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Challenge to assessment order - the proceeding did not contain a DIN number - It was held by High Court that 'this Writ Petition is disposed of setting aside the summary of show-cause notice, in Form GST DRC-01, dated 27.11.2024 and the assessment order, dated 25.02.2025, passed by the 1st respondent, with liberty to the 1st respondent to conduct fresh assessment, after giving notice to the petitioner and assigning a DIN number to the said orders.'
HELD THAT:- Issue notice, returnable in four weeks.
The impugned order passed by the High Court shall remain stayed from its operation, subject to the condition that no coercive steps be taken against the assessee.
ISSUES PRESENTED AND CONSIDERED
1. Whether the appellate authority was justified in affirming the adjudicating authority's denial of Input Tax Credit (ITC) on the sole ground that invoices were issued after the effective date of retrospective cancellation of the supplier's GST registration.
2. Whether retrospective cancellation of a supplier's GST registration, by itself, is a valid ground to deny ITC to a purchaser who claims bona fide receipt and utilization of goods.
3. Whether the appellate authority committed jurisdictional/record-review errors by failing to consider documentary evidence on record (tax invoices, e-way bills, transport documents, bank records, ledgers) and by issuing a non-speaking order without findings on the relevancy/credibility of those documents.
4. Whether the appellate authority's procedural reliance on the appellant's non-appearance at personal hearing absolved it from the statutory duty to adjudicate and record reasons on materials on file.
ISSUE-WISE DETAILED ANALYSIS
Issue 1: Validity of affirming denial of ITC solely because invoices were dated after the effective date of retrospective cancellation
Legal framework: Section 16 of the Central and State GST Acts prescribes entitlement to ITC subject to statutory conditions; adjudication under Section 73(9) determines tax liability where discrepancies are found; appeals lie under the appeals provision in the GST statute.
Precedent Treatment: The Court relied on and applied a recent decision on substantially identical facts (referred to in the judgment) holding that retrospective cancellation alone cannot be the sole ground for denial of ITC where the purchaser produces supporting documents showing genuine supply and use.
Interpretation and reasoning: The Court noted there was no dispute that, as on the date of supply, the supplier's registration was valid; cancellation was effected later with retrospective effect. The appellate authority affirmed denial only on the basis that invoice dates were after the effective date of cancellation and did not identify any other statutory deficiency (for example, absence of supply, non-movement of goods, or failure to satisfy conditions under Section 16). The Court reasoned that retrospective cancellation, standing alone, does not negate a purchaser's otherwise supported claim to ITC.
Ratio vs. Obiter: Ratio - retrospective cancellation of the supplier's registration, without additional adverse findings on genuineness of transaction or failure to meet statutory conditions for ITC, is not a sole and sufficient ground to deny the purchaser ITC.
Conclusion: The appellate authority was not justified in affirming denial of ITC solely on that ground; its conclusion in that respect lacked legal foundation and required reconsideration.
Issue 2: Burden of proof and evaluation of documentary evidence supporting bona fide supply
Legal framework: The burden lies on the person claiming ITC to substantiate by material evidence (invoices, e-way bills, transport documents, bank records, etc.) that the transaction was bona fide, goods physically moved, and inputs were used in course/ furtherance of business (as per Section 16 conditions and related GST provisions).
Precedent Treatment: The Court applied the principle that documentary proof on record must be examined and reasoned findings returned; failure to do so renders an order non-speaking and vulnerable to judicial interference.
Interpretation and reasoning: The petitioner had placed on record the relevant documentary material before both authorities. The appellate authority recorded receipt of those documents but failed to address why they were insufficient to prove genuineness or physical movement. The Court emphasized that even where the appellant failed to attend personally, the appellate authority was duty-bound to assess materials on record and record specific reasons for acceptance or rejection of each line of evidence.
Ratio vs. Obiter: Ratio - where a claimant adduces documentary evidence relevant to ITC entitlement, the adjudicatory authority must consider and return reasoned findings on that evidence rather than mechanically dismissing the claim.
Conclusion: The appellate authority erred by not evaluating the evidence and by not recording reasons; remand for fresh, reasoned consideration of the documents is required.
Issue 3: Legality of non-speaking order and duty to record reasons despite non-appearance of appellant
Legal framework: Administrative and adjudicatory decisions in tax matters must be reasoned; statutory duty to give opportunity of hearing and to decide on merits applies. Non-appearance does not relieve the authority of the obligation to consider and adjudicate the materials on record.
Precedent Treatment: The Court relied on its prior ruling (cited within the judgment) where similar administrative conduct - no finding on documentary proof - was set aside for being non-speaking and failing to discharge the statutory duty.
Interpretation and reasoning: The appellate authority afforded opportunities but noted non-appearance; nevertheless, since documents were on record, the authority was required to examine them and state reasons for their rejection or acceptance. The appellate order merely affirmed the adjudicating order on the invoice/cancellation point without addressing the documentary evidence or applicability of precedent relied upon by the adjudicating authority. The Court found this to be a non-speaking order and therefore legally infirm.
Ratio vs. Obiter: Ratio - an appellate or adjudicatory order that fails to deal with material evidence on record and offers only a mechanical conclusion is non-speaking and unsustainable.
Conclusion: The appellate authority's order with respect to discrepancy no. 3 is a non-speaking order and must be set aside; the matter should be remitted for a reasoned determination after a hearing.
Issue 4: Remedial and procedural directions on remand
Legal framework: On setting aside a non-speaking order, the Court may remit the matter to the same authority with directions to afford hearing and to pass a reasoned order addressing the statutory criteria for ITC and the materials on record.
Precedent Treatment: The Court followed its prior decision directing fresh adjudication where authorities had not addressed documentary proof or statutory conditions for ITC.
Interpretation and reasoning: Given that documents were filed and the issue of retrospective cancellation had been improperly treated as determinative, the Court directed the appellate authority to fix a hearing date, give advance notice, allow representation, and pass a reasoned order specifically addressing (a) relevance and sufficiency of the documents, (b) whether statutory conditions for ITC under Section 16 were met, and (c) applicability of any precedent relied upon by the adjudicating authority.
Ratio vs. Obiter: Ratio - remedial direction requiring a reasoned adjudication on remand where an order is non-speaking and material evidence remains unadjudicated.
Conclusion: The appellate authority's order as to discrepancy no. 3 is set aside; authority must rehear the matter after notice and pass a reasoned order addressing the documentary evidence and legal criteria for ITC.
Inadmissible ITC - availment of Input Tax Credit (ITC) on supplies made by the persons whose registration was cancelled retrospectively - HELD THAT:- After going through the order passed by the appellate authority this court finds that the appellate authority has recorded that the petitioner has submitted various documents namely, tax invoices, eway bills, transport documents, bank documents, party ledgers etc.
