' affidavit as a pre-condition to any extension, expressed concern about compliance with the earlier order, and awarded costs to the respondent.