TaxTMI Updates e-Newsletter
Oct 23,2021

Zero Rated Supply - refund of IGST on export - shipping bill as deemed application for refund - liability of revenue authorities to ensure transmission of data from GSTN to ICEGATE - writ of mandamus for refund - interest under section 54 of the Central Goods and Services Tax Act, 2017 read with section 16 of the Integrated Goods and Services Tax Act, 2017

Refund of IGST on export - shipping bill as deemed application for refund - Zero Rated Supply - liability of revenue authorities to ensure transmission of data from GSTN to ICEGATE - writ of mandamus for refund - interest under section 54 of the Central Goods and Services Tax Act, 2017 read with section 16 of the Integrated Goods and Services Tax Act, 2017 - Petitioner entitled to refund of IGST paid on export and court may direct respondents to refund with interest notwithstanding non-transmission of export data from GSTN to ICEGATE. - HELD THAT: - Petitioner exported goods prior to notification of GST refund provisions but the shipping bill containing IGST particulars was printed on 1/7/2017. Exports are treated as Zero Rated Supply, permitting refund of IGST where tax was paid. Administrative practice at the port and the technical failure of transmission of data from GSTN to ICEGATE prevented the customs office from processing the refund; the petitioner had no control over such transmission. The Court noted absence of any contesting averments by respondents and non-compliance with earlier directions, and observed that the communication from the customs office itself acknowledged the inability to process refund due to non-receipt of data. In these circumstances the Court proceeded to compel the revenue to effect the refund by issuing a prerogative writ, holding that the logistics of data transmission cannot be allowed to defeat an undisputed entitlement to refund. The Court further directed payment of interest in accordance with the statutory provision cited, and awarded costs for delay. The determinative reasoning rests on (a) recognition of export transactions as qualifying for refund, (b) the administrative responsibility of respondents to ensure processing despite technical transmission failures, and (c) the propriety of issuing a writ of mandamus where the entitlement is undisputed and respondents failed to act. [Paras 7, 8, 9]

Writ petition allowed; respondents directed to refund the IGST paid together with statutory interest and costs within the period specified, irrespective of whether GSTN data has been transmitted to ICEGATE.

Final Conclusion: The High Court directed the revenue to refund the IGST paid on export, with interest under the statutory provisions and costs, and granted relief by way of writ of mandamus because the petitioner's entitlement was undisputed and administrative failure of data transmission could not be permitted to deny the refund.

Provisional release of goods under Section 67(6) of the GST Act - detention and confiscation of goods and conveyance in transit - requirement of a speaking order when considering provisional release - interim relief pending adjudication under GST MOV-10/MOV-11 procedure - application of earlier judicial directions in F.S.Enterprise

Provisional release of goods under Section 67(6) of the GST Act - detention and confiscation of goods and conveyance in transit - requirement of a speaking order when considering provisional release - application of earlier judicial directions in F.S.Enterprise - Authority directed to consider petitioner's application for provisional release of detained goods and vehicle and to pass a reasoned order before taking action under MOV-11. - HELD THAT: - The Court declined to enter into the merits of the detention but observed that the petitioner, as owner of the goods, had applied for provisional release while the matter remained at the GST MOV-10 stage. The authority was directed to consider the application for provisional release in accordance with the provisions of Section 67(6) of the Act and to pass a speaking/ reasoned order on that application. The Court allowed a period of two weeks before the officer could proceed to pass any confiscation order in MOV-11, instructed that the authority should consider the petitioner's request on the next scheduled date (noted as 24.09.2021) or any other scheduled date, and required that the officer have regard to the directions and guidelines laid down in F.S.Enterprise. The Court disposed of the writ without adjudicating merits and confined its direction to ensuring timely, reasoned consideration by the statutory authority so that the petitioner may take appropriate legal recourse if aggrieved. [Paras 8, 9, 10, 11]

Petitioner's application for provisional release to be considered by the concerned officer in accordance with law; a speaking order to be passed and two weeks' time allowed before any MOV-11 confiscation order is issued; directions to follow F.S.Enterprise guidelines; Court did not decide merits.

Final Conclusion: Writ disposed directing the respondent-authority to consider and decide the petitioner's application for provisional release of the detained goods and vehicle under Section 67(6) by a speaking order, allow two weeks before any MOV-11 confiscation, and have regard to the judicial guidelines in F.S.Enterprise; merits left open.

Regular bail under Section 439 CrPC - prima facie satisfaction - nature and gravity of offence - absence of special circumstances - conditions of bail including personal bond, surety and surrender of passport - trial court not to be influenced by interim observations

Regular bail under Section 439 CrPC - prima facie satisfaction - absence of special circumstances - nature and gravity of offence - conditions of bail including personal bond, surety and surrender of passport - Enlargement of the applicant on regular bail in the offences registered under the State GST enforcement file. - HELD THAT: - The Court considered the period when the alleged offence occurred (2020-2021), the fact that the applicant has been in custody since 01.08.2021, the submission that the complaint was likely to be filed on 30.09.2021, and the applicant's personal circumstances (a 50-year-old woman proprietor with her son handling day-to-day administration). The Additional Public Prosecutor, under instructions of the Investigating Officer, could not place any special circumstances on record to oppose bail. Relying on the legal principles in Sanjay Chandra v. CBI, the Court, without undertaking a detailed examination of the evidence, formed a prima facie view that the matter was fit for exercise of discretionary power to grant regular bail. The Court therefore directed release on furnishing a personal bond with one surety and imposed specific conditions (including not misusing liberty, not obstructing investigation, surrender of passport, restrictions on leaving the State, periodic police attendance and furnishing residence), while noting the authorities may release the applicant only if not required in connection with any other offence and preserving the trial Court's power to modify conditions. [Paras 6, 7, 8]

Application allowed; applicant enlarged on regular bail on executing a personal bond with one surety and subject to specified conditions.

Final Conclusion: Bail application under Section 439 CrPC allowed on discretionary grounds: prima facie view favourable to bail, absence of special circumstances, and bail granted subject to enumerated conditions; trial Court free to modify conditions and not to be influenced by preliminary observations of this Court.

Provisional release under Section 67(6) of the GST Acts - detention and confiscation proceedings under GST MOV 10 and GST MOV 11 - goods in transit - requirement of a speaking order - application of judicial guidelines in F.S. Enterprise - court abstaining from adjudicating merits at interlocutory stage

Provisional release under Section 67(6) of the GST Acts - goods in transit - detention and confiscation proceedings under GST MOV 10 and GST MOV 11 - Authority to consider and decide the petitioner's application for provisional release of the goods and vehicle under the statutory scheme for goods detained in transit. - HELD THAT: - The Court directed that the petitioner's application for provisional release of the goods and vehicle, being goods in transit and detained under GST MOV 10, shall be considered by the concerned authority under the provisions of Section 67(6) of the GST Acts. The matter is remitted to the officer/authority to examine and pass a reasoned (speaking) order on the application for provisional release so that the petitioner may take further legal recourse if necessary. The officer is ordered to undertake this exercise without avoidable delay and to have regard to the directions and guidelines previously laid down by this Court in F.S. Enterprise. The Court further afforded a period of two weeks before the officer proceeds to pass any confiscation order in the form of GST MOV 11, thereby giving the authority a temporal framework to decide the provisional release application prior to taking final confiscation action. [Paras 12, 13, 14]

Application for provisional release remitted to the authority for consideration and a speaking order to be passed in accordance with law and judicial guidelines, with two weeks allowed before any GST MOV 11 confiscation order is passed.

Court abstaining from adjudicating merits at interlocutory stage - requirement of a speaking order - Whether the High Court should enter into the merits of the detention/confiscation at the stage of GST MOV 10. - HELD THAT: - The Court explicitly refrained from adjudicating the substantive merits of the detention and proposed confiscation while the matter remained at the GST MOV 10 stage. Instead of determining factual or valuation disputes, the Court limited its intervention to directing statutory and procedural compliance by the authority (including issuance of a speaking order) and to ensuring that the petitioner's provisional release application is considered promptly. The Court disposed of the writ petition on these terms without deciding the underlying merits of the detention or the allegations (such as suspension of recipient registration or undervaluation). [Paras 12, 14]

Court will not enter into merits at the interlocutory stage and confines its order to procedural directions for consideration of provisional release and issuance of a speaking order.

Final Conclusion: Writ petition disposed directing the concerned GST authority to consider the petitioner's application for provisional release of the detained goods and vehicle under Section 67(6) of the GST Acts, to pass a reasoned speaking order in accordance with law and this Court's guidelines (F.S. Enterprise), and permitting two weeks before any GST MOV 11 confiscation order is effected; the Court did not decide the merits of detention/confiscation.

Summary order. Petition challenging blocking of input tax credit under Rule 86A of the CGST Rules, 2017: notice issued returnable on 30th September, 2021; petitioner permitted to serve respondents by R.P.A.D. and by direct service.

Provisional release of goods in transit - Section 67(6) of the GST Act - detention and confiscation under GST - speaking order - guidelines in F.S. Enterprise

Provisional release of goods in transit - Section 67(6) of the GST Act - Application for provisional release of detained goods and vehicle under the provisions of Section 67(6) of the GST Act was to be considered by the authority. - HELD THAT: - The court declined to enter into the merits of the detention or alleged contraventions while the matter remained at the stage of GST MOV 10. Instead, the court directed the officer/authority to consider the petitioner's application for provisional release of the goods and vehicle as goods in transit, and to decide the same by the next scheduled date (or on 24.09.2021) or any other scheduled date. The petitioner had communicated the request and complied with procedural formalities; the authority was ordered to pass a reasoned (speaking) order enabling the petitioner to pursue further legal remedies if necessary.

Authority to consider and pass an order on provisional release under Section 67(6) of the GST Act; court declined to adjudicate merits.

Detention and confiscation under GST - speaking order - guidelines in F.S. Enterprise - Procedure and timeline for any subsequent confiscation proceeding were prescribed, and the authority was directed to follow existing judicial guidelines. - HELD THAT: - The court directed that a speaking order be passed by the officer concerned on the issue of provisional release so that the petitioner may have a clear basis for any challenge. The authority was given a period of two weeks before passing an order of confiscation in the form of GST MOV 11. While disposing of the writ, the court specifically required the officer to have regard to the directions and guidelines previously laid down by this Court in F.S. Enterprise. The court thereby remitted factual and discretionary questions to the authority for decision in accordance with law and the cited guidelines.

Officer to pass a reasoned order on release; two weeks' interval before any confiscation; authority to follow F.S. Enterprise guidelines.

Final Conclusion: Writ petition disposed by directing the respondent authority to consider and decide the petitioner's application for provisional release of the detained goods and vehicle under Section 67(6) of the GST Act by the next scheduled date, to pass a speaking order, to allow two weeks before any confiscation (GST MOV 11), and to apply the Court's earlier guidelines in F.S. Enterprise; the court did not adjudicate the merits of detention.

Disallowance under Section 68 for unexplained credits - failure to provide draft assessment order under the Faceless Scheme/Section 144B - opportunity to show cause before variation of returned income - non-application of mind in assessment proceedings - assessment set aside for procedural infirmity - remand for fresh consideration and issue of draft assessment with personal hearing

Failure to provide draft assessment order under the Faceless Scheme/Section 144B - opportunity to show cause before variation of returned income - non-application of mind in assessment proceedings - assessment set aside for procedural infirmity - Validity of the assessment order dated 23/04/2021 insofar as it purported to make additions without issuance of a draft assessment order and without affording the statutory opportunity to show cause under the Faceless Scheme. - HELD THAT: - The Court found that the notice dated 20/04/2021 could not be treated as a draft assessment order because it functioned as a call for further documents rather than a proposal of variation; the Faceless Scheme (Section 144B) requires that where a variation prejudicial to the assessee is proposed a draft assessment order calling for objections must be served. The assessee had sought short time and requested issuance of summons to third party lenders; notwithstanding those requests, the assessing officer passed the assessment on 23/04/2021 without issuing the mandatory draft order or dealing with the request for summons. The notice demanded an unrealistically short compliance time and there was a failure to give an opportunity to explain or to consider submissions, including with respect to parties not mentioned in earlier show-cause notices. On these procedural grounds the assessment manifested non-application of mind and was vitiated.

Assessment order dated 23/04/2021 (and the consequential notice of demand and show-cause notice dated 23/04/2021) set aside for procedural infirmity; no observation made on merits.

Remand for fresh consideration and issue of draft assessment with personal hearing - opportunity to show cause before variation of returned income - disallowance under Section 68 for unexplained credits - Directions for further proceedings and scope of remand following setting aside of the impugned assessment. - HELD THAT: - The Court directed that the assessing authority shall issue a proper draft assessment order to the assessee, afford an opportunity to file objections with documentary evidence, and thereafter pass such order as it deems fit while also giving a personal hearing as per rules. Because the assessee had requested issuance of summons to third party lenders, the Court ordered the assessee to supply details of those lenders, including PANs, within two weeks so that the authority may, if necessary, issue summons or take further steps in accordance with law. The Court expressly refrained from expressing any view on the merits of the additions under Section 68, leaving those questions open for fresh adjudication after compliance with the procedural directions.

Matter remitted for fresh consideration in accordance with the directions: issue a draft assessment, allow objections and documentary evidence, provide personal hearing, and permit the authority to issue summons to third parties after the assessee furnishes lender details.