This court finds that it was alleged that the petitioner had availed ITC under CGST and WBGST Acts on suppliers made by person whose registration was cancelled retrospectively. Though the effective date of cancellation of the GST registration of the supplier in question namely Arijit Dey is prior to the date of issuance of the invoices but it is not in dispute that the GST registration of the said supplier was cancelled after issuance of the invoice date but with a retrospective effect from October 12, 2018 - It is now well-settled that retrospective cancellation of registration of the supplier, cannot be the sole ground for denying the Input Tax Credit to the purchaser. Apart from holding that the invoice dates were after the effective date of cancellation of the registration certificate of the supplier in question, no other ground has been mentioned by the appellate authority as a ground for denial of Input Tax Credit.
In Shyamalmay Paul [2025 (7) TMI 616 - CALCUTTA HIGH COURT] on more or less identical facts, this court had set aside the order of the authorities on the ground no finding was recorded on the document produced with regard to movement of goods and also whether the requirement of availing the ITC as prescribed under the statute was complied with or not. The said decision shall squarely apply to the facts of this case.
This court holds that the order passed by the appellate authority is a non-speaking order and only for such reason the same is liable to be set aside - the impugned order is set aside - petition disposed off.
Issues: Whether the orders rejecting the refund application and the appellate order deserved to be set aside and the refund claim reconsidered afresh in light of later judicial decisions.
Analysis: The refund rejection was examined in the context of the limitation question arising under the refund provisions. The later decision relied upon by the petitioner, along with other similar decisions, had not been considered when the impugned orders were made. In these circumstances, and without finally examining the constitutional challenge to the rule, the proper course was to remit the matter for fresh decision by the proper officer after considering the relevant decisions and after granting a personal hearing.
Conclusion: The impugned orders were set aside and the refund application was remanded for fresh adjudication, leaving the validity challenge to the rule open.
Final Conclusion: The petitioner obtained a fresh consideration of its refund claim, while the challenge to the rule's validity remains undecided.
Ratio Decidendi: Where an administrative refund decision has been made without considering relevant later judicial authorities on the governing limitation issue, fairness requires remand for de novo consideration after hearing the claimant.
Rejection of refund application u/s 54(3) of the CGST Act - Rule 90(3) of the CGST and SGST Rules is ultra vires Section 54(3) of the CGST and SGST Act or not - computation of limitation period from the date of the original application and not from the date of filing of a subsequent application after clearing the deficiencies pointed out - HELD THAT:- The impugned orders challenged in the present Petition did not benefit from the later decision of the Gujarat High Court in M/S. Darshan Processors [2024 (8) TMI 188 - GUJARAT HIGH COURT]. Similarly, even the decisions of the other High Courts do not appear to have been considered before making the impugned orders dated 23 June 2020 and 18 August 2021.
It is satisfied that the interest of justice would be met if the impugned orders dated 23 June 2020 and 18 August 2021 are set aside and directions are issued to the proper officer to decide the Petitioner’s application for refund afresh after considering the decision of the Gujarat High Court and such other decisions as the Petitioner may choose to rely in the context of the limitation issue.
The proper officer must dispose of the Petitioner’s refund application afresh as expeditiously as possible and in any event within three months from the date of the Petitioner’s filing an authenticated copy of this order before the proper officer, along with a compilation of decisions that the Petitioner seeks to rely on. The proper officer must afford the Petitioner an opportunity of a personal hearing and pass a reasoned order.
Petition disposed off.
ISSUES PRESENTED AND CONSIDERED
1. Whether a person adversely affected by a show-cause notice is entitled to be furnished with the material relied upon by the tax authority, when refusal is premised on confidentiality and information sourced from other States.
2. Whether non-disclosure of the material underlying a demand and freezing of an input tax credit ledger violates principles of natural justice and requires judicial intervention.
3. Whether the Court should quash or stay a show-cause notice that alleges recovery of a substantial sum pending opportunity to rebut and personal hearing.
4. Whether interim relief (lifting of attachment/frozen credit ledger or direction for expedited adjudication) is appropriate where the taxpayer asserts business disruption and inability to comply with statutory requirements.
ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Entitlement to disclosure of material relied upon by the tax authority
Legal framework: Administrative law principles and principles of natural justice require that an affected person be furnished with material used against him to enable effective response and to ensure fair hearing.
Precedent Treatment: The Court treated established principles of natural justice as binding on tax authorities; no novel precedent was overruled or distinguished in the judgment.
Interpretation and reasoning: The Court held that withholding of information on the ground that it is "confidential" or obtained from other State tax authorities does not absolve the authority from furnishing the material to the person against whom adverse action is contemplated. The rationale is that an affected person must have access to the material so as to agitate and rebut the case; denial of such material would amount to a breach of natural justice.
Ratio vs. Obiter: Ratio - Affected persons are entitled to be served with the material used against them even if the material originates from other agencies or is characterized as confidential; non-disclosure violates natural justice.
Conclusion: The authority must furnish the material forming the basis of the demand to the affected person, subject to conditions of confidentiality imposed by the Court (see directions).
Issue 2 - Freezing of input tax credit ledger and natural justice
Legal framework: Tax administration powers to provisionally block credits are to be exercised consistent with fair procedure; any adverse administrative action requires opportunity to rebut and access to the material relied upon.
Precedent Treatment: The Court followed general administrative law principles that procedural fairness binds tax authorities; no departure from prior law was indicated.
Interpretation and reasoning: The Court found that freezing the input tax credit ledger pending recovery, without furnishing the underlying material, deprives the taxpayer of a fair opportunity to contest allegations. Given that the freeze has significant practical consequences, procedural steps must precede or promptly follow such restrictive measures to avoid violation of natural justice.
Ratio vs. Obiter: Ratio - Administrative restraints affecting rights (use of tax credits) must be accompanied by disclosure of the material underlying the restraint and an opportunity to be heard.
Conclusion: The authority's action in freezing the ledger required disclosure of the material and a hearing; the Court directed immediate furnishing of material and an expedited opportunity to respond and be heard.
Issue 3 - Interference with show-cause notice and appropriate judicial response
Legal framework: Courts will generally refrain from quashing interlocutory or pre-adjudicatory show-cause notices where the statutory machinery contemplates an opportunity to reply and be heard, unless there is patent illegality.
Precedent Treatment: The Court adhered to the principle of non-interference with show-cause notices that are part of the statutory adjudicatory process, absent compelling grounds.
Interpretation and reasoning: Although the petitioner challenged the show-cause notice, the Court declined to quash it because the notice is a pre-adjudicatory step and the petitioner is to be afforded the chance to rebut the allegations. The Court emphasized the need to complete the administrative process expeditiously, coupled with disclosure and hearing safeguards, rather than judicially nullifying the notice at this stage.
Ratio vs. Obiter: Ratio - Courts should not ordinarily invalidate show-cause notices at the interlocutory stage if procedural safeguards (disclosure and hearing) can be secured and the authority is allowed to complete the adjudication within a swift timeline.
Conclusion: The Court refused to quash the notice but ordered disclosure, a limited period for response, and an opportunity for personal hearing, with a fixed timetable for completion.
Issue 4 - Relief where taxpayer alleges business disruption and inability to comply with statutory requirements
Legal framework: Equity and administrative law permit courts to grant interim or protective relief when administrative action causes undue hardship, balanced against the public interest in tax recovery where serious allegations exist.
Precedent Treatment: The Court balanced competing interests, recognizing the taxpayer's hardship but also the gravity of allegations against third parties; no precedent was overruled.
Interpretation and reasoning: The Court acknowledged the petitioner's contention of business standstill and consequent inability to comply with statutory filing obligations, which can attract penalties. However, because substantial allegations implicating other entities underpin the demand, the Court prioritized closure of the issue through a time-bound administrative process rather than immediate relief such as lifting the freeze. The Court sought to protect the taxpayer by mandating prompt disclosure, a short response window, personal hearing, and an express direction that failure to complete the process would restore the taxpayer's access to the credit ledger.
Ratio vs. Obiter: Ratio - Where the taxpayer alleges hardship but serious charges exist, the appropriate remedy is an expedited, substantive administrative process with interim safeguards rather than automatic judicial relief; the Court may condition disclosure on confidentiality to protect investigatory sources.
Conclusion: The Court directed an expedited timeline (one week for disclosure, one week for response, three weeks total for completion), confidentiality safeguards on disclosed material, and automatic restoration of ledger access if the authority fails to complete proceedings within the stipulated period.
Additional directions and safeguards (operative conclusions)
1) The authority must furnish the material forming the basis of the claimed recovery within one week.
2) The affected person shall have one week upon receipt to file a response to the show-cause notice.
3) The authority must afford a personal hearing, consider objections and materials placed by the affected person, and pass reasoned orders within three weeks from the date of the order.
4) Failure by the authority to complete the process within the stipulated period will automatically lift the attachment/freeze of the credit ledger, entitling the affected person to utilize the credit.
5) The material furnished shall be kept confidential; the affected person is prohibited from divulging or disclosing the disclosed material to any other person.
These directions constitute the Court's operative relief and are integral to the ratio requiring disclosure, opportunity to be heard, confidentiality safeguards, and an accelerated adjudicatory timeline where substantial contested tax demands and alleged fraudulent supplier activity are involved.
Freezing of the input tax credit ledger of the petitioner - refusal of the 1st respondent to furnish the material to the petitioner - Notice demanding payment of GST - amount claimed as input tax on goods obtained from respondents 3 to 5 - respondents are non-existent - HELD THAT:- The stand of the respondents cannot be accepted by this Court, on the simple ground that a person who is adversely affected by any order or proceedings of the Authority, is entitled to agitate against such an order and for that purpose, the affected person is entitled to be served with all the material which is used against him. In the absence of such service of material and opportunity of rebutting the contentions of the authorities, there would be a clear violation of principles of natural justice.
In the circumstances, it would only be appropriate that the petitioner is furnished with the material on the basis of which the sum of Rs. 1,79,50,000/-, is sought to be recovered from him.
The fact remains that severe allegations are being made in relation to the activities of respondents 3 to 5, on the basis of which the petitioner is said to be mulcted for recovery of large sum of money. In such circumstances, it would only be appropriate to direct an early closure of the entire issue - Petition disposed off.
ISSUES PRESENTED AND CONSIDERED
1. Whether the goods and services tax compensation cess under the Compensation Act can be levied on the maximum retail price (MRP) of specified goods instead of the transaction value as determined under Section 15 of the Central Goods and Services Tax Act (CGST Act).
2. Whether the notification(s) framed under Section 8(2) of the Compensation Act that link cess computation to retail sale price/MRP are ultra vires the enabling statute and therefore invalid as delegated legislation.
3. Whether established precedents concerning taxation on notional prices (MRP) apply to the Compensation Act regime and, if so, the effect of those precedents on the impugned notification(s).
ISSUE-WISE DETAILED ANALYSIS
Issue 1: Legality of levying compensation cess on MRP rather than transaction value
Legal framework: Section 8(1)-(2) of the Compensation Act levies and prescribes collection of a cess on intra-State and inter-State supplies as specified in the Schedule; the proviso to Section 8(2) expressly provides that where cess is chargeable with reference to value, for each supply the value shall be determined under Section 15 of the CGST Act. Section 15(1) of the CGST Act defines the value of taxable supply as the transaction value (price actually paid or payable) and Section 15(3) excludes certain discounts from value where recorded.
Interpretation and reasoning: A conjoint reading of Section 8(2) of the Compensation Act and Section 15 of the CGST Act shows that (i) cess is to be levied on supplies enumerated in the Schedule and (ii) where cess is chargeable "with reference to their value" the statutory mandate is to adopt the value-determination mechanism of Section 15. Section 15(1) confines the value to transaction value, i.e., the actual price paid or payable. The impugned notification(s) that link cess computation to MRP substitute a notional/retail sale price for the transaction value, thereby departing from the statutory value-determination mechanism. The notification therefore conflicts with the mandatory proviso to Section 8(2) and with the value concept in Section 15 of the CGST Act.
Precedent treatment (followed): The Court applied and relied on precedent recognizing that a taxing provision cannot base tax on a notional price (MRP) in place of the actual transaction price and that such substitution alters the taxable event and measure of tax contrary to statute.
Ratio vs. Obiter: The finding that cess, when charged with reference to value, must be calculated on transaction value under Section 15 is ratio decidendi for invalidating any subordinate instrument that substitutes MRP for transaction value.
Conclusion: The impugned notification(s) purporting to tax on MRP are contrary to the statutory scheme and impermissible to the extent they displace the transaction-value mandate of Section 15; cess on value must be computed by reference to transaction value unless the parent statute validly provides otherwise.
Issue 2: Validity of the notification(s) as delegated legislation - whether they are ultra vires the parent Act
Legal framework: The impugned measures are notifications issued under the delegated power conferred by Section 8(2) of the Compensation Act. Principles of delegated legislation require that subordinate instruments conform to the scope, purpose and mandatory provisions of the enabling Act and cannot travel beyond or be inconsistent with the parent statute.
Interpretation and reasoning: The notification(s) amend the Schedule and introduce cess rates tied to retail sale price/MRP and unit-specific formulas. Where a proviso to the parent Act prescribes a specific method to determine value (i.e., Section 15 of CGST Act), a subordinate instrument that substitutes a different basis for value constitutes substantive excess of delegated power. The Court reviewed established doctrine that delegated legislation is void if it is inconsistent with or repugnant to mandatory provisions of the enabling Act, and applied that doctrine to hold the impugned notification(s) constitute substantive ultra vires delegated legislation.