Final Conclusion: The assessment order for AY 2018-19 dated 23/04/2021 is set aside for failure to comply with the Faceless Scheme's requirement of issuing a draft assessment and affording a show-cause opportunity; the matter is remitted for fresh consideration with directions to issue a draft order, permit objections with documentary evidence, provide a personal hearing, and to permit issuance of summons to third parties after the assessee furnishes lender details within two weeks.

Condonation of delay - maintainability of review petition - scope of review jurisdiction - re-hearing of appeal not permissible in review - identical or repetitive grounds

Condonation of delay - Delay of 130 days in filing the Review Petitions is condoned. - HELD THAT: - The Court considered Interim Applications seeking condonation and, for the reasons stated therein, accepted the explanation for delay and exercised its discretion to condone the delay of 130 days in filing both Review Petitions. The Interim Applications are disposed of on that basis. [Paras 1]

Delay of 130 days in filing both Review Petitions is condoned and the interim applications are disposed of.

Maintainability of review petition - scope of review jurisdiction - re-hearing of appeal not permissible in review - identical or repetitive grounds - No case made out for review of the order dated 31.01.2020; Review Petitions dismissed. - HELD THAT: - The Court examined the order dated 31.01.2020 and compared the grounds originally taken in the appeal with the grounds advanced as modified or additional in the Miscellaneous Application. It found that the so-called modified/additional grounds were reiterations or reproductions of the original grounds and that the core issue in both proceedings was identical (restriction of estimated profit from 3% to 1.5%). The Court reiterated that the Review Petitions, in effect, sought a re-hearing of the Tribunal's final order or review of that order, which is impermissible where the alleged new grounds do not materially affect the earlier decision. The accidental repetition in the earlier order of the Appeal grounds in place of the Misc. Application grounds was held not to be a valid basis for review as it did not materially affect the outcome. On these findings the Court concluded that no grounds exist to entertain the Review Petitions and therefore dismissed them. [Paras 5, 6, 7, 8, 9]

Review Petitions challenging the order dated 31.01.2020 are dismissed for want of merit; no review or re-hearing is warranted as the modified grounds simply reproduce original grounds and do not materially alter the decision.

Final Conclusion: The Court condoned the delay in filing the Review Petitions but found no merit in the substantive challenge; the Review Petitions are dismissed as they impermissibly seek re-hearing/review of the earlier order where the purported modified grounds merely reiterate the original grounds.

Mandatory compliance with Section 144B of the Income tax Act, 1961 - requirement of a draft assessment order and an opportunity to show cause before making variations prejudicial to the assessee - effect of non compliance with Section 144B(9) - order to be non est - quashing of assessment, demand and penalty notices for procedural non compliance - right to personal hearing where variation prejudicial to the assessee is proposed

Mandatory compliance with Section 144B of the Income tax Act, 1961 - requirement of a draft assessment order and an opportunity to show cause before making variations prejudicial to the assessee - right to personal hearing where variation prejudicial to the assessee is proposed - Assessment order passed without complying with the procedural requirements of Section 144B and without affording the assessee the requisite opportunity of a draft order/personal hearing. - HELD THAT: - The Court examined the sequence of communications and held that the notices dated 19th February 2021 and 29th March 2021 were show cause communications seeking further information and were not draft assessment orders as envisaged by Section 144B. The communication which invited explanations and further documents could not be treated as compliance with the statutory requirement of serving a draft assessment order where a variation prejudicial to the assessee is proposed. The petitioner had, in any event, sought a personal hearing in its replies. The Court therefore found a failure to comply with the mandatory procedure of Section 144B, including the obligation to provide the opportunity contemplated when making prejudicial variations. [Paras 5, 6]

Non compliance with Section 144B established; assessment was passed without the required draft order and opportunity to the assessee.

Effect of non compliance with Section 144B(9) - order to be non est - quashing of assessment, demand and penalty notices for procedural non compliance - Legal consequence of the procedural non compliance: the assessment order, demand notice under Section 156 and penalty show cause notices were set aside as non est. - HELD THAT: - Relying on the statutory provision that an order not passed in accordance with the proceedings laid down in Section 144B is non est, the Court quashed the assessment order dated 4th June 2021 and the consequential demand and show cause notices dated 4th June 2021. The Court afforded respondents liberty to take such steps as may be permissible in law, within a limited period, thereby permitting fresh action consistent with statutory procedure. [Paras 7]

Assessment order, demand notice and penalty show cause notices quashed as non est; respondents permitted to proceed afresh in accordance with law within six weeks.

Final Conclusion: The petition was allowed: the impugned assessment order dated 4th June 2021 and consequential demand and penalty notices of the same date were quashed for failure to comply with Section 144B; respondents may take such steps as are permissible in law within six weeks.

Right to cross-examination - principles of natural justice - reliance on third-party statements in assessment proceedings - discretion to permit cross-examination in assessment proceedings - summons for cross-examination under section 131 - post-search assessment under section 153A

Right to cross-examination - reliance on third-party statements in assessment proceedings - discretion to permit cross-examination in assessment proceedings - Whether the petitioner is entitled to cross-examine the persons listed in Schedules A and B and to production of documents in Schedule C in the ongoing assessment proceedings. - HELD THAT: - The Court accepted the Revenue's stated position in the counter-affidavit that the sworn statements of the third parties would not be used as the basis for determining the petitioner's total income in the proposed assessment. On that footing the Court held that permitting cross-examination of those persons would be unnecessary and the prayer for cross-examination was thus disposed of. The Court also noted factual responses in the counter-affidavit that one witness (Arul Pandi) was an employee of the petitioner and repeatedly failed to appear despite summons, and that the statement of the official (M. Kandhan) was recorded in his official capacity and was only proposed to be used as supporting material, not as the basis for assessment. The Court distinguished the authorities relied upon by the petitioner (including Andaman Timber and Jyoti Gupta) on the ground that those decisions concerned cases where the impugned order was based on the third-party statements; by contrast, in the present case the Revenue disavowed reliance on those statements as the basis for the assessment order. In view of the Revenue's position and the factual circumstances recorded, the Court found no breach of natural justice requiring grant of cross-examination and concluded that further inquiry into cross-examination was unnecessary. [Paras 13, 18, 19, 20, 21]

Request to permit cross-examination and production of the specified documents is rejected; the writ petition and connected WMP are dismissed.

Final Conclusion: The writ petition seeking directions to permit cross-examination and production of documents in the post-search assessment under section 153A is dismissed on the stated position of the Revenue that the third-party sworn statements will not be used as the basis for assessment and on factual findings regarding witness availability; no costs.

Allowability of ESOP expense as revenue expenditure - deduction under Section 37(1) for business expenditure - difference between market price at grant and offer price treated as remuneration - contingency and vesting conditions not precluding deduction - precedential effect of coordinate bench judgment

Allowability of ESOP expense as revenue expenditure - deduction under Section 37(1) for business expenditure - difference between market price at grant and offer price treated as remuneration - contingency and vesting conditions not precluding deduction - precedential effect of coordinate bench judgment - The Tribunal was justified in allowing ESOP expenses to the assessee as a deductible revenue expenditure for the assessment year 2013-14. - HELD THAT: - The High Court, applying the coordinate bench decision in BIOCON LIMITED and the related High Court authorities relied upon by the Tribunal, held that the discount on issue of ESOP (the difference between market price at grant and the offer price) constitutes remuneration to employees and is allowable as a business expenditure under the statutory provision for deduction. The court found the substantial question of law raised by the Revenue to be identical to those answered in ITA. No.653/2013 [(2020) 430 ITR 0151], where the Special Bench and this Court had ruled in favour of allowability; accordingly the present appeal was disposed of by following those findings. The court observed that vesting conditions and contingency in the ESOP scheme did not preclude the assessee from claiming deduction when the legal tests and precedents permitting such allowance were satisfied. The court also exercised its discretion to condone the short delay in filing the appeal as no prejudice would be caused to the assessee.

Substantial question answered against the Revenue and in favour of the assessee; the Tribunal's allowance of ESOP expenses upheld and the appeal dismissed.

Final Conclusion: The appeal is dismissed; the Tribunal's allowance of ESOP expenditure as a deductible revenue expense for AY 2013-14 is upheld following the coordinate bench and High Court authorities relied upon, and delay in filing the appeal is condoned.

Registration under section 12AA of the Income Tax Act - Requirement of production of original trust deed and supporting documents under Rule 17A - Genuineness of charitable activities as condition for registration - Effectiveness of registration from an earlier assessment year

Registration under section 12AA of the Income Tax Act - Requirement of production of original trust deed and supporting documents under Rule 17A - Effectiveness of registration from an earlier assessment year - Whether the assessee is entitled to have registration under section 12AA made effective from Assessment Year 2016-17. - HELD THAT: - The Tribunal examined the order of the CIT(Exemption) which rejected the initial application dated 20.11.2015 for want of requisite details and original documents, while expressly granting the assessee liberty to apply afresh. The assessee thereafter filed a fresh application which resulted in grant of registration with effect from Assessment Year 2017-18, and subsequently sought that the registration be made effective from Assessment Year 2016-17. Having regard to the liberty granted by the CIT(Exemption) to comply with outstanding formalities and reapply, and to the surrounding facts where the assessee did reapply and ultimately obtained registration, the Tribunal concluded that, in the peculiarity of the case, the CIT(Exemption) ought to have granted registration with retrospective effect from Assessment Year 2016-17. The Tribunal therefore directed that the registration be effective from Assessment Year 2016-17 and allowed the appeal. [Paras 7, 8]

Registration under section 12AA is to be made effective from Assessment Year 2016-17; appeal allowed.

Final Conclusion: The Tribunal allowed the assessee's appeal and directed that registration under section 12AA be effective from Assessment Year 2016-17.

Deductibility of employees' contribution to PF/ESI under section 36(1)(va) when paid before the due date for filing return under section 139(1) - interaction between section 36(1)(va) and section 43B - timing of payment and overriding effect - binding effect of a jurisdictional High Court decision on subordinate fora - prospective application of the Finance Act, 2021 amendment to section 36(1)(va) and section 43B

Deductibility of employees' contribution to PF/ESI under section 36(1)(va) when paid before the due date for filing return under section 139(1) - interaction between section 36(1)(va) and section 43B - Employees' contribution to PF/ESI paid after statutory due date under the social security enactments but before the due date for filing return under section 139(1) is allowable as deduction under section 36(1)(va) for assessment year 2018-19. - HELD THAT: - The Tribunal followed binding decisions of the jurisdictional Karnataka High Court and coordinate bench orders which held that where the employer makes payment of employees' contribution to PF/ESI before the due date for filing the return under section 139(1), such payment qualifies for deduction under section 36(1)(va). The Tribunal rejected the view of a non-jurisdictional High Court relied upon below and noted that section 43B's reference to "contribution" includes employees' contribution and, in the light of the jurisdictional High Court rulings, payment before filing-date entitles the employer to deduction for the relevant assessment year. Applying those precedents to the facts, the impugned disallowance made in processing under section 143(1) could not be sustained and the matter was directed to be allowed by the AO. [Paras 5, 6]

Disallowance deleted and deduction to be allowed as payment was made before due date for filing return under section 139(1).

Prospective application of the Finance Act, 2021 amendment to section 36(1)(va) and section 43B - The amendment made by the Finance Act, 2021 to sections 36(1)(va) and 43B does not apply to assessment year 2018-19 and is prospective in operation. - HELD THAT: - The Tribunal, relying on coordinate bench decisions and the reasoning reproduced from those orders, held that the Finance Act, 2021 amendment altered the law adversely to assessees and therefore could not be treated as clarificatory retrospective law for prior assessment years. The amendment is effective from 01.04.2021 and applies from assessment year 2021-22 onwards; consequently it does not affect the entitlement for deduction in AY 2018-19. [Paras 5]

Amendment by Finance Act, 2021 held not applicable to AY 2018-19; deduction allowed as per pre-amendment law.

Binding effect of a jurisdictional High Court decision on subordinate fora - The CIT(A) erred in placing reliance on a non-jurisdictional High Court decision when there existed a contrary decision of the jurisdictional High Court on the same issue. - HELD THAT: - The Tribunal observed that decisions of the jurisdictional High Court bind authorities below it and that the CIT(A) was therefore not justified in following a non-jurisdictional High Court decision that conflicted with the Karnataka High Court rulings favouring the assessee. In view of the binding jurisdictional authority, the Tribunal set aside the CIT(A)'s order and directed deletion of the disallowance. [Paras 4, 6]

CIT(A)'s reliance on non-jurisdictional High Court decision disapproved; order set aside.

Final Conclusion: The appeal is allowed; the disallowance of employees' contribution to PF/ESI for AY 2018-19 is deleted and the AO is directed to grant the deduction, the Finance Act, 2021 amendment being prospective and not applicable to the year under consideration.

Admission of additional grounds in appellate proceedings - reopening of assessment and validity of reassessment proceedings - taxability as long term capital gains on transfer of agricultural land within proximity of municipal limits - deduction under section 54F and reinvestment claims in capital gains matters - interest under section 234A limited to the due date prescribed by section 139(4) - adoption of circle rate for determining cost of acquisition / valuation of land

Admission of additional grounds in appellate proceedings - Whether the additional ground raised by the assessee during appellate proceedings was admissible. - HELD THAT: - The Tribunal examined the facts and records and proceeded on the basis of the submissions before the AO and CIT(A). Having found that the addition for long term capital gains was based on bank information and that the reassessment and assessment on that issue were sustained, the Tribunal dismissed the contention that the additional ground (a pure question of law) should be admitted. The Tribunal upheld the CIT(A)'s refusal to admit the additional ground and dismissed Grounds Nos. 1 to 3 insofar as they related to admission and validity of the reassessment on merits.