Precedent treatment (followed): The Court followed authority holding that rule-making power cannot be used to create substantive obligations or measures inconsistent with the parent statute, and that subordinate legislation must be confined to filling in details and not altering the statutory scheme.
Ratio vs. Obiter: The conclusion that the notification(s) are substantively ultra vires the Compensation Act because they conflict with the proviso to Section 8(2) is ratio decidendi and the principal ground for quashing the subordinate instruments.
Conclusion: The notification(s) are ultra vires the Compensation Act to the extent they prescribe MRP-based cess in substitution for the transaction-value determination mandated by the parent Act and are therefore invalid.
Issue 3: Application of precedents concerning taxation on notional prices (MRP) and their impact on the Compensation Act regime
Legal framework and precedent treatment: Previously decided authorities hold that a legislature cannot lawfully impose tax measured by a notional or assumed price (such as MRP) where statute contemplates taxation on the actual transaction/contract price; substitution of notional price for transaction price to measure tax is impermissible. These precedents were applied by the Court to the present statutory scheme involving the Compensation Act read with Section 15 of the CGST Act.
Interpretation and reasoning: The Court analogised the impugned MRP-based cess measure to past instances where taxing provisions adopting MRP or notional prices were struck down for exceeding legislative competence or altering the taxable event. The policy reasons advanced by the executive (plugging leakage, revenue augmentation, evasion-prone goods) do not validate subordinate legislation that conflicts with the enabling Act. The Court acknowledged that policy considerations may justify legislative change but cannot sanctify subordinate instruments that contravene express statutory provisions.
Ratio vs. Obiter: The application of prior decisions on notional price is ratio inasmuch as it supports the legal conclusion that a notional retail-price basis cannot displace transaction value under the statutory framework; observations about policy and future legislative competence are obiter or ancillary to the principal ratio.
Conclusion: Precedents striking down taxation on notional prices are applicable and reinforce the conclusion that the impugned MRP-based cess notification(s) are invalid; policy objectives do not cure legal infirmity in subordinate legislation.
Remedial Conclusion and Ancillary Observations
1. The impugned notifications that prescribe compensation cess computation on MRP instead of transaction value are declared ultra vires and are quashed.
2. The quashment does not prevent the legislature from enacting valid statutory amendments if it chooses to change the basis of cess computation within constitutional and statutory competence.
Challenge to notification dated 31-03-2023 and its amended notification dated 26-07-2023, by which the petitioners are directed to pay compensation cess at Maximum Retail Price (MRP) as against the transaction value, as determined u/s 15 of the Central Goods and Services Tax Act, 2017 - petitioner contend that compensation cess which is levied under the GST is a tax - HELD THAT:- Section 15 of the CGST Act deals with value of taxable supply. Sub-section (3) thereof mandates that the value of supply shall not include any discount which is given before or at the time of supply if such discount has been recorded in the invoice. Sub-section (4) mandates that where the value of supply of goods or services or both cannot be determined under sub-section (1), the same shall be determined in any manner prescribed. Therefore, it becomes necessary to notice sub-section (1). Sub-section (1) mandates the value of supply of goods or services or both shall be the transaction value which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration of such supply. What is discernible from a conjoint reading of the aforesaid provisions is, that cess can be imposed under Section 8 of the Compensation Act and the value of cess is imposable only under Section 15 of the CGST Act. Section 15 mandates that the value of cess to be imposed only on transaction value and not beyond it.
A perusal at the notification or its amendment would clearly indicate that the notification runs counter to Section 8(2) of the Compensation Act and Section 15 of the CGST Act. Section 15 of the CGST Act clearly holds that value of supply of goods is the transaction value, which is the price actually paid or payable for supply of goods. As observed, Section 8(2) of the Compensation Act includes compensation cess within the value of supply. The proviso to Section 8(2) of the Compensation Act in unambiguous terms states that the value of compensation cess chargeable on any supply shall be determined as per Section 15 of the CGST Act. Therefore, the notification which brings in value of cess linked to the MRP and not to transaction value runs counter to the Act.
What unmistakably emerges from the judgment of this Court in KERALA STATE ELECTRICITY BOARD v. THOMAS JOSEPH [2022 (12) TMI 1533 - SUPREME COURT] is that a delegated legislation in conflict with the parent Act is ultra vires the said Act and is required to be declared a nullity. The impugned notification being a delegated legislation, cannot travel beyond the contours of its parent Act i.e., the Compensation Act. On this solitary ground, the petitions deserve to succeed and the impugned notifications to be obliterated.
Notifications dated 31-03-2023 and 26-07-2023 impugned in the writ petitions stand quashed - The quashment of these notifications will not, however, come in the way of the legislature legislating upon the said issue.
Petition allowed.
Issues: Whether the Respondent has fulfilled its obligation under Section 171(1) of the Central Goods and Services Tax Act, 2017 by passing on the residual Input Tax Credit benefit quantified by the DGAP, thereby warranting closure of the anti-profiteering proceedings.
Analysis: The DGAP re-investigation quantified a residual ITC benefit of Rs. 3,55,198/- to be passed to the beneficiary (IOCL) after accounting for pre-GST credit and discounts already given. The DGAP's computation was received and remained unchallenged on its merits. The Respondent acknowledged the DGAP's quantified differential, prepared a Demand Draft for Rs. 3,55,198/-, and submitted written confirmation of voluntary compliance. The Tribunal examined the DGAP report, the Respondent's submissions, and the objective of Section 171 which aims to ensure passing of tax/ITC benefit to recipients. The Tribunal noted that the anti-profiteering provisions are remedial and consumer-welfare oriented, and that once the identified benefit has been passed to the beneficiary and compliance is verifiable, continuation of proceedings serves no regulatory purpose.
Conclusion: The Respondent has fulfilled its obligations under Section 171(1) of the CGST Act, 2017 by transferring the quantified residual ITC benefit to the beneficiary; the DGAP's computation is affirmed and the proceedings are closed in favour of the assessee.
Anti-profiteering under Section 171 of the CGST Act, 2017 - passing on of Input Tax Credit benefit - re-investigation under Rule 133(4) of the CGST Rules, 2017 - DGAP quantification of residual ITC benefit - voluntary compliance and closure of proceedings - remedial nature of anti-profiteering provisions
DGAP quantification of residual ITC benefit - passing on of Input Tax Credit benefit - DGAP's computation of residual ITC benefit of Rs. 3,55,198/- for two tanks was correct and stands affirmed. - HELD THAT: - The Tribunal examined the DGAP's comparative analysis of post-GST ITC availed and the notional pre-GST VAT credit leading to a net incremental ITC of Rs. 26,77,692/-, of which Rs. 23,22,494/- had already been passed on. The DGAP identified the differential balance of Rs. 3,55,198/- as the residual ITC benefit payable to the applicant. The Respondent did not contest the DGAP's quantification and expressly acknowledged the figure. The Tribunal thus found the DGAP's methodology and computation unimpeached on the record and affirmed the quantification as correctly reflecting the benefit required to be passed on under the anti-profiteering exercise. [Paras 5, 6, 11, 12]
DGAP's computation of Rs. 3,55,198/- is affirmed.
Voluntary compliance and closure of proceedings - remedial nature of anti-profiteering provisions - Proceedings are closed as the Respondent has voluntarily transferred the quantified residual ITC benefit to the applicant and compliance is achieved. - HELD THAT: - The Respondent submitted written confirmation that it prepared and arranged a Demand Draft for the quantified amount and represented that the amount was to be remitted to the applicant, thereby ensuring the identified benefit reached the ultimate recipient. The Tribunal noted that the anti-profiteering provisions are remedial and consumerwelfare oriented rather than punitive. Once the quantified benefit has been passed on and compliance is verified, continuation of proceedings serves no regulatory purpose. Consequently, the Tribunal recorded that the Respondent fulfilled obligations under Section 171(1) and concluded the investigation, while directing filing of proof of refund with IOCL and the jurisdictional Commissionerate within fifteen days. [Paras 9, 10, 11, 12, 13]
Proceedings closed on account of voluntary compliance; Respondent to file proof of refund within fifteen days.
Final Conclusion: The Tribunal affirms the DGAP's computation of residual ITC benefit of Rs. 3,55,198/-, records that the Respondent has voluntarily transferred the amount to the applicant thereby fulfilling obligations under Section 171(1) of the CGST Act, 2017, and closes the proceedings subject to the Respondent filing proof of payment with IOCL and the jurisdictional CGST Commissionerate within fifteen days.
Outcome: The special leave petitions filed by the Revenue were disposed of in view of the earlier judgment, and the pending applications were also disposed of.
Validity of reopening of assessment - Scope of relaxation granted by TOLA - HELD THAT:- These Special Leave Petitions are squarely covered by the Judgment of this Court in “Union of India & Ors. vs. Rajeev Bansal” [2024 (10) TMI 264 - Supreme Court (LB)]
Petitions filed by the Revenue are disposed of. The assessee will be governed by reasons discussed in the said Judgment. AO will dispose of the objections in terms of the law laid down by this Court. Thereafter, the assessees who are aggrieved will be at liberty to pursue all the rights and remedies in accordance with law, save and except for the issues which have been concluded in the Judgment.
ISSUES PRESENTED AND CONSIDERED
1. Whether the assessee-trust complied with Section 11(2) of the Income Tax Act, 1961 and Rule 17 of the Income-tax Rules by filing Form No.10 and furnishing a resolution specifying the purpose and period of accumulation.
2. Whether the Assessing Officer was justified in invoking Section 148/148A to reopen the assessment where the claim for accumulation had been examined and accepted in the original assessment.
3. Whether the initiation of reassessment proceedings under Section 148 on the basis of audit objections and the Assessing Officer's view amounted to a permissible reassessment or an impermissible change of opinion in the absence of new tangible material.
4. Whether factual findings by the Assessing Officer (relating to non-filing or later-dated resolution and insufficiency of Form No.10) were sustainable in law where the record showed otherwise.
ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Compliance with Section 11(2) and Rule 17 (Legal framework)
Legal framework: Section 11(2) prescribes that income accumulated under that provision shall not be included in total income if (a) a statement in the prescribed form stating the purpose and period (not exceeding five years) of accumulation is furnished to the Assessing Officer, (b) the amount is invested in prescribed modes, and (c) the statement is furnished at least two months prior to the due date under Section 139. Rule 17 prescribes Form No.10, electronic filing requirements and that Form No.10 be furnished before the due date under Section 139.
Precedent treatment: The Court referred to authority which accepts that the prime requirement is stating the purpose in Form No.10 but that fuller particulars supplied during assessment may cure perceived inadequacies in Form No.10.
Interpretation and reasoning: The Court examined the filed Form No.10 (electronically filed within the statutory timeline) which stated the purposes of accumulation in the limited space provided and recorded the date of the trustees' resolution. The Court noted that Rule 17 contemplates limited space and specifically provides for reference to the resolution date; the statutory scheme contemplates that the prescribed electronic Form and accompanying certified resolution together satisfy the requirement to state the purpose. The petitioner had also furnished a certified true copy of the trustees' resolution (dated 26/09/2018) to the Assessing Officer during original proceedings and referenced it in Form No.10.
Ratio vs. Obiter: Ratio - where Form No.10 is duly filed in the prescribed electronic manner and a trustees' resolution specifying purpose and period is produced in the original assessment proceedings, the requirements of Section 11(2) and Rule 17 are satisfied as a matter of right. Obiter - observations on limited space in Form No.10 being contemplated by the Rule and the practical impossibility of full particulars in the Form itself.
Conclusions: The Court concluded that the assessee fully complied with Section 11(2) and Rule 17; the purpose stated in Form No.10 together with the certified trustees' resolution met the statutory requirements and entitled the assessee to the exemption.
Issue 2 - Validity of reopening under Section 148/148A when original assessment examined accumulation (Legal framework)
Legal framework: Section 148/148A permit reopening where the Assessing Officer has "reason to believe" that income chargeable to tax has escaped assessment; however, the power to reopen is cabined by the requirement of tangible material/new information and cannot be used as a vehicle for review or mere change of opinion.
Precedent treatment: The Court applied established authorities distinguishing reassessment from review and treating "change of opinion" as not a valid reason to reopen; earlier decisions of this Court and others were relied on to hold that reassessment requires tangible new material, not mere disagreement with an earlier view.
Interpretation and reasoning: The Court found that the original assessment (facilitated by NFAC) had specifically enquired into accumulation, that Form No.10 and the trustees' resolution had been furnished and considered, and that the original assessment accepted the accumulation. The impugned reopening was founded on the same audit objection and on a purported non-production/date irregularity of the resolution - facts already before and considered by the Assessing Officer. The Court held that initiating reassessment to re-examine or re-weigh documents already considered constitutes an impermissible review/change of opinion and is not justified in the absence of fresh tangible information.
Ratio vs. Obiter: Ratio - reassessment under Section 148 cannot be initiated to revisit issues examined and accepted in the original assessment absent fresh tangible material; change of opinion is not a valid basis for reopening. Obiter - discussion noting that Form No.10's format contemplates limited detail and reference to the resolution date, which supports the view that minor format-based objections do not amount to fresh tangible material.
Conclusions: The reopening under Section 148/148A was not justified because no new information or tangible material was shown; the reassessment constituted an impermissible change of opinion and was therefore invalid.
Issue 3 - Sufficiency and correctness of the Assessing Officer's factual findings (Legal framework)
Legal framework: Reassessment requires reasons that have a live link to formation of belief based on tangible material; findings of fact by the revenue must be supported by the record and cannot rest on misreading or mischaracterisation of documents.
Precedent treatment: The Court relied on prior holdings that where revenue misreads certified documents or overlooks that relevant material was furnished in original proceedings, the reopening is vitiated.
Interpretation and reasoning: The Assessing Officer's assertions that no resolution dated 26/09/2018 was produced and that the resolution was dated 28/01/2020 were found to be factually incorrect. The record showed Form No.10 referenced the 26/09/2018 resolution and a certified true copy of that resolution was supplied on 30/01/2020 (certification date), leading to a misreading of the document's certification date as the date of the resolution. Because the Assessing Officer's decision was based on these incorrect factual findings, the foundation for reopening (audit objection and alleged non-disclosure) collapsed.
Ratio vs. Obiter: Ratio - where reopening is premised on demonstrably erroneous factual findings about documents already in the record, the reopening is invalid. Obiter - comments on how certification dates may be misconstrued and should be carefully distinguished from the substantive date of the resolution.
Conclusions: The Assessing Officer's factual findings were unsustainable; the decision to reopen was based on misreading of the certified resolution and incorrect assertions of non-production, rendering the reopening invalid.
Cross-reference and cumulative conclusion
Cross-reference: Issues 1-3 are interlinked - statutory compliance (Issue 1) and absence of new tangible material (Issue 2) are corroborated by the incorrect factual basis for reopening (Issue 3). The Court treated the statutory filing of Form No.10 plus the resolution and the prior examination/acceptance in original assessment as collectively precluding reassessment.
Overall Conclusion: The Court quashed the show-cause notices under Section 148A(b), the order under Section 148A(d), and the notice under Section 148, holding that (i) the trust complied with Section 11(2) and Rule 17 by filing Form No.10 and furnishing the trustees' resolution, (ii) reassessment could not be initiated on a mere change of opinion or on the basis of audit objections that relate to matters already considered, and (iii) the Assessing Officer's contrary factual findings were erroneous and fatally undermine the grounds for reopening.
Reopening of assessment u/s 147 - Petitioner is not entitled to the benefits of the provisions of Section 11(2) - In limited space provided in Form 10, the Petitioner has stated the purpose for which the amount is being accumulated or set apart - HELD THAT:- In the present case, there is no dispute that the Petitioner has filed the prescribed Form 10, two months prior to the due date specified under sub-section (1) of Section 139 of the Act. There is also no dispute that the income as accumulated or set apart by the Petitioner is for a charitable or religious purpose in India. The income which is accumulated or set apart has also not exceeded the threshold limit of 85% of income referred to in Clause (a) or Clause (b) of sub-section (1) read with explanation II, sub-section (1) of Section 11.
Admittedly, Form 10 was filed by stating that the Petitioner has accumulated or set apart the income for the purpose, more particularly, mentioned in the limited space provided in Form 10, which was filed electronically, as prescribed by the Rule. The Petitioner has also mentioned the date of Resolution by which the income is accumulated or set apart. Form 10 is a Form provided to the Petitioner by the Rules, and the Petitioner has merely filled in the details. The purpose as required by the Section is also clearly stated in Form 10 by the Petitioner.
Revenue provides the format and the contents of Form 10. The only way by which Form 10 can only be filled in and submitted is electronically. There is no scope for the Assessee to make any changes in the Form. If that is the only way to comply, the Assessee cannot be faulted for non-compliance. Looking at the format and the contents of Form 10, in which the Assessee is required to fill in the details, clearly shows that limited space in the Form is contemplated, and therefore the contents of the Form also require the Assessee to give details of the resolution passed by the Assessee Trust.
Particulars specified in the limited space provided in Form 10 ought to be supported by providing the date of the resolution. Once the date of resolution of the Assessee Trust is provided in the Form, the Assessing Officer can verify the same by calling upon a certified copy of the resolution during the assessment. In the present case, a certified copy of the resolution passed by the Trustees of the Petitioner was provided to the 1st Respondent not only in the original assessment proceedings but also in their replies to the notices issued under Section 148A (b) of the Act.
The plain language of Section 11(2) is unambiguous and mandatory. Once the requirements of the Section are fulfilled, then the mandatory provisions, ‘such income so accumulated or set apart shall not be included in the total income of the previous year of the person in receipt of income’, triggers, and therefore the assessees, after fulfilling the requirements of section 11(2), as a matter of right become entitled for the benefit of Section 11(2) of the Act. Once the Assessees fulfill the requirements and conditions, the Assessing Officer has no discretion to reject and disallow the Assessees claim for accumulation or setting apart the income under Section 11(2) of the Act.
Therefore, we are of the view that the Petitioner has fully complied with all the requirements of section 11(2) of the Act and Rule 17 of the Income-tax Rules. There is nothing more that the Petitioner could have done to comply with the provisions of Section 11(2).
After considering the facts and circumstances and perusing the record, we are of the view that the Assessing Officer has looked into the relevant details and particulars of accumulation during the course of the original assessment, and the Petitioner had provided all the details and documents during the original assessment proceedings. It is settled law that the proceedings under Section 148 of the Act cannot be initiated to review the earlier stand adopted by the Assessing Officer. The Assessing Officer cannot initiate reassessment proceedings to have a re-look or re-examine the documents that were filed and considered by him in the original assessment proceedings.
ISSUES PRESENTED AND CONSIDERED
1. Whether a writ petition under Article 226 is maintainable where an alternative statutory remedy of appeal under the Income-tax statute is available and has not been exhausted.
2. Whether a High Court may entertain a writ to examine the legality and jurisdictional correctness of proceedings initiated under Sections 147/148/148A/149 of the Income-tax statute (including assessment re-opening and limitation aspects) at the pre-assessment or preliminary stage.
3. Whether the availability of an alternative remedy operates as an absolute bar to judicial review under Article 226 where the impugned action is alleged to be wholly without jurisdiction, violative of principles of natural justice, or raises pure questions of law.
ISSUE-WISE DETAILED ANALYSIS
Issue 1: Maintainability of writ in presence of alternative statutory remedy
Legal framework: The plenary and discretionary power of High Courts to issue prerogative writs under Article 226; statutory appellate remedy under the Income-tax scheme (appeal to Commissioner (Appeals) and thereafter to the Tribunal) that is available against assessment/re-assessment orders.
Precedent Treatment: The Court relied on settled constitutional principles establishing that availability of an alternative remedy does not oust Article 226 jurisdiction; earlier Supreme Court authorities support that High Courts should normally refrain from entertaining writs where an effective alternative remedy exists, but such rule is one of discretion and policy rather than an absolute rule of law.
Interpretation and reasoning: The Court held that the existence of statutory appeals does not automatically render a writ petition non-maintainable. The discretion afforded under Article 226 allows the High Court, bearing in mind facts of each case, to decide whether to exercise jurisdiction. Routine dismissal solely because an alternative remedy exists is impermissible. The Court observed that exceptions where a writ may be entertained despite an alternative remedy include enforcement of fundamental rights, failure of natural justice, proceedings wholly without jurisdiction, and pure questions of law.
Ratio vs. Obiter: Ratio - Availability of an alternative statutory remedy is not an absolute bar; maintainability is a matter of judicial discretion. Obiter - Emphasis on specific instances where discretion ought to be exercised (fundamental rights, natural justice, jurisdictional excess, pure legal questions) reiterates established exceptions.
Conclusions: The preliminary objection based solely on the availability of statutory remedies is rejected; Article 226 jurisdiction may be exercised in appropriate cases notwithstanding alternative remedies under the Income-tax statute.
Issue 2: Judicial review at preliminary/pre-assessment stage of notices under Sections 147/148/148A/149
Legal framework: Statutory scheme for reassessment/notice issuance under Sections 147, 148, and the procedural safeguards under Section 148A and limitation under Section 149 (including Explanation defining "asset" for extended limitation).
Precedent Treatment: The Court considered divergent judicial approaches (some high court and apex court decisions) on whether writ courts may examine jurisdictional pre-conditions for issuance of re-assessment notices before conclusion of proceedings. The Court noted that certain Supreme Court decisions recognize the High Court's power to entertain challenges to the jurisdictional validity of notices.
Interpretation and reasoning: The Court accepted that the High Court is not precluded from entertaining a writ that challenges whether the statutory pre-conditions for issuance of a re-assessment notice have been satisfied. Where the challenge is to the jurisdictional competence of the authority issuing the notice - for instance, issuance beyond prescribed limitation or where the statutory definition/interpretation of terms (such as "asset" under the limitation provision) is disputed - the writ forum can be a proper forum to test those threshold legal questions. The Court rejected a submission that Section 246A(1)(b) ousts the High Court's jurisdiction to entertain pre-assessment challenges to Section 148A(d) orders, holding instead that appeals under the statute do exist but do not automatically preclude exercise of Article 226 jurisdiction.
Ratio vs. Obiter: Ratio - High Court may exercise discretion to adjudicate jurisdictional and pure legal challenges to the issuance of re-assessment notices at a premature stage; availability of statutory appeal does not foreclose such scrutiny. Obiter - Observations regarding specific factual categories (e.g., ledger deposits vs. bank deposits under the Explanation to limitation provision) are contextual and not pronounced as general rules beyond the facts before the Court.
Conclusions: The Court retained power to examine jurisdictional legality of re-opening notices and related limitation questions under Article 226 even prior to completion of assessment proceedings; no categorical bar exists to such interim judicial review.
Issue 3: Applicability of exceptions permitting writ despite alternative remedy - jurisdictional excess, natural justice, and pure legal questions
Legal framework: Principles governing exercise of discretionary writ jurisdiction where alternative remedies exist; specific exceptions recognized by higher courts permitting writ relief in cases of jurisdictional excess, denial of natural justice, violation of fundamental rights, or pure legal questions.
Precedent Treatment: The Court relied on the established doctrine that these exceptions justify exercise of Article 226 notwithstanding statutory remedies; reference was made to authorities holding that mere availability of appeal does not mechanically bar writ relief, and that High Courts have evolved self-imposed restrictions but retain discretion.
Interpretation and reasoning: Applying these principles, the Court found that the grievances raised - which included alleged lack of jurisdiction in issuing the notice and disputed legal interpretation of statutory terms relevant to limitation - fell within categories where the High Court could properly exercise its discretion. The Court emphasized that dismissal on the ground of alternative remedy should not be "mechanical" and that where the challenge is to jurisdictional competence or pure questions of law, writ adjudication is appropriate.
Ratio vs. Obiter: Ratio - The exceptions to the rule of alternative remedy (jurisdictional excess, natural justice, pure legal questions, fundamental rights) legitimately permit entertainment of writ petitions. Obiter - Guidance on case-by-case exercise of discretion and non-routine nature of such intervention.
Conclusions: The petition could not be summarily dismissed on the ground that statutory appeals were available; the matters raised warranted adjudication by the High Court under Article 226.
Final Disposition
The preliminary objection to maintainability grounded solely on availability of alternative statutory remedies was rejected and the writ petition was disposed of, the Court exercising its discretion under Article 226 to entertain the challenge to the jurisdictional and legal validity of the impugned order.
Maintainability of Writ Petition - whether Writ Petitioner is debarred from invoking the writ jurisdiction of this High Court when an efficacious alternative remedy is available by way of statutory provisions, which the Writ Petitioner has failed to invoke, but has instead approached the High Court? - on receiving the information of income having escaped assessment within the meaning of Section 147 based on the objections raised by the Revenue Audit, Notice under Section 148A(b) of the IT Act dated 19-03-2022 was issued
HELD THAT:- We not inclined to agree with the submission of the Learned Counsel for the Writ Petitioner that the IT Act makes no provision for appeals against an Order under Section 148A(d) of the IT Act as a reading of Section 246A(1)(b) makes such room. That having been said, it is now a settled position of law that the power to issue prerogative writs under Article 226 of the Constitution of India is plenary and discretionary in nature.
Nothing prevents this Court from exercising its discretion and plenary powers provided under Article 226 of the Constitution of India to consider the matter at hand.
ISSUES PRESENTED AND CONSIDERED
1. Whether an order under Section 148A(3) concluding that income has escaped assessment (and directing issuance of notice under Section 148) is sustainable where it is based on an investigation report alleging wrongful availment of Input Tax Credit (ITC), and where subsequent GST proceedings have closed the ITC issues in favour of the assessee.
2. Whether the amended scheme of Section 148A (in force from 1 September 2024) imposes any specific requirement of independent reasoning or examination by the Income Tax authority before issuing a notice under Section 148A(1), and if so, whether the impugned notice/order complied with that requirement.
3. The impact of subsequent administrative adjudication (GST order closing proceedings) on the validity and continuance of reassessment proceedings initiated under Section 148A/Section 148 where the reassessment conclusion predates the GST order.
ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Sustainability of Section 148A(3) order directing reassessment where GST proceedings later close ITC allegations
Legal framework: Section 148A (as amended effective 1 September 2024) prescribes the procedure for initiating reassessment proceedings where information suggests income has escaped assessment; Section 148 provides for issuance of notice if income has escaped assessment beyond prescribed thresholds.
Precedent treatment: The petition referenced a Coordinate Bench decision addressing requirements for issuance of reassessment notices under the earlier statutory regime; the Court noted distinctions between earlier sub-provisions and the amended scheme but did not overrule or apply that precedent to negate the present order.
Interpretation and reasoning: The Court observed that the impugned Section 148A(3) order was passed prior to the GST order which closed the ITC issue, and therefore the GST order could not have been considered by the officer at the time the impugned order was made. Nevertheless, because the GST order bears directly on the core factual basis (alleged wrongful availment of ITC) relied upon in the Section 148A proceedings, it has a material bearing on whether income "has escaped assessment" within the meaning of the statute. The Court held that where a subsequent authoritative administrative determination disposes of the foundational allegation relied upon to conclude escapement of income, fairness and correctness require reconsideration.
Ratio vs. Obiter: Ratio - the Court concluded that a Section 148A(3) order founded on facts subsequently adjudicated in a related statutory forum (closing the impugned transactions) should be set aside and remanded for fresh consideration in light of that subsequent administrative determination. This holding governs the disposition of the impugned order.
Conclusions: The impugned Section 148A(3) order was set aside and the matter remanded to the Income Tax authority to reconsider the position afresh after taking into account the GST order dated 11 July 2025; the authority was directed to pass a reasoned order within three months after giving the assessee opportunity to place submissions and the GST order.
Issue 2 - Requirement of independent reasoning/examination by the Income Tax authority under the amended Section 148A before issuing notice
Legal framework: The amended Section 148A changed procedural obligations of the income tax authority when proposing reassessment; earlier judicial pronouncements emphasized non-mechanical issuance and the need for independent examination.
Precedent treatment: The petitioner relied on earlier decisions (including a Coordinate Bench decision) emphasizing independent reasoning and non-mechanical approach in reassessment initiation under the prior statutory scheme. The Respondent submitted that the present case is governed by the post-amendment Section 148A and distinctions exist between earlier sub-provisions and current clauses.
Interpretation and reasoning: The Court acknowledged the petitioner's contention that there must be independent reasoning by the Income Tax Department and that notices cannot be issued mechanically. However, the Court expressly left open the broader question of the precise legal standard and sufficiency of reasoning required under the amended Section 148A, declining to adjudicate the legality and validity of the impugned notice at this stage. The Court limited its decision to remand for fresh consideration in light of the GST order, permitting the petitioner to raise the reasoning/validity contentions subsequently if needed.
Ratio vs. Obiter: Obiter - the recognition of the requirement for independent reasoning is noted but not finally adjudicated; the Court's explicit statement leaving the question open is non-decisory regarding the substantive standard under the amended provision.
Conclusions: The issue of whether the impugned notice was issued without requisite independent reasoning is not decided; the petitioner may raise that submission afresh before the assessing authority or at a later adjudicatory stage. The authority must pass a reasoned order on remand, thereby creating an opportunity to address reasoning sufficiency.
Issue 3 - Effect of temporal sequencing: when reassessment order predates a subsequent GST closure order
Legal framework: Principles of administrative law and tax procedure govern how later authoritative findings by other statutory authorities (here, GST adjudication) affect pending or completed actions by the Income Tax Department.
Precedent treatment: No binding decision was applied to hold that a prior income-tax order remains immune from reconsideration because it preceded the subsequent administrative outcome; instead, the Court treated the later GST order as material evidence affecting the factual matrix of the reassessment decision.
Interpretation and reasoning: The Court reasoned that temporal priority of the impugned order does not preclude its reconsideration where a later authoritative administrative determination addresses the same factual core (wrongful availment of ITC). The Court emphasized that the assessing officer could not have considered the later GST order when passing the Section 148A(3) order, and therefore remand is appropriate so that the assessing officer may re-evaluate the escapement conclusion in light of the GST order and any submissions by the assessee.
Ratio vs. Obiter: Ratio - a subsequent administrative adjudication closing the foundational factual issue which formed the basis of a reassessment order is material and warrants remand for fresh consideration even if the reassessment order predates that adjudication.
Conclusions: The impugned order was set aside and remanded; the assessee directed to place the GST order and submissions before the assessing officer within a specified time; the authority may seek clarifications and must pass a reasoned order within three months thereafter. Rights and contentions of the parties remain open for further adjudication.
Section 148A(3) of the Income Tax Act, 1961 - impact of subsequent GST adjudication on reassessment proceedings - remand for fresh consideration - Section 148A(1) notice - requirement of independent reasoning - effect of amendment to Section 148A (effective 1 September, 2024)
Section 148A(3) of the Income Tax Act, 1961 - impact of subsequent GST adjudication on reassessment proceedings - remand for fresh consideration - Impugned order passed under Section 148A(3) set aside and matter remanded for fresh consideration in light of the GST order dated 11th July, 2025. - HELD THAT: - The impugned order under Section 148A(3) was passed prior to the GST order dated 11th July, 2025. The Court held that the closing of proceedings by the GST Department bears on the Section 148A proceedings and therefore the impugned order could not stand without taking that GST order into account. For this reason the Court set aside the impugned order and remanded the matter to the Assistant Commissioner of Income Tax Circle 25(1) for reconsideration afresh after bearing in mind the GST order. The remand contemplates fresh consideration of the issues already dealt with in the impugned order, permitting the Petitioner to place the GST order and short submissions before the concerned authority and allowing the officer to call for any clarifications if required, with directions to pass a reasoned order within three months. [Paras 14, 15, 16]
Impugned order set aside and matter remanded for fresh consideration in light of the GST order dated 11th July, 2025; fresh order to be passed within three months.
Section 148A(1) notice - requirement of independent reasoning - effect of amendment to Section 148A (effective 1 September, 2024) - Question as to the legality and validity of the Section 148A(1) notice on the ground that independent reasoning was not given is left open for future adjudication. - HELD THAT: - The Court observed that submissions were made contesting the sustainability of the Section 148A(1) notice on the ground that the Income Tax Department must independently examine information and give independent reasoning before issuing a notice. The Court noted the changed statutory regime (amendments effective 1 September, 2024) but did not adjudicate the legality of the notice at this stage. That contention is left open to be canvassed later if necessary, after the remand and after the Petitioner files the GST order and submissions before the concerned officer. [Paras 17, 18, 20, 22]
Legality and validity of the Section 148A(1) notice on the ground of absence of independent reasoning left open for later consideration.
Final Conclusion: Impugned order under Section 148A(3) set aside and the matter remanded to the Assistant Commissioner of Income Tax Circle 25(1) for fresh consideration in light of the GST order dated 11th July, 2025; petitioner directed to file the GST order and short submissions within four weeks and a reasoned order to be passed within three months; the question of the legality of the Section 148A(1) notice for lack of independent reasoning is left open for future adjudication.
ISSUES PRESENTED AND CONSIDERED
1. Whether receipts of Rs. 66,00,000 from a company in which the recipient was a director are income from profession/business (professional/technical fees) or salary.
2. Whether findings/decisions of another revenue arm (service tax/central excise) treating the same payment as professional fees or production of additional evidence can preclude re-characterisation as salary in income-tax assessment proceedings.
3. Whether interest of Rs. 45,26,956 (and related amounts for subsequent years) incurred on loans raised by the recipient and