Additional ground not admitted; contention dismissed.

Reopening of assessment and validity of reassessment proceedings - taxability as long term capital gains on transfer of agricultural land within proximity of municipal limits - Whether the reassessment proceedings and resulting addition of long term capital gains were invalid as being initiated on suspicion or without escapement of income. - HELD THAT: - The Tribunal found that the AO initiated proceedings after obtaining information of substantial bank credits and the assessment addressed alleged sale proceeds credited to the assessee's account. The AO treated the land as a capital asset on the basis that it lay within the statutory distance from a municipality; enquiries (including from Halka Patwari) supported proximity to municipal limits. On these factual and legal foundations the AO's addition treating the receipts as long term capital gains was sustained and the CIT(A) correctly confirmed the addition. Consequently, the Tribunal dismissed the challenge that reassessment was initiated merely on suspicion or was void for want of escapement of income.

Reassessment and addition as long term capital gains upheld; Grounds Nos. 2 and 3 dismissed.

Interest under section 234A limited to the due date prescribed by section 139(4) - Whether interest under section 234A can be charged up to the date of the assessment order or only up to the due date under section 139(4). - HELD THAT: - The Tribunal observed that interest under section 234A is to be computed only up to the due date prescribed by the return-filing provision and not extended to the date of the assessment order. The CIT(A) had failed to limit the interest accordingly. For this reason the Tribunal directed the AO to charge interest in accordance with section 234A read with section 139(4), thereby granting partial relief on Ground No. 4.

Interest under section 234A to be charged only up to the due date under section 139(4); Ground No. 4 partly allowed.

Adoption of circle rate for determining cost of acquisition / valuation of land - taxability as long term capital gains on transfer of agricultural land within proximity of municipal limits - Whether the AO/CIT(A) erred in adopting the circle rate of Rs. 27,000 per acre (as of 01-04-1981) without suitable comparables or arbitrarily. - HELD THAT: - The Tribunal accepted the AO's finding that the property was approximately two kilometres from the municipal limits of Gurgaon and that a circle rate of the stated vintage was appropriate for determining cost of acquisition. The assessee's contrary contention about distance from Tehsil Sohna did not persuade the Tribunal. On the record the CIT(A)'s adoption of the circle rate was held to be justified and the related ground of appeal was dismissed.

Adoption of the circle rate upheld; Ground No. 5 dismissed.

Final Conclusion: The appeal is partly allowed. The additions treating the bank credits as long term capital gains and the adoption of the circle rate for cost of acquisition are upheld; the reassessment is not set aside and the additional ground is not admitted. Relief is granted only on the computation of interest under section 234A, which the AO is directed to limit to the due date under section 139(4).

Disallowance under Section 14A and application of Rule 8D - Unexplained investment addition under Section 69 - Applicability of Explanation to Section 73 (speculative transactions) - Remand for fresh consideration and evidentiary verification

Disallowance under Section 14A and application of Rule 8D - Extent of disallowance under Section 14A read with Rule 8D in view of expenditure actually claimed by the assessee. - HELD THAT: - Assessing Officer applied Rule 8D to compute a notional disallowance of administrative expenditure at 0.5% of average investments and disallowed Rs. 5,27,095/-. The assessee's books and profit & loss account, however, showed dividend income of Rs. 5,94,012/- with actual expenditure debited and claimed of only Rs. 48,280/-. The Tribunal held that disallowance cannot exceed the deductible expenditure actually incurred and claimed by the assessee and therefore restricted the disallowance to Rs. 48,280/-. The lower authorities' blanket application of Rule 8D without regard to the actual claimed expenditure was modified accordingly. [Paras 6]

Disallowance under Section 14A/Rule 8D reduced and restricted to the actual expenditure claimed of Rs. 48,280/-.

Unexplained investment addition under Section 69 - Remand for fresh consideration and evidentiary verification - Whether the addition of shares credited to the assessee's demat account as unexplained investments under Section 69 was sustainable on the record before the authorities. - HELD THAT: - Assessing Officer made an addition treating credits in the demat account as unexplained investments because the entries were not recorded in books and the assessee had not furnished satisfactory explanation or confirmations. The assessee produced demat transaction statements and later supplied confirmations and related documents before the Tribunal, but those documents were not placed before the lower authorities and no application was made to admit additional evidence before the Tribunal. The Tribunal found that material facts and verifications (identity and PAN of the securities lender, confirmations, account relationship, accounting treatment, sale details, repayment/return particulars, regulatory permissibility of stock lending, and other evidence) were neither examined nor established on the record. Given that the issue was not fully adjudicated and that the assessee had opportunities (and there were procedural irregularities claimed), the Tribunal set aside the addition and remanded the matter to the CIT(A) with a specific list of documents and particulars to be furnished by the assessee and directions to decide the issue on merits after no more than two hearings, with the assessee to file information within 60 days. [Paras 7, 8, 9, 10, 15]

Addition under Section 69 set aside and remanded to the CIT(A) for fresh adjudication after verification of specified particulars and evidence; assessee to furnish details within 60 days and to be given no more than two hearings.

Applicability of Explanation to Section 73 (speculative transactions) - Remand for fresh consideration and evidentiary verification - Whether the Explanation to Section 73 (restricting set-off of speculative loss) applies to the assessee and whether the assessee is engaged in speculative activities. - HELD THAT: - The Assessing Officer held that the assessee was engaged in speculative activities and treated the loss as speculative which could only be set off against speculative income. The issue was decided against the assessee by the CIT(A) in the assessee's absence. The Tribunal observed that the matter was not fully examined on merits by the lower authorities and accordingly set aside the decision and remitted the issue to the CIT(A) with direction to permit the assessee to show that it is not engaged in speculative activities or that the Explanation to Section 73 does not apply, and to decide the question on merits. [Paras 11, 12]

Question of applicability of Explanation to Section 73 remitted to the CIT(A) for fresh decision on merits after the assessee is permitted to tender relevant evidence.

Final Conclusion: Appeal partly allowed: disallowance under Section 14A/Rule 8D restricted to the actual expenditure claimed; additions under Section 69 and the applicability of Explanation to Section 73 set aside and remitted to the CIT(A) for fresh adjudication subject to specified directions and limited opportunities for hearing.

Jurisdictional fact: reason to believe escapement of income - reopening of assessment under section 147 - revisional jurisdiction under section 263 - borrowed satisfaction - nullity of order passed without jurisdiction

Revisional jurisdiction under section 263 - jurisdictional fact: reason to believe escapement of income - nullity of order passed without jurisdiction - Assessee entitled to challenge validity of initiation of proceedings u/s 147 in appeal against an order passed u/s 263. - HELD THAT: - The Tribunal held that proceedings under section 147 (reopening) are primary and proceedings under section 263 are collateral; accordingly the validity of the primary proceeding (reopening/assessment) may be examined in an appeal against a revisional order. The court relied on established authority that a decree or order passed without jurisdiction is a nullity and may be set up in collateral proceedings; thus an assessee may challenge the validity of reassessment proceedings in proceedings under section 263. The Tribunal therefore proceeded to examine whether the AO had the requisite jurisdiction to reopen assessment for AY 2010-11. [Paras 9, 16]

Assessee may challenge the validity of initiation of proceedings u/s 147 in the appeal against the order u/s 263.

Reopening of assessment under section 147 - jurisdictional fact: reason to believe escapement of income - borrowed satisfaction - Whether the Assessing Officer had validly assumed jurisdiction to reopen assessment for AY 2010-11 by recording reason to believe that income had escaped assessment. - HELD THAT: - The Tribunal examined the reasons recorded by the AO for reopening and found that the foundational factual premise relied upon by the AO - that large deposits in M/s Miracle's account were routed to the assessee and converted into share capital/premium - was absent. The PCIT's factual finding recorded that the alleged transactions of M/s Miracle did not reach the assessee directly or indirectly. As the jurisdictional fact for reopening is the AO's own reason to believe based on material and not a borrowed or erroneous premise, and that the AO's belief here was founded on a fact later found to be absent, the reopening was held to be invalid. Consequently the reassessment order dated 29.12.2017 was treated as a nullity. [Paras 13, 16]

AO had not validly assumed jurisdiction under section 147; the reassessment order dated 29.12.2017 is a nullity.

Revisional jurisdiction under section 263 - nullity of order passed without jurisdiction - Whether the Principal Commissioner of Income Tax could validly exercise revisional jurisdiction under section 263 in respect of the AO's reassessment order. - HELD THAT: - Because the reassessment order of the AO was held to be void for want of jurisdiction, the Tribunal concluded that the PCIT could not validly revise a non-est order under section 263. The impugned revisional order itself was therefore without jurisdiction and amounted to interdiction of a nullity. Applying the principle that an order passed without jurisdiction is a nullity and cannot be the subject of valid revision, the Tribunal quashed the PCIT's order. [Paras 16, 17]

Impugned order passed by the Principal Commissioner dated 10.08.2020 u/s 263 is without jurisdiction and is quashed.

Final Conclusion: The appeal is allowed: the AO's reassessment order for AY 2010-11 dated 29.12.2017 is held to be a nullity for want of valid jurisdiction to reopen, and the revisional order passed by the Principal Commissioner under section 263 is consequently without jurisdiction and is quashed.

Cancellation of registration under section 12AA(3) - Cancellation under section 12AA(4) linked to violation of section 13(1) - Effect of transfer of case under section 127 on jurisdiction to initiate 12AA proceedings - Retrospective cancellation of 12AA registration - Re-characterisation of trust receipts as business income under the head "Profits and Gains of Business or Profession" - Evidentiary value of loose sheets / seized documents - Limited forfeiture of exemption under section 13(1) versus cancellation of registration - Application of income / capital expenditure as application of funds under section 11

Effect of transfer of case under section 127 on jurisdiction to initiate 12AA proceedings - Validity of Pr. CIT(Central), Bhopal assuming jurisdiction and issuing notice / order under section 12AA after transfer under section 127 - HELD THAT: - The Tribunal found that an official transfer order under section 127(2) dated 23.11.2016 migrated the assessee's PAN and proceedings to ACIT (Central)-2 / the centralized setup, and that the Pr. CIT (Central) proceeded pursuant to that transfer. On the facts, the Tribunal held there was no merit in the assessee's contention that the Pr. CIT lacked jurisdiction to issue the show cause notice and pass the cancellation order under section 12AA; the transfer complied with the procedure under the Act and the PAN migration meant the earlier CIT(E) ceased to have jurisdiction. The additional ground challenging jurisdiction was therefore dismissed. [Paras 14]

Assessee's challenge to Pr. CIT(Central)'s jurisdiction to issue the 12AA show cause notice and order is rejected.

Cancellation of registration under section 12AA(3) - Cancellation under section 12AA(4) linked to violation of section 13(1) - Limited forfeiture of exemption under section 13(1) versus cancellation of registration - Validity of cancellation of registration under sections 12AA(3) and 12AA(4) on the basis of seized loose papers and alleged violation of section 13(1)(c) - HELD THAT: - The Tribunal held that cancellation under section 12AA(3) requires material evidence establishing that the trust's activities are not genuine or not carried out in accordance with its objects. The Pr. CIT relied primarily on loose, unsigned papers seized from a third party's premises and on assessment findings limited to AY 2010-11. The Tribunal followed consistent precedents that mere findings of violation of section 13(1) or irregularities in particular years do not, by themselves, justify cancellation of registration; any breach under section 13 ordinarily affects exemption limited to the amount involved and is to be dealt with in assessment proceedings. Absent independent corroborative enquiry or material establishing lack of genuineness across the registered period, the Pr. CIT's cancellation was held to be unsustainable. The Tribunal therefore quashed the cancellation order insofar as it was based on those materials and legal reasoning. [Paras 15, 17]

Impugned cancellation under sections 12AA(3) and 12AA(4) is quashed for want of material and for incorrectly treating section 13 findings as a ground for cancellation.

Retrospective cancellation of 12AA registration - Whether the cancellation order could be given retrospective effect (from 01.04.2008) - HELD THAT: - The Tribunal applied precedents and observed that cancellation of registration has serious civil consequences and cannot be given retrospective effect to disturb completed assessments and accrued rights. The Pr. CIT's order which cancelled the registration w.e.f. 01.04.2008 was held to be erroneous; cancellation, if sustainable at all, cannot operate retrospectively to affect earlier assessment years. [Paras 15]

Cancellation cannot be given retrospective effect; the Pr. CIT erred in cancelling registration w.e.f. 01.04.2008.

Re-characterisation of trust receipts as business income under the head "Profits and Gains of Business or Profession" - Limited forfeiture of exemption under section 13(1) versus cancellation of registration - Correct characterisation of the assessee's income for AY 2010-11 - whether the society's receipts should be treated as business income under section 28 or as income under sections 11/12 - HELD THAT: - The Tribunal noted that the assessee is a registered charitable society running educational institutions with statutory approvals and a continuing educational activity. Except for the loose seized papers pertaining to a specific period, there was no material casting doubt on genuineness of the educational activity. The Tribunal concluded that the lower authorities erred in re-characterising the assessee as carrying on business; violation of section 13 in a particular year does not automatically convert all income into business receipts. On the facts, the Tribunal held the assessee to be a charitable society within section 2(15) and entitled to treatment under sections 11/12. [Paras 26]

Income was incorrectly re-characterised as business income; the assessee is a charitable society and not carrying on business.

Evidentiary value of loose sheets / seized documents - Sustainability of addition disallowing alleged bogus salary of Rs. 20,48,173 based on loose papers (LPS-11) - HELD THAT: - The Tribunal held that the addition was founded on an unsigned, unexplained loose sheet prepared by an unknown person and lacking corroborative evidence such as employee statements. Relying on the principle that loose sheets seized from third parties have limited evidentiary value without independent corroboration (as reflected in apex court authority), the Tribunal concluded the AO and CIT(A) erred in sustaining the disallowance. The salary shown in the audited books was lower than figures on loose sheets, and there was no independent material to justify partial acceptance of the seized document. [Paras 27]

Addition for alleged bogus salary is deleted.

Evidentiary value of loose sheets / seized documents - Sustainability of addition of Rs. 5,61,877 alleged to have been paid to a trustee (linked to the seized loose sheet) - HELD THAT: - The Tribunal observed that the loose sheet entry showing 'shortage of cash (Vijay Sir) as on 30.06.2010' prima facie relates to a period outside AY 2010-11 and does not prove a payment to the trustee. There was no corroborative material establishing the flow of funds to the trustee; the AO had picked figures without meaningful verification. On these facts the addition was found to be based on surmise and conjecture. [Paras 28]

Addition of Rs. 5,61,877 to the trustee is deleted.

Evidentiary value of loose sheets / seized documents - Sustainability of addition of Rs. 8,47,694 as unrecorded fees (difference between loose sheets and books) - HELD THAT: - The Tribunal treated the loose sheet as a rough, unsigned jotting not part of regular books and noted inconsistent approaches between the AO and CIT(A) in computing actual receipts. In absence of corroborative evidence tying the loose-sheet figures to the assessee's books, and relying on authorities that loose papers have limited evidentiary value, the Tribunal found no justification for the addition. [Paras 29]

Addition of Rs. 8,47,694 as unrecorded fees is deleted.

Application of income / capital expenditure as application of funds under section 11 - Allowability as application of income of capital expenditure claimed by the assessee (capital expenditure of Rs. 3,25,76,619) for AY 2010-11 - HELD THAT: - Given the Tribunal's conclusions that the assessee is a charitable society and that the impugned additions based on loose sheets were deleted, the Tribunal held that the assessee is eligible to claim capital expenditure as application of income for the assessment year in question (pre-amendment period). The Tribunal set aside the contrary finding of the CIT(A) and allowed the claim. [Paras 30]

Capital expenditure claimed is allowed as application of income under section 11 for AY 2010-11.

Final Conclusion: The appeals are partly allowed. The Tribunal (i) rejected the challenge to the Pr. CIT's jurisdiction (section 127 transfer found valid), (ii) quashed the cancellation of registration under sections 12AA(3) and (4) insofar as it rested on the seized loose papers and on section 13 findings and held retrospective cancellation to be impermissible, (iii) held the assessee to be a charitable society (not carrying on business) for AY 2010-11, (iv) deleted the additions made on the basis of loose seized papers (bogus salary, payment alleged to trustee, and unrecorded fees), and (v) allowed the capital expenditure as application of income for AY 2010-11.

Jurisdiction under Section 148 - validity of proceedings under Section 153C vis-a -vis Section 148 - revision under Section 263 - assessment erroneous and prejudicial to the interests of Revenue - no enquiry / inadequate enquiry by Assessing Officer - reason to believe / prima facie satisfaction - accommodation entries / money laundering indicated by paper transactions

Validity of proceedings under Section 153C vis-a -vis Section 148 - jurisdiction under Section 148 - Assessee's contention that reassessment ought to have been initiated under Section 153C and that proceedings under Section 148 are void - HELD THAT: - On search of S.K. Jain no material belonging to the assessee was found; material in the hands of the Revenue identified the assessee as a beneficiary and was used as information in the assessee's case. The Tribunal held that where the Department proceeds on information derived from material of a third person (here S.K. Jain) and such material forms the basis for a belief regarding the assessee, jurisdiction under Section 148 was rightly assumed. Consequently the contention that Section 153C should have been invoked and that the Section 148 notice is void was rejected. [Paras 8]

Assessee's challenge to the assumption of jurisdiction under Section 148 (in lieu of Section 153C) is dismissed; jurisdiction under Section 148 was correctly assumed.

Reason to believe / prima facie satisfaction - infirmity in reasons recorded - Whether the reasons recorded for reopening under Section 148 suffer from infirmity - HELD THAT: - The Tribunal examined the reasons recorded by the Assessing Officer and found they contained detailed particulars including the name of the middleman/mediator and particulars of accommodation entries. The material furnished to and relied upon by the AO furnished prima facie satisfaction to form a belief for reopening. Thus no infirmity in the reasons recorded was found. [Paras 9]

Ground alleging infirmity in reasons recorded is dismissed; reasons are held sufficient to constitute prima facie reason to reopen.

No enquiry / inadequate enquiry by Assessing Officer - reason to believe / prima facie satisfaction - Whether the Assessing Officer applied his mind and conducted adequate enquiry before completing assessment under Section 143(3)/147 - HELD THAT: - The Tribunal reviewed the assessment records and the reasons and found that the Assessing Officer had written reasons but the overall material and the assessment order show that the AO did not conduct the necessary enquiries into the accommodation entry allegations. The reasons recorded by the AO prima facie showed reason to believe, but the Commissioner found and the Tribunal agreed that substantive enquiry into persons and the fund flow was not undertaken, amounting to inadequate or no enquiry. [Paras 10, 12]

Ground that AO did not apply his mind is dismissed as a separate plea, but the Tribunal upholds the conclusion that the AO's enquiry was inadequate on the material before him.

Opportunity of hearing - procedural fairness - Whether the assessee was denied opportunity to be heard or for cross-examination and whether explanations were considered - HELD THAT: - Record shows that the Commissioner granted more than five opportunities of hearing and considered the assessee's explanation in his order. The Tribunal also noted that no evidence was produced by the assessee to demonstrate what enquiries the AO had actually made during reassessment. The plea of denial of opportunity or failure to consider explanations was therefore rejected. [Paras 11]

Grounds alleging denial of opportunity and failure to consider explanations are dismissed.

Revision under Section 263 - assessment erroneous and prejudicial to the interests of Revenue - accommodation entries / money laundering indicated by paper transactions - Whether the Commissioner was justified in invoking Section 263 to set aside the assessment on the ground that it was erroneous and prejudicial to the interests of Revenue and to direct further enquiry - HELD THAT: - Having examined the seized information, documents showing the assessee as beneficiary, the identity of mediators, and the cash/cheque trail, the Tribunal concluded there were sufficient prima facie materials to infer that the assessment was based on an inadequate enquiry and could be erroneous and prejudicial. The Tribunal relied on binding precedents of the Supreme Court and High Courts (as discussed in the order) holding that omission to make enquiries when provoked by material renders the assessment revisable. The Commissioner acted within power in setting aside the assessment and directing the Assessing Officer to examine the matter further in light of the seized papers. [Paras 12, 13, 15]

Order under Section 263 upholding that the assessment was erroneous and prejudicial is sustained and the direction to the Assessing Officer for further examination is upheld.

Final Conclusion: Appeal dismissed. The Tribunal upholds the Commissioner's exercise of power under Section 263, finds jurisdiction under Section 148 properly assumed, rejects challenges to the reasons recorded and to denial of opportunity, and sustains the direction for further examination of the accommodation entry allegations based on the seized material.

Intra-group services - arm's length price - principle of aggregation in transfer pricing - benefit test for intra-group services - interest on overdue intra-group receivables - comparative debtor-days analysis for arm's length credit period

Intra-group services - arm's length price - principle of aggregation in transfer pricing - benefit test for intra-group services - Deletion of transfer pricing addition made by AO in respect of intra-group service charges. - HELD THAT: - The Tribunal upheld the CIT(A)'s deletion of the AO's addition which had held the arm's length price of intra-group services at nil by applying CUP and by asserting absence of demonstrable benefit. The Tribunal relied on the assessee's earlier favourable rulings by a Co-ordinate Bench of the ITAT and the Delhi High Court which accepted an aggregated benchmarking approach (TNMM/MAM) where underlying transactions are closely linked to core business operations, held that the composite services agreement could not be unbundled, and found a direct nexus between services received and the assessee's revenues/costs. In view of the consistent precedent in the assessee's own case for earlier years and no change in material facts or law, the Tribunal declined to interfere with the CIT(A)'s acceptance of the assessee's arm's length determination and deletion of the TP adjustment. [Paras 20, 21, 22, 23, 24]

Addition on account of intra-group services deleted; CIT(A)'s order sustained.

Interest on overdue intra-group receivables - comparative debtor-days analysis for arm's length credit period - Disallowance by AO of interest on overdue intra-group receivables challenged by the assessee and deleted by CIT(A). - HELD THAT: - The Tribunal affirmed the CIT(A)'s conclusion that the AO/TPO erred in charging interest on overdue receivables without considering the offsetting position of payables to associated enterprises. The assessee produced monthly net balances and demonstrated that overall it had net payables rather than net receivables; further, a comparison of debtor days showed that debtor days allowed to AEs were lower than those to non-AEs. Given that the interest on intra-group receivables was less than interest on payables and that debtor-days for AEs were not more favourable, the AO's adjustment was unsustainable. The Tribunal therefore declined to interfere with the deletion of the interest adjustment. [Paras 28, 29, 30, 31, 32]

Adjustment on account of interest on receivables deleted; CIT(A)'s order sustained.

Final Conclusion: Both additions-one relating to intra-group service charges and the other to interest on overdue intra-group receivables-were deleted by the CIT(A) and the Tribunal declined to interfere, allowing the assessee's appeal.

Location savings - comparability analysis - arm's length principle - remand for fresh adjudication - pass-through costs - agency / intermediary function - cost plus markup - benchmarking under TNMM

Location savings - comparability analysis - arm's length principle - BEPS Action 8 - Validity of transfer pricing adjustment made on account of alleged location savings arising from conducting clinical trials in India - HELD THAT: - The Tribunal noted that earlier decisions in the assessee's own case for AYs 2011 12 and 2012 13 held that location savings may be a relevant factor for analysis but cannot be a standalone basis for an ALP adjustment where reliable local comparables exist or where the tested party's margin already captures such benefits. The TPO's computation here relied on a non contemporaneous public article and applied an ad hoc split without undertaking required comparability analysis under the prescribed methods. In view of those precedents and the absence of a proper comparability exercise or verified contemporaneous data, the Tribunal found the TPO/DRP orders unsustainable. The Tribunal therefore did not finally determine the quantum on merits but set aside the impugned adjustments and remitted the matter to the TPO/AO for fresh adjudication in light of the Tribunal's observations and directions (including that comparables should reflect revenue in foreign currency where relevant and that any location savings adjustment must follow prescribed transfer pricing analysis). [Paras 6, 7, 9]

Orders of the TPO and DRP on location savings are set aside and the issue is remitted to the TPO/AO for fresh adjudication in accordance with the Tribunal's directions.

Pass-through costs - agency / intermediary function - cost plus markup - arm's length pricing - Whether investigator fees recovered by the assessee are mere pass through reimbursements (without markup) or represent a separate intra group service attract ing ALP markup - HELD THAT: - The Tribunal examined the contractual terms, the addendum classifying certain items as 'pass through cost', factual matrix including earlier years where investigator payments carried a markup, and the functional analysis showing the assessee's role in selecting investigators and incurring considerable time and resources. The Tribunal found the addendum to be self serving and potentially contrived to avoid tax, observed that the assessee performed intra group services for which the parent derived economic benefit, and concluded that the investigator payments could not be treated as pure pass through reimbursements for the purpose of denying any separate remuneration. Relying on the factual record, the Tribunal sustained the TPO/DRP determination that the recovery of investigator expenses warranted inclusion for benchmarking with an appropriate cost plus markup, and rejected the assessee's contention that no markup should apply. [Paras 52, 53, 54]

The TPO/DRP adjustment imputing a markup on recovery of investigator expenses is sustained; the assessee's challenge on this ground is dismissed.

Final Conclusion: The appeal is partly allowed for statistical purposes: the Tribunal has set aside the location savings adjustment and remitted that issue to the TPO/AO for fresh adjudication in accordance with its directions; the challenge to imputation of markup on recovery of investigator expenses is dismissed and the TPO/DRP determination on that point is sustained.

Profits and gains of business or profession - Characterisation of receipt as business income versus deposit/advance - Exploitation of commercial/ distribution rights as source of business income - Setting up of business versus commencement of business - Pre-commencement expenses: capitalisation versus revenue deduction - Allowance of revenue expenditure under section 37 in relation to previous year

Profits and gains of business or profession - Characterisation of receipt as business income versus deposit/advance - Exploitation of commercial/ distribution rights as source of business income - Whether the non refundable receipt of Rs. 22.50 crores received under the marketing/distribution agreement is taxable as business income in AY 2017 18 or is not exigible as revenue for that year - HELD THAT: - The Tribunal examined the marketing/distribution agreement and the surrounding facts, including that commercial activity had not commenced and that the agreement contemplated future commercial exploitation of products. While revenue authorities treated the sum as consideration for assignment of distribution rights and therefore taxable under the head 'Profits and gains of business or profession', the Tribunal found that the agreement and the facts showed the amount to be an advance received in relation to future liabilities and activities which would arise on commencement of commercial operations. The Tribunal noted that the payment was linked to future commercial activity and that no business activity had been carried on by the assessee in the relevant previous year; accordingly, the receipt did not partake revenue character in AY 2017 18. Reliance was placed on the principles extracted from authorities cited by the assessee concerning the need to ascertain true nature of receipt and to distinguish deposits/advances from revenue realisations. Applying these principles to the contract terms and the audited financials, the Tribunal held that the addition was not sustainable and directed deletion of the amount brought to tax by the AO. [Paras 11]

Addition of Rs. 22.50 crores treated as business income u/s. 28(i) deleted

Pre-commencement expenses: capitalisation versus revenue deduction - Setting up of business versus commencement of business - Allowance of revenue expenditure under section 37 in relation to previous year - Whether expenditure of Rs. 42,52,628 claimed as business expenditure is allowable in AY 2017 18 or required to be capitalised as pre commencement expenditure - HELD THAT: - The Tribunal analysed whether the assessee had 'set up' the business so as to bring the claimed expenditures within allowable revenue deductions. Noting authorities on the distinction between setting up and commencement of business and the significance of the date of setting up for the relevant previous year, the Tribunal examined the nature of the specific expenses and the balance sheet position showing work in progress and absence of commercial production. It found that several items (factory maintenance, repairs & maintenance, R&D) were in substance capital in nature and related to installation/setting up of the project. Consequently those portions could not be allowed as revenue expenses in the year under consideration. Applying these principles to the particulars of the claim, the Tribunal granted partial relief by allowing a portion of the claimed expenditure and disallowing the balance, observing that certain expenditure should be capitalised until actual commencement of business. [Paras 12, 17]

Addition/disallowance of Rs. 42,52,628 partly upheld; relief of Rs. 25,20,991 granted and the remainder disallowed to be capitalised

Final Conclusion: The appeal is partly allowed: the addition of Rs. 22.50 crores is deleted, and the disallowance of Rs. 42,52,628 is partly confirmed with consequential relief granted to the assessee to the extent indicated.

Rejection of plaint - Order 7 Rule 11(d) CPC - Prohibition of Benami Transactions - Section 4 of the Prohibition of Benami Transactions Act - Section 9A of the Prohibition of Benami Transactions Act - pleadings versus evidence

Rejection of plaint - Order 7 Rule 11(d) CPC - Section 4 of the Prohibition of Benami Transactions Act - Section 9A of the Prohibition of Benami Transactions Act - pleadings versus evidence - Whether the plaint was liable to be rejected under Order 7 Rule 11(d) CPC as barred by Section 4 read with Section 9A of the Prohibition of Benami Transactions Act. - HELD THAT: - The Court examined the plaint as a whole and noted that while paragraphs 7 and 8 averred that respondent no.2 had arranged payment for the 1993 sale deed executed in the name of another (Lucy Dias), the plaint also pleads that the cause of action arose only after allotment of the property in August 2017 and discovery of the sale deed entries during mutation proceedings (paras 2-3, 9). The trial court had formed a prima facie view but also considered that the plaintiffs were not claiming title solely on the basis of the 1993 sale deed and that their claim was advanced in the context of inventory proceedings and inheritance (para 5). The High Court held that the averments in paragraphs 7 and 8, read with the rest of the plaint, did not conclusively establish on the face of the plaint that the ingredients of Section 4 read with Section 9A were made out; factual contentions as to who furnished consideration, the extent thereof, and the plaintiffs' knowledge of the deed require evidence and trial (paras 10-11). Accordingly, it was inappropriate at the pleading stage to reject the plaint under Order 7 Rule 11(d) without permitting evidence on these matters (para 12). [Paras 5, 9, 10, 11, 12]

The contention that the plaint is barred by Section 4 read with Section 9A of the Prohibition of Benami Transactions Act and therefore liable to be rejected under Order 7 Rule 11(d) CPC was rejected; the question requires trial and proof, and the revision is dismissed.

Final Conclusion: The High Court dismissed the revision application, holding that the averments in the plaint do not conclusively show the suit is barred by the Prohibition of Benami Transactions Act and that the issue must be tested by evidence at trial.

Debtory-creditor relationship between bank and fixed deposit holder - obligation of a public sector bank to repay matured fixed deposit - requirement of consent of a third party for payment of deposit proceeds - maintainability of writ under Article 226 against a nationalised bank - scope of Banking Ombudsman adjudication and challenge to its order - distinction between public law duty and private contractual rights in banking

Debtory-creditor relationship between bank and fixed deposit holder - requirement of consent of a third party for payment of deposit proceeds - Whether the Union Bank of India could refuse to pay the maturity proceeds of the fixed deposit to the petitioner on the ground that the amount for opening the fixed deposit was debited from a third party's account and that the bank required that third party's consent. - HELD THAT: - The Court held that the contract in respect of the fixed deposit is between the bank and the named depositor and that the bank is a debtor to the depositor for amounts held in fixed deposit. The bank cannot refuse payment to the depositor on maturity by asserting a right to intermeddle on account of a separate private arrangement between the depositor and a third party. There was no production by the bank of any instruction from the depositor authorising payment to the third party, and the third party was a stranger to the contract between the bank and the depositor. The Court relied on authoritative precedent describing a fixed deposit receipt as an acknowledgement of debt by the bank and emphasised that a bank cannot validly act on unilateral directions of a third party to the prejudice of the depositor. Consequently, in the absence of depositor's instruction, the bank could not withhold or divert the deposit proceeds to a stranger. [Paras 25, 26]

The bank is directed to pay the maturity value of the fixed deposit with applicable interest to the petitioner; the bank cannot require consent of the third party to effect payment to the depositor.

Maintainability of writ under Article 226 against a nationalised bank - distinction between public law duty and private contractual rights in banking - Whether a writ petition under Article 226 is maintainable against the nationalised bank for recovery of amounts due on a matured fixed deposit. - HELD THAT: - The Court held that a nationalised (public sector) bank falls within the ambit of Article 12 and that repayment of monies held by a bank on fixed deposit on maturity involves a public law element because the bank (as State instrumentality) owes a public duty to repay deposits on maturity. Citing precedent, the Court observed that where a public body acts unfairly, unreasonably or arbitrarily in discharge of such duty, writ jurisdiction is available. The admitted facts (existence of FD in the petitioner's name and the bank's refusal to pay) did not raise complex disputed questions of fact requiring relegation to civil proceedings, so the writ petition was maintainable. [Paras 25, 26]

The writ petition is maintainable against the nationalised bank and may be entertained to secure repayment of the matured fixed deposit.

Scope of Banking Ombudsman adjudication and challenge to its order - Banking Ombudsman Scheme - Whether the order passed by the Banking Ombudsman closing the complaint under Section 13(a) of the Banking Ombudsman Scheme, 2006 could be set aside. - HELD THAT: - The Court found that the Ombudsman had closed the complaint on the basis that the matter involved instructions by a third party and that the bank could refund to that third party or as per its instructions. Given the Court's conclusion that the bank owed a direct obligation to the depositor and could not withhold payment absent depositor's instruction, the Ombudsman's order was inconsistent with that legal position. The Court therefore set aside the Ombudsman's order and granted relief to the petitioner. [Paras 3, 26]

Ext.P3 (order of the Banking Ombudsman) is set aside and the petitioner is entitled to payment of the matured fixed deposit.

Final Conclusion: Writ petition allowed. The public sector bank is directed to pay the maturity value of the fixed deposit with applicable interest to the petitioner within two weeks; the Banking Ombudsman's order is set aside. This direction is without prejudice to any rights the third party may have against the petitioner or to any recovery steps the bank may pursue against the third party in appropriate proceedings.

Condonation of delay - summary / certificate cases - classification of goods - consistency of departmental treatment across years

Condonation of delay - summary / certificate cases - The application for condonation of delay in filing the appeal was not accepted and the appeal was held not liable to be entertained on account of inordinate delay. - HELD THAT: - The appeal was filed after a delay of 584 days. The Court found that the explanation furnished for the delay was not cogent and characterised the matter as one of the recurring "certificate cases" where no adequate justification for condoning such long delay was shown. The Court relied on the principles stated in Office of the Chief Post Master General & Ors. v. Living Media India Ltd. & Anr. as the appropriate standard for examining applications for condonation of delay and, applying that standard, declined to condone the delay. [Paras 1, 2]

Application for condonation of delay refused and appeal not entertained on delay grounds.

Classification of goods - consistency of departmental treatment across years - On the merits, the Tribunal's classification was upheld and the appeal was dismissed. - HELD THAT: - Although the Court declined to entertain the appeal principally on delay grounds, it also examined the merits and found no error in the Tribunal's conclusion. The Court noted that the Department itself had been treating the assessee in the same manner in subsequent years with respect to classification, which supported the correctness of the Tribunal's view. On this basis the Court agreed with the Tribunal's decision. [Paras 3]

Tribunal's classification sustained; appeal dismissed on merits.

Final Conclusion: The appeal is dismissed: condonation of delay was refused for lack of a cogent explanation (certificate-case context), and on merit the Tribunal's classification was upheld, so the appeal is not entertained.

Jurisdiction to order transfer of appeal - reconstitution of tribunal bench to allay apprehension of bias - impartial hearing - constitution of Bench under Section 129 of the Customs Act, 1962 - virtual hearing by video conferencing

Jurisdiction to order transfer of appeal - Whether the High Court could order transfer of the appeal pending before CESTAT, Bengaluru to the West Zonal Bench at Mumbai. - HELD THAT: - The Court held that it did not have jurisdiction to order transfer of the appeal from the South Zonal Bench (Bengaluru) to the West Zonal Bench (Mumbai). The learned counsel for the petitioner ultimately did not press the transfer prayer and indicated an intention to apply before the Appellate Tribunal under the statutory provision relied upon. Having examined the parties' submissions, the Court refrained from adjudicating the transfer relief and declined to order transfer for want of jurisdiction to do so. [Paras 7]

Transfer prayer refused; Court refrained from ordering transfer for want of jurisdiction and did not decide the transfer on merits.

Reconstitution of tribunal bench to allay apprehension of bias - impartial hearing - constitution of Bench under Section 129 of the Customs Act, 1962 - virtual hearing by video conferencing - Whether, in the interest of justice and to allay the petitioner's apprehension, the CESTAT bench composition could be altered and the appeal directed to be heard through video conferencing by a different technical member. - HELD THAT: - The Court observed that equity and interests of justice require that litigants be heard in an unbiased and impartial manner. Noting that a touring technical member who had been impleaded in proceedings before the Supreme Court sat for the Bengaluru Bench and that the petitioner had apprehensions of prejudice, the Court concluded that it was appropriate to direct that the appeal be heard by a bench comprising the judicial member and a different technical member than the touring member assigned to Bengaluru. The Court sought and considered comments from the Registrar of CESTAT (South Zonal Bench) and the Registrar, CESTAT, New Delhi, which recorded practical touring schedules and availability of the relevant technical member at Ahmedabad. In light of those administrative realities and the petitioner's age and delay in disposal, the Court directed that the Ahmedabad Bench hear the appeal as the Bengaluru Bench through video conferencing, thereby authorising virtual constitution of the bench for the purpose of hearing the pending appeal and fixing an expeditious timeline for disposal. [Paras 5, 8, 9]

Directed that the appeal pending before CESTAT, Bengaluru be heard by the Ahmedabad Bench through video conferencing as the Bengaluru Bench, with a judicial member and a different technical member than those impleaded in the Supreme Court proceedings; hearing to be completed expeditiously within forty five days from receipt of certified copy.

Final Conclusion: Review petition disposed: transfer prayer declined for want of jurisdiction; petition allowed in part by directing that the appeal before CESTAT, Bengaluru be heard by the Ahmedabad Bench through video conferencing with a different technical member, and the matter be expeditiously decided within forty five days from receipt of certified copy.

Principles of natural justice - interim freezing of assets - impleadment / adding parties as necessary or proper parties - jurisdictional scope of proviso to Section 241(2) - powers of the Tribunal to pass interim orders under Sections 241/242/246/339 - remand for fresh hearing and reconsideration

Principles of natural justice - interim freezing of assets - Validity of the impugned ex parte interim order freezing assets and bank accounts of the appellants without affording them opportunity of hearing - HELD THAT: - The Appellate Tribunal found that the interim order dated 31.08.2021, insofar as it operated against the appellants who were added as respondents on the same day, was passed without adequate recording of service particulars and without giving the appellants an opportunity to be heard. While recognising that rules of natural justice are not absolute and may be excluded in exceptional circumstances, the Tribunal observed that notice is the elementary requirement of fair hearing and that the NCLT record did not indicate which respondents had been served or received the paper book. In view of these deficiencies and because the impugned order was interim in character, the Tribunal did not decide the merits of the substantive allegations but directed that the appellants be permitted to file their replies and that the Tribunal shall hear them afresh and pass appropriate orders in accordance with law. [Paras 61, 62, 63, 69]

Impugned interim order is set aside insofar as it affects the appellants and the NCLT is directed to hear the appellants afresh after permitting them to file replies, following principles of natural justice; the Tribunal expressed no opinion on the merits.

Impleadment / adding parties as necessary or proper parties - powers of the Tribunal to pass interim orders under Sections 241/242/246/339 - Whether the Central Government could implead the appellants as necessary/proper parties and whether their belated addition was fatal - HELD THAT: - The Appellate Tribunal noted that an impleadment application (CA 275/2021) averred that the appellants were inadvertently omitted and that they were necessary as they had served as CEO and CFO. The Tribunal explained that it has power to add persons who are necessary or proper for effective adjudication even after filing of the main petition, and that impleadment sought bona fide for complete adjudication is not necessarily fatal on technical grounds. Consequently, the appellants, once impleaded, must be permitted to participate in proceedings by filing their replies and being heard before any continuing interim restraints are maintained. [Paras 54, 64, 65, 69]

Impleadment of the appellants was permissible; they are entitled to file replies and be heard before the Tribunal passes fresh orders.

Jurisdictional scope of proviso to Section 241(2) - Whether the proviso to Section 241(2) (requiring certain applications to be filed before the Principal Bench) rendered the Mumbai Bench order coram non judice - HELD THAT: - The Tribunal rejected the contention that the proviso to Section 241(2) rendered the Mumbai Bench order coram non judice. It observed that the proviso operates only when the Central Government prescribes a company or class of companies to be dealt with by the Principal Bench; absent any such prescription or rule, the proviso is not attracted and does not oust the territorial jurisdiction of the Bench seized of the matter. [Paras 36]

The objection based on the proviso to Section 241(2) is repelled; the proviso is inapplicable unless the Central Government has prescribed companies or classes to be dealt with by the Principal Bench.

Remand for fresh hearing and reconsideration - Relief to be afforded following findings on defective notice and hearing - HELD THAT: - Recognising the interim nature of the NCLT order and the appellants' complaint of denial of fair hearing, the Appellate Tribunal refrained from expressing any view on the merits and directed the NCLT to conduct a fresh hearing after permitting the appellants to file their replies. The Tribunal required the NCLT to pass fresh orders in a fair, just and dispassionate manner within five weeks, uninfluenced by the appellate observations, leaving all factual and legal contentions open. [Paras 69]

Matter remitted to the NCLT for fresh hearing and decision on merits after service and opportunity to the appellants; appellants permitted to file replies and be heard within five weeks.

Final Conclusion: The appeals are disposed of by remitting the matter to the National Company Law Tribunal for fresh consideration: the appellants are permitted to file replies and be heard afresh because the interim restraint as regards them was imposed without adequate notice or hearing; the proviso to Section 241(2) does not render the Mumbai Bench order coram non judice; no opinion is expressed on merits and the Tribunal directed the NCLT to pass fresh orders in accordance with law within five weeks.

Provisional attachment under PMLA - Restoration of attached property during trial - Section 8(7) PMLA - release to person claiming possession where trial cannot be conducted or is pending - Scope of proviso to a statutory provision - Section 8(8) PMLA and restoration post-confiscation - Manner of restoration during trial - Rule 3A

Scope of proviso to a statutory provision - Section 8(8) PMLA and restoration post-confiscation - Manner of restoration during trial - Rule 3A - The applicability of the second proviso to Section 8(8) of the PMLA and Rule 3A to claims brought under Section 8(7) of the PMLA. - HELD THAT: - The Court held that a proviso to one sub-section cannot be extended to a different sub-section absent explicit wording. The second proviso to Section 8(8) (and the consequential Rule 3A) was enacted as an exception and procedure pertaining to restoration after confiscation under Section 8(8), and uses permissive language ('may') to prescribe an optional procedure for the Special Court. There is no textual basis for applying that proviso or Rule 3A to Section 8(7), which deals with orders where trial cannot be conducted or has commenced but not concluded. Reliance on the canon that a proviso embraces only the field covered by its main provision supports this construction. [Paras 11, 12, 13]

The second proviso to Section 8(8) and Rule 3A do not apply to claims under Section 8(7); the proviso cannot be stretched to cover a different sub-section.

Section 8(7) PMLA - release to person claiming possession where trial cannot be conducted or is pending - Provisional attachment under PMLA - Restoration of attached property during trial - Proof of attachment and return by order of Court - Whether Canara Bank was entitled to de-freeze and receive the attached amounts (and interest) under Section 8(7) of the PMLA in view of prolonged non-prosecution of the trial. - HELD THAT: - The Court noted that Section 8(7) empowers the Special Court to pass appropriate orders regarding release of property where trial cannot be conducted or has commenced but cannot be concluded, having regard to the material before it. The Enforcement Directorate's prosecution in the complaint had shown no progress for many hearings, and the Bank's persistent claim (filed earlier) justified seeking possession of the attached funds lying idly. The Court observed that the legislative scheme in Chapter III seeks to safeguard proceeds of crime but does not indicate an intention to retain the property purposelessly until trial conclusion. The Division Bench's order directing security for a portion of the attached amount was noted; consequently the Bank was entitled to the balance amount available and to interest thereon. The Court also recorded that return of the amounts can be evidenced in trial by a copy of the Court's order, alleviating concerns about marking funds as material objects. [Paras 5, 6, 16, 17, 19]

Canara Bank was entitled to de-freeze and receive the balance of the attached amounts (together with interest) under Section 8(7); return can be evidenced in the trial by marking the Court's order.

Final Conclusion: Criminal Revision dismissed; the Special Court's order de-freezing funds in favour of Canara Bank is not interfered with - the bank is entitled to the balance amount available and interest thereon; the Enforcement Directorate's apprehensions about proof in trial are allayed by the availability of the Court's order as evidence. No costs.

Business Support Service - infrastructural support services - support services of business or commerce - principal-to-principal license - revenue sharing arrangement not ipso facto a taxable service - scope of show cause notice - circular clarifications on taxability of movie exhibition - joint venture/partnership characterization and absence of service between co-venturers

Business Support Service - support services of business or commerce - principal-to-principal license - revenue sharing arrangement not ipso facto a taxable service - joint venture/partnership characterization and absence of service between co-venturers - Whether the activity carried out by the appellant was exigible to service tax as Business Support Service for the periods in dispute. - HELD THAT: - The Tribunal held that the contractual relationship between the exhibitor and the distributor was a principal-to-principal grant of a non-exclusive license to exploit theatrical rights and that the exhibitors exercised sole control over showcasing, pricing and exhibition decisions. The agreements showed that the appellant paid revenue share to the distributor (i.e., consideration flowed from exhibitor to distributor) and not vice versa. Relying on earlier Division Bench decisions and the Tribunal's exposition in Mormugao Port Trust (and the Supreme Court guidance in Faqir Chand Gulati on joint ventures), the Bench reasoned that where parties act as co-venturers or on principal-to-principal basis and share revenue, the relationship lacks the contractor-client quid pro quo necessary for a taxable service. The Circular dated 23.02.2009 was held to support the view that mere screening/exhibition is not a Business Support Service and that each contract's terms must be examined. The Tribunal therefore concluded that no service in the nature of BSS was rendered by the appellant to the distributors/producers for the periods in question and the demands could not be sustained. [Paras 14, 16, 19, 21, 22]

Demands of service tax under Business Support Service for the periods 09.05.2009 to 31.03.2012 and 01.04.2012 to 30.06.2012 set aside; appeals allowed.

Scope of show cause notice - circular clarifications on taxability of movie exhibition - Whether the Commissioner could sustain a demand on a basis different from that alleged in the show cause notice and whether the Circular dated 13.12.2011 aided the Department for the earlier periods. - HELD THAT: - The Tribunal observed that the show cause notices alleged provision of 'operational and administrative assistance' whereas the Commissioner confirmed demand on the basis of 'infrastructure support services', thereby going beyond the scope of the notices. Further, the Circular dated 13.12.2011 could not be invoked retrospectively to sustain demands for periods prior to 13.12.2011 and, in any event, did not alter the contractual character which showed a principal-to-principal arrangement. The earlier Circular dated 23.02.2009 supported the position that mere screening is not a BSS unless facts show a lease/rental or a different contractual arrangement. [Paras 19, 21, 22]

Confirmation of demand on a different legal basis than alleged in the show cause notices was unsustainable; reliance on Circular 13.12.2011 did not assist the Department for the earlier period.

Final Conclusion: The impugned order confirming service tax demands under Business Support Service was set aside and the appeals allowed as the contractual relations evidenced a principal-to-principal license and revenue sharing that did not establish a taxable service from the appellant to the distributors/producers for the periods in dispute; the Commissioner had also gone beyond the scope of the show cause notices and Circular 13.12.2011 did not support demands for the earlier period.

Validity of High Court's view on Notification No. 45/89-C.E. (N.T.) - Applicability of Board Circular No. 651/42/2002-CX. dated 7-8-2002 - Scope of Section 11D of the Central Excise Act, 1944 - Cash recovery under Money Credit Scheme - Manufacturer's liability to pay duty collected from buyer

Validity of High Court's view on Notification No. 45/89-C.E. (N.T.) - The High Court's conclusion in reference to Notification No. 45/89-C.E. (N.T.), dated 11-10-1989, is a tenable view and the writ petition challenging it is not maintainable. - HELD THAT: - The Supreme Court observed that the view adopted by the High Court in relation to the stated Notification is a possible view. No error was found in the High Court's negation of the claim raised in the writ petition. Having found the High Court's reasoning permissible, the petition did not merit interference and was accordingly dismissed. [Paras 2, 5, 6]

The Special Leave Petition is dismissed and the High Court's view in relation to the Notification is upheld as a possible view.

Applicability of Board Circular No. 651/42/2002-CX. dated 7-8-2002 - Scope of Section 11D of the Central Excise Act, 1944 - Cash recovery under Money Credit Scheme - Manufacturer's liability to pay duty collected from buyer - Circular No. 651/42/2002-CX. dated 7-8-2002 does not apply to the facts of this case and its language is confined to the context of Section 11D and the cash-recovery under the Money Credit Scheme. - HELD THAT: - The Court examined the Circular relied upon by the petitioner and held that it relates specifically to the applicability of Section 11D of the Central Excise Act, 1944 and to cash-recovery under the Money Credit Scheme. Although the circular contains a broad observation that a manufacturer is utilised to pay duty on finished excisable products and that the duty is collected from the buyer, that expression cannot be read to extend beyond the statutory context of Section 11D and the antecedent Board Circular referred to therein. Consequently, the Circular was found inapplicable to the present dispute. [Paras 3, 4]

The reliance on Circular No. 651/42/2002-CX. is rejected; the Circular is inapplicable to the facts of this case and constrained to Section 11D and the Money Credit Scheme.

Final Conclusion: The Special Leave Petition is dismissed; the High Court's view in relation to Notification No. 45/89-C.E. (N.T.) is affirmed as a possible view and the Circular relied upon by the petitioner is held inapplicable to the case.

Deemed credit - Eligibility under Notification No.1/93 vis-a -vis the Rs. 75,00,000 limit - Interpretation of Government Order TS/36/94-TRU dated 1-3-1994 - Second proviso to Rule 57G(2) - Deeming of non-duty-paid stocks as duty-paid for credit purposes

Deemed credit - Eligibility under Notification No.1/93 vis-a -vis the Rs. 75,00,000 limit - Interpretation of Government Order TS/36/94-TRU dated 1-3-1994 - Whether rerollers whose aggregate clearances in a financial year exceeded Rs.75,00,000/- were entitled to the deemed credit under Government Order TS/36/94-TRU dated 1-3-1994 read with Notification No.1/93. - HELD THAT: - The Court held that Notification No.1/93 establishes eligibility for exemption by reference to the category of manufacturers (subject to the preceding-year clearance ceiling of Rs.2,00,00,000/-) while the Rs.75,00,000/- figure limits the extent of exemption available under the notification and does not constitute an eligibility condition for being treated as an assesseee "availing of the exemption". The Government Order TS/36/94-TRU dated 1-3-1994, issued under the second proviso to rule 57G(2), grants deemed credit to rerollers who are availing the benefit of Notification No.1/93 by deeming certain stocks to be duty-paid; a plain reading of the proviso shows the Central Government may direct that clearly identifiable non-duty-paid stocks be treated as duty-paid and allowed credit without production of documents. Consequently, the Tribunal's interpretation in Digambar Foundary that deemed credit was available only so long as clearances did not exceed Rs.75,00,000/- was incorrect. The Court also noted consistent decisions of other High Courts that supported this construction. The Court observed an exception where the deemed-credit order was rescinded with prospective effect and credits claimed after rescission were not admissible. [Paras 21, 22, 26, 28, 29]

Benefit of the deemed credit under Order TS/36/94-TRU dated 1-3-1994 is available to rerollers who are availing the exemption under Notification No.1/93 notwithstanding that their clearances in a particular financial year have crossed Rs.75,00,000/-, subject to the consequence that credits claimed after the order was validly rescinded are not admissible.

Final Conclusion: The appeal is allowed; the Tribunal's adverse orders are set aside and the questions concerning availability of deemed credit were answered in favour of the assessee, with the tax appeal disposed accordingly.

Violation of the principle of natural justice (audi alteram partem) - service of show cause notice and proof of delivery - validity of ex-parte adjudication - entertainability of writ petition despite alternative remedy where there is gross violation of natural justice - remand for fresh adjudication with service and opportunity of personal hearing

Entertainability of writ petition despite alternative remedy - pre-deposit requirement under statutory appeal provisions - Writ petition under Article 226 is maintainable despite existence of alternative remedy where there is a gross and clear violation of principles of natural justice. - HELD THAT: - The Court acknowledged the statutory scheme requiring pre-deposit for appeals under the Central Excise Act and that ordinarily the appellate remedy before the CESTAT is the prescribed course. However, following settled precedents and on the material before it indicating a prima facie failure to afford opportunity of hearing and irregularity in the manner the order was passed, the Court held that a writ petition challenging breach of natural justice may be entertained notwithstanding the existence of the alternative remedy. The Court limited its exercise of jurisdiction to the question of procedural fairness and did not adjudicate the merits of the underlying liability. [Paras 6, 11, 12]

Writ petition entertained insofar as it challenges non-observance of natural justice; petitioner not relegated to alternate remedy for that limited purpose.

Violation of the principle of natural justice (audi alteram partem) - service of show cause notice and proof of delivery - invalidity of ex-parte personal penalty without proper service and hearing - The ex-parte order imposing personal penalty on the petitioner was quashed for failure to effect service of the show cause notice and for not affording an opportunity of personal hearing. - HELD THAT: - On the material placed before the Court, including the petitioner's assertion that he had left employment before issuance of the show cause notice and records indicating unsuccessful attempts at postal service, the Court found that neither the show cause notice nor notices of personal hearing were proved to have been served on the petitioner. Affixing notices at company premises or relying on service to the company was held insufficient to constitute effective service on an individual who had left the employment and resided elsewhere. The Court emphasised that personal penalties cannot be imposed without affording the person an opportunity to be heard and that proof of delivery is required where service by speed post is asserted. For these reasons the impugned ex-parte adjudication was set aside insofar as it relates to the petitioner. [Paras 8, 9, 10, 13]

Order in original imposing personal penalty on the petitioner quashed and set aside for breach of natural justice and want of proper service.

Remand for fresh adjudication with service and hearing - directions for service by official email and future correspondence - Matter remanded to adjudicating authority for fresh decision after valid service of the show cause notice and after affording the petitioner full opportunity of hearing; interim directions given regarding service. - HELD THAT: - The Court declined to decide merits and directed that the show cause notice on record shall be served afresh on the petitioner. The petitioner was directed to furnish his official email ID within one week for service; the address in the cause title was fixed for future physical correspondence. The adjudicating authority was directed to decide the matter afresh, giving fullest opportunity of hearing and without being influenced by observations in the writ proceedings; neither party's case is to be prejudiced by the present order. [Paras 14, 15]

Proceedings remitted for fresh adjudication after proper service and hearing; specific directions given for service by email and address for correspondence.

Final Conclusion: The High Court entertained the writ petition limited to procedural fairness, quashed the ex-parte order imposing personal penalty on the petitioner for failure of service and denial of hearing, and remitted the matter to the adjudicating authority to decide afresh after valid service (including by official email) and after affording the petitioner full opportunity of personal hearing; merits remain open.

Includibility of software value in assessable value of hardware - operational/application software versus integral/embedded software - classification of software and Chapter Note 6 to Chapter 85 - provisional assessment - remand for fresh consideration due to lack of evidence

Includibility of software value in assessable value of hardware - operational/application software versus integral/embedded software - classification of software and Chapter Note 6 to Chapter 85 - Whether the value of software supplied with telecom equipment during March 2005 to January 2006 is includible in the assessable value of the telecom hardware or is assessable separately under the heading for recorded media/software. - HELD THAT: - The Tribunal examined competing contentions: the Department's case that the COT/RT/NMS software was integral and necessary for the functioning of the Broadband DLC systems and therefore its value must be included in the assessable value of goods classifiable under Heading 8517; and the respondent's case that the software were operational/application programs classified and invoiced separately under Heading 8524 and exempt under the notification, with software and hardware being distinct commodities as contemplated by Chapter Note 6 to Chapter 85. The Commissioner (Appeals) had found that the telecom equipment could function without the network management software but did not discuss or record supporting evidence. The Tribunal observed that the determinative question turns on the factual nature and functionality of the software (whether it only provides additional functionalities or is integral/essential for operation). The Bench directed parties to furnish further product details (brochures, manuals, photographs) but the parties failed to produce reliable evidence clarifying the nature of the finished product and software. In the absence of necessary factual material and because the Commissioner (Appeals) did not analyse the issue on the available evidence, the Tribunal concluded that the matter cannot be finally adjudicated on the record before it and requires fresh consideration by the adjudicating authority with proper evidential material to determine whether the software is integral to the hardware or is a separate assessable commodity under Chapter 85 notes and tariff headings. [Paras 20, 21, 22, 23, 24]

The question whether the value of the software is includible in the assessable value of the telecom hardware is remanded to the Adjudicating Authority for fresh consideration in light of the need for reliable evidence on software functionality and classification.

Final Conclusion: The appeal is allowed by way of remand: the impugned order setting aside the demand on the value of software is remanded to the Adjudicating Authority for fresh consideration and determination of whether the software is integral to the hardware or assessable separately.

Levy of value added tax on liquor under Entry 59A - Exemption under section 5(1) of the KVAT Act - Net tax computation under Section 10 (output tax and input tax) - Entitlement to input tax credit where purchases are from an exempt dealer - Determination of taxable turnover under Rule 3(2)(f) of the KVAT Rules - Tax on value addition versus tax on entire turnover where no input tax exists

Levy of value added tax on liquor under Entry 59A - Exemption under section 5(1) of the KVAT Act - Whether liquor sold by the assessee (CL-9 licence, bar and restaurant in urban area) is exigible to VAT by virtue of Entry 59A and the notifications dated 28.02.2014 and 21.04.2014. - HELD THAT: - Entry 59A expressly includes liquor including beer, fenny, liqueur and wine. The State notifications issued under Section 5(1) of the KVAT Act (28.02.2014 and its amendment 21.04.2014) specify that CL-9 licence holders running bar and restaurant in urban areas are liable to VAT with effect from 01.03.2014. Earlier challenges to the constitutional validity of Entry 59A and the notifications were dismissed by this Court and affirmed by the Division Bench (HEAVEN INN), narrowing the controversy. Applying these notifications, the Court held that the assessee is liable to pay VAT at the prescribed rate on liquor sales for the tax periods in question. [Paras 11, 14, 15, 16]

Assessee is liable to VAT on liquor sales for the period as specified by Entry 59A and the notifications; the levy is upheld in favour of the Revenue.

Net tax computation under Section 10 (output tax and input tax) - Entitlement to input tax credit where purchases are from an exempt dealer - Tax on value addition versus tax on entire turnover where no input tax exists - Whether the assessee is entitled to claim input tax credit and therefore liable to tax only on value addition instead of the entire turnover. - HELD THAT: - Section 10 requires computation of net tax as output tax less input tax, subject to prescribed restrictions and documentary proof. The Court relied on the co-ordinate Bench ruling in STRP No.101/2018 that where the supplier (KSBCL) is exempt and the purchaser does not pay tax on purchases, there is no input tax in the purchaser's hands. Absent input tax, the statutory mechanism does not permit deduction of any input tax; consequently the dealer cannot claim to be liable only on 'value addition' by excluding amounts relating to purchases from an exempt supplier. Collection of tax from buyers or the absence of a separate mechanical procedure for capturing value addition does not alter the statutory requirement that input tax must exist to claim credit under Section 10. [Paras 12, 17, 21, 22]

Assessee is not entitled to input tax credit because purchases were from an exempt dealer; tax cannot be confined to value addition in the absence of input tax.

Determination of taxable turnover under Rule 3(2)(f) of the KVAT Rules - Entitlement to deduction for amounts of exempt goods sold under Rule 3(2)(f) - Whether Rule 3(2)(f) of the KVAT Rules permits deduction of amounts relating to exempt goods purchased from an exempt supplier (KSBCL) in order to determine taxable turnover. - HELD THAT: - Rule 3(2)(f) allows deduction from total turnover of all amounts relating to goods which are exempt under Section 5 when such exempted goods are sold by the dealer; three conditions must be satisfied in the hands of the dealer: (1) there must be goods exempt under Section 5 in the dealer's hands, (2) sale of such exempt goods by that dealer, and (3) deduction of amounts relating to those exempt goods to determine taxable turnover. The Court found that liquor was not exempt under Section 5 in the hands of the assessee (CL-9 licence holder) for the relevant period; the fact that the supplier (KSBCL) was exempt does not satisfy the conditions of Rule 3(2)(f) in the assessee's hands. Therefore Rule 3(2)(f) is not applicable to permit deduction from the assessee's total turnover. [Paras 18, 19, 20]

Rule 3(2)(f) does not apply to the assessee and cannot be invoked to deduct amounts of purchases from an exempt supplier to compute taxable turnover.

Final Conclusion: The Court answered the substantial questions of law in favour of the Revenue and against the assessee: VAT liability under Entry 59A and the notifications is upheld; the assessee is not entitled to input tax credit because purchases were from an exempt dealer; Rule 3(2)(f) does not permit deduction in the assessee's hands. Revision petition dismissed.

Infraction of the Narasus principle - obligation of Assessing Authority to make independent best-judgment assessment - prohibition on blind reliance upon Enforcement Wing reports - application of Madras Granite principle - remand for fresh assessment after furnishing enforcement records

Infraction of the Narasus principle - prohibition on blind reliance upon Enforcement Wing reports - application of Madras Granite principle - The impugned assessment order was set aside for failing to make an independent assessment and for having acted on the Enforcement Wing's report without independent application of mind. - HELD THAT: - The Court found that the assessment under challenge was rendered in breach of the principles established in Narasus and Madras Granite decisions, namely that an Assessing Authority exercising best-judgment assessment in escaped-turnover cases must not act solely or blindly on the Enforcement Wing's report but must independently assess the matter. The impugned order was quashed solely on this ground without adjudicating other contentions. The Court noted that earlier orders in Ponny Stores and Gayathri Agency, applying the same principles, had attained finality and had been complied with, which supported granting relief on the narrow legal ground of infraction of the cited principles.

Impugned Assessment Order dated 7.7.2021 is set aside only for failure to make an independent assessment in accordance with Narasus and Madras Granite principles.

Remand for fresh assessment after furnishing enforcement records - right to inspect and receive copies of D-7 records - The matter was remitted for fresh assessment after the respondent furnishes the D-7 records to the petitioner and the assessment is to be completed within a stipulated timeframe. - HELD THAT: - The Court directed that the respondent shall furnish photocopies of the D-7 records referred to in the impugned order to the writ petitioner under acknowledgment by 15.09.2021. After furnishing those records, the respondent is required to make a fresh assessment independently of the Enforcement Wing's proposals and on merits in accordance with law. The Court prescribed that this exercise be completed expeditiously and, in any event, within two months from 15.09.2021 (i.e., by 15.11.2021). The directions constitute a remand for fresh consideration limited to reassessment after providing the enforcement material to the petitioner.

Respondent to supply D-7 photocopies by 15.09.2021 and to complete a fresh independent assessment by 15.11.2021 in accordance with law.

Final Conclusion: The assessment order for 2014-15 is quashed for breach of the Narasus/Madras Granite obligation to make an independent assessment; the respondent is directed to supply the D-7 records to the petitioner and to re-assess the matter independently and expeditiously, within the prescribed timeframe.

Principles of natural justice - opportunity of hearing - assessment proceedings - invocation of extraordinary writ jurisdiction under Article 226 for breach of natural justice - assessment order passed under incorrect statutory provision (assessment under Section 25(1) vis-a -vis Section 25A of the KVAT Act) - remand for fresh consideration after affording hearing

Opportunity of hearing - principles of natural justice - assessment proceedings - Ext.P5 was passed without affording the petitioner an opportunity of hearing, thereby violating principles of natural justice in assessment proceedings. - HELD THAT: - The Court noted that the assessment order (Ext.P5) does not record that the petitioner was granted an opportunity of hearing and the learned Government Pleader conceded that no such opportunity is reflected. The Court emphasised that in assessment proceedings strict compliance with the rule of law requires that a proper opportunity of hearing be afforded since absence of hearing prejudices the assessee. Having found undue haste in issuing the order and absence of hearing, the Court concluded that the order suffers from illegality for want of compliance with principles of natural justice and cannot stand. [Paras 3, 6, 7]

Ext.P5 set aside for want of an opportunity of hearing; order quashed on grounds of breach of natural justice.

Invocation of extraordinary writ jurisdiction under Article 226 for breach of natural justice - Extraordinary jurisdiction under Article 226 is available despite existence of an alternate remedy where the impugned order has been passed in undue haste and in violation of principles of natural justice. - HELD THAT: - Relying on the Court's earlier precedent, the High Court reaffirmed that when administrative orders, including assessment orders, are rendered in undue haste and in breach of natural justice, the remedy by way of writ under Article 226 is maintainable even if alternative statutory remedies exist. The Court applied this principle to the present facts and entertained the writ petition to set right the illegality in the assessment order. [Paras 5]

Writ petition entertained and allowed under Article 226 on the ground of violation of natural justice notwithstanding availability of alternate remedies.

Assessment under Section 25(1) vis-a -vis Section 25A of the KVAT Act - remand for fresh consideration after affording hearing - The question whether the order ought to have been passed under Section 25(1) or under Section 25A of the KVAT Act was not adjudicated on merits and is remitted for fresh consideration after hearing. - HELD THAT: - The Court directed that after setting aside Ext.P5, the respondent shall pass fresh orders in accordance with law only after affording a proper opportunity of hearing to the petitioner. The petitioner is permitted to place before the respondent the contention regarding the correct statutory provision-whether the order should be under Section 25(1) or Section 25A-and the respondent is to consider that point during the fresh proceedings. The remand is for fresh consideration and adjudication in accordance with law, not for mere computation. [Paras 7]

Matter remanded to the respondent to pass fresh orders after affording proper hearing; substantive question of applicable statutory provision left open for determination on remand.

Final Conclusion: Writ petition allowed; Ext.P5 quashed for want of opportunity of hearing and breach of natural justice. The matter is remitted to the respondent to pass fresh assessment orders after affording the petitioner a proper hearing and to decide, on merits, whether the order should be framed under the appropriate provision of the KVAT Act.

Arrest and detention under section 65 of the Kerala Revenue Recovery Act - Willful withholding of payment of public revenue - Dishonest transfer of property to evade revenue recovery - Relevance of third party or familial wealth in proceedings under section 65 - Right of succession/fractional right in father's property and effect of testamentary disposition

Arrest and detention under section 65 of the Kerala Revenue Recovery Act - Willful withholding of payment of public revenue - Whether Ext. P7 order committing the defaulter to civil prison under section 65 was legally sustainable. - HELD THAT: - The Court examined the material placed before the District Collector and the statutory factors relevant under section 65, namely willful withholding of payment, dishonest transfer of property, fraudulent conduct to evade payment, or the existence of means to pay. The Collector's order (Ext. P7) did not rest on any finding that the defaulter himself held property in benami or had transferred his own assets; rather it relied on allegations concerning a transfer by the defaulter's father. The record contains no objective assessment demonstrating that the defaulter had means to pay, was willfully withholding payment, had dishonestly transferred his property, or was otherwise guilty of conduct within the statutory criteria. In absence of such findings and material, the requisite satisfaction under section 65 was not shown and the detention order could not be sustained. [Paras 12, 14]

Ext. P7 is quashed and the order of detention under section 65 is set aside.

Right of succession/fractional right in father's property and effect of testamentary disposition - Dishonest transfer of property to evade revenue recovery - Whether the District Collector rightly treated the transfer/bequest of the father's property as a transfer of property by the defaulter enabling detention under section 65. - HELD THAT: - The Collector's conclusion treated the property as hereditarily acquired by the father in which the defaulter had a right and reasoned that the transfer to the defaulter's son effected an escape mechanism. Examination of the testament (Ext. P6) showed the property bequeathed to the grandson derived from specific sources (partition B schedule and purchase certificate), and therefore could not be characterised as property in which the defaulter had an enforceable proprietary right that would support the Collector's finding. Even on conventional succession principles, the defaulter, at best, would have a fractional/right contingent interest (and only in intestacy), not an immediate alienable right justifying the Collector's conclusion that the defaulter could claim and use the property to pay dues. The Collector's finding that the defaulter could claim the property and thereby discharge the arrears is therefore unsustainable. [Paras 13]

The finding that the defaulter had a right to the father's property and could use it to pay the dues is not sustainable.

Relevance of third party or familial wealth in proceedings under section 65 - Willful withholding of payment of public revenue - Whether reports that the defaulter is living in a financially comfortable family environment are material under section 65 to support detention. - HELD THAT: - Revenue officials' reports that the defaulter had financially sound relatives and friends and was living in a high standard of life were relied upon by respondents. The Court held that such generalized reports are not among the statutory factors listed in section 65 and, absent objective, specific evidence linking those reports to the defaulter's means to pay the arrears, they cannot substitute for the statutory satisfaction required before issuing a warrant of arrest. The District Collector failed to make an objective assessment of the statutory criteria, and reliance on these reports alone did not meet the threshold for detention under section 65. [Paras 14]

The reports about family wealth are not relevant material under section 65 and do not justify the order of detention.

Final Conclusion: The detention order (Ext. P7) issued under section 65 of the Kerala Revenue Recovery Act was quashed for want of material satisfying the statutory tests; the defaulter was ordered released, without prejudice to fresh recovery steps in accordance with law.

Separation of powers - independence of the judiciary - judicial review - legislative overruling and retrospective validation - mandamus and legislative nullification - security of tenure - equal protection under Article 14 - appointments and composition of Search cum Selection Committee - minimum age eligibility for tribunal members - tenure of tribunal Chairpersons and Members - house rent allowance and conditions of service - recommendation panel size and executive decision period

Minimum age eligibility for tribunal members - equal protection under Article 14 - independence of the judiciary - First proviso to Section 184(1) prescribing minimum age of 50 years for appointment as Chairperson or Member is unconstitutional. - HELD THAT: - The Court held that the statutory minimum age of 50 is an impermissible legislative override of this Court's directions in MBA III and is arbitrary in its effect. Fixing 50 years as a threshold frustrates the policy of recruiting capable advocates at a younger age and acts as a deterrent to attracting competent entrants from the bar, thereby impairing security of tenure and the institutional independence necessary for tribunals. Consequently the first proviso violates the principles of separation of powers and equality under Article 14 and is struck down. [Paras 49]

First proviso to Section 184(1) declared unconstitutional and void.

House rent allowance and conditions of service - independence of the judiciary - mandamus and legislative nullification - Second proviso to Section 184(1), read with the third proviso (allowances/HRA parity with Central Government officers), is unconstitutional but subsequent amendment to Rule 15 cures HRA direction compliance; no further relief on HRA is required. - HELD THAT: - The Court found that the provisos seeking to limit allowances and benefits to those admissible to a Central Government officer of the same pay frustrate MBA III's directive to ensure adequate HRA and conditions of service necessary for tribunal independence. The second proviso (and the related third proviso) were therefore declared unconstitutional. The Court noted, however, that a later statutory rule amendment (notification dated 30 6 2021 amending Rule 15) gives retrospective effect to enhanced HRA in conformity with MBA III; accordingly no additional remedial direction on HRA was issued. [Paras 50, 51]

Second proviso and the third proviso declared unconstitutional; amendment to Rule 15 (30 6 2021) aligns HRA with earlier directions and no further order on HRA is necessary.

Appointments and composition of Search cum Selection Committee - recommendation panel size and executive decision period - separation of powers - Section 184(7) insofar as it requires the Committee to recommend a panel of two names for each post and permits the Government to take a decision 'preferably within three months' is unconstitutional to the extent it negates MBA III's requirement that the Search cum Selection Committee recommend one name for each post and that appointments be made within three months. - HELD THAT: - The Court reasoned that MBA III had decisively laid down that the SCSC must recommend a single name for each post to minimise executive discretion and protect institutional independence. Repeating the 2020 Rule's panel mechanism and retaining an attenuated timeline clause in Section 184(7) is an indirect intrusion into the judicial domain and an attempt to override the law laid down by this Court. Consequently Section 184(7) is unsustainable to the extent it undermines the single name recommendation principle and the Court's direction for prompt appointment. [Paras 53, 54]

Section 184(7) declared unconstitutional insofar as it requires a panel of two names and thereby negates MBA III; the Government's three month timeline expressed as 'preferably' does not cure the vice but does not require further direction beyond striking down the panel requirement.

Tenure of tribunal Chairpersons and Members - retrospective legislation and legislative overruling - security of tenure - mandamus and legislative nullification - Section 184(11) fixing tenure of Chairpersons and Members at four years is unconstitutional; the retrospective proviso preserving longer terms for appointments made between 26 5 2017 and 4 4 2021 is upheld but limited so as not to reduce tenures already conferred by prior appointment-orders. - HELD THAT: - The Court held that prescribing a four year tenure was an impermissible legislative attempt to override MBA III's declaration that Chairpersons and Members should hold office for five years, as short tenure undermines independence and is contrary to separation of powers and Article 14. Clauses (i) and (ii) of Section 184(11) (four year tenure) were therefore struck down. However, the proviso to Section 184(11) - which addresses appointments made between 26 5 2017 and the notified date - was sustained to the extent that it preserves the terms of valid appointment orders (subject to a maximum of five years), and the Court protected appointments made pursuant to interim orders (for CESTAT) so as not to abridge tenures already granted pursuant to this Court's earlier orders. [Paras 55, 56, 57]

Clauses (i) and (ii) of Section 184(11) declared void and unconstitutional; the proviso preserving certain prior appointment terms is upheld and incumbents appointed pursuant to specified interim orders shall not have their tenures reduced by the Ordinance.

Final Conclusion: The writ petition is allowed in part: the Tribunal Reforms (Rationalisation and Conditions of Service) Ordinance, 2021 is declared unconstitutional insofar as it (a) prescribes a minimum age of 50 years for appointment as Chairperson or Member, (b) limits allowances/ HRA by equating benefits to those of Central Government officers (subject to the subsequent Rule 15 amendment which conforms to earlier directions), (c) mandates a panel recommendation procedure under Section 184(7) that negates MBA III, and (d) fixes tenure at four years under Section 184(11)(i),(ii). The Court upholds the retrospective proviso protecting certain appointments made between 26 5 2017 and 4 4 2021 and directs that appointments made pursuant to the Court's interim directions be respected; otherwise the Ordinance provisions identified above are struck down and the matter is disposed accordingly.

Non compliance of section 42(2) of the NDPS Act - Non compliance of section 50 of the NDPS Act - Conscious possession - Adverse inference for non examination of a material witness - Reliance on official witnesses and absence of independent witnesses - Appeal against acquittal - standard for interference

Non compliance of section 42(2) of the NDPS Act - Non compliance of section 50 of the NDPS Act - Reliance on official witnesses and absence of independent witnesses - Whether non compliance with the procedural safeguards in sections 42(2) and 50 of the NDPS Act vitiated the prosecution case and justified acquittal. - HELD THAT: - The Court found that the prosecution case was materially vitiated by failure to comply with section 42(2) (the requirement as to showing or forwarding the gist of information to superior officers) and section 50 (obligation to inform the accused of his right to be searched by a gazetted officer or a Magistrate). The evidence of prosecution witnesses on these points was contradictory: P.W.2 admitted he did not possess or show the gist of information and did not visit the spot, whereas P.W.3 gave inconsistent evidence about handing over the information and appraising the accused of his rights. The complaint itself contained no reference to forwarding the information to superiors or to the statutory appraisal of the accused's rights, supporting the inference that statutory formalities were not complied with. The Court emphasised that section 50 confers an important safeguard and is not a mere formality; non compliance goes to the root of the prosecution case. Further, the prosecution case lacked independent witnesses (other than NCB officers), and the sole independent witness examined turned hostile, undermining confidence in the prosecution evidence. Having regard to these procedural defects and the absence of satisfactory independent corroboration, the trial was vitiated and the acquittal was properly arrived at. [Paras 26, 27, 28, 29, 38]

Non compliance with sections 42(2) and 50 of the NDPS Act, together with the absence of independent supporting witnesses, vitiated the prosecution case and justified affirming the acquittal.

Conscious possession - Reliance on official witnesses and absence of independent witnesses - Whether the prosecution proved that the accused had conscious possession of the seized contraband. - HELD THAT: - The Court held that the prosecution failed to establish 'conscious possession' of the contraband by the accused beyond reasonable doubt. Confessional or inculpatory statements recorded by prosecution officers were not corroborated by independent evidence. Adopting and applying established principles (including reliance on precedents cited in the judgment), mere presence near the consignment or discovery of contraband in a vehicle or at a place does not by itself establish custody or control; direct evidence of custody or control is required. The record showed unresolved identities of other persons present, non identification of the accused by some witnesses, and no question in the section 313 examination as to conscious possession. Taken together, these defects meant the prosecution did not discharge the burden of proving conscious possession. [Paras 31, 32, 34, 36, 37]

Prosecution failed to prove conscious possession of the contraband by the accused; this failure supported the acquittal.

Adverse inference for non examination of a material witness - Whether the prosecution's failure to examine a material witness (Mr. Rane) justified drawing an adverse inference. - HELD THAT: - The Court observed that Mr. Rane, from whose possession certain documents (Exhibit 30) were seized, was not examined by the prosecution. Withholding the testimony of a material witness who could shed light on the documents and the circumstances of the seizure warranted an adverse inference against the prosecution. The non examination prejudiced the defence and weakened the prosecution case. [Paras 33]

An adverse inference is warranted against the prosecution for not producing Mr. Rane, and his non examination prejudiced the prosecution's case.

Appeal against acquittal - standard for interference - Whether the appellate court should interfere with the trial court's order of acquittal. - HELD THAT: - The Court reiterated the settled principle that an appellate court may not disturb an acquittal unless the trial court's findings are palpably wrong, manifestly erroneous or demonstrably unsustainable. Having found no such defect - and having concluded that procedural non compliance, lack of independent corroboration, failure to prove conscious possession, and non production of a material witness fatally weakened the prosecution case - the Court held there was no justification to interfere with the Special Judge's acquittal. [Paras 39, 40]

No ground to disturb the trial court's acquittal; the appeal is dismissed.

Final Conclusion: The High Court dismissed the appeal and upheld the Special Judge's acquittal on the grounds that procedural non compliance with sections 42(2) and 50 of the NDPS Act, failure to prove conscious possession, absence of independent corroborative witnesses and non examination of a material witness vitiated the prosecution case; there was no basis to interfere with the trial court's findings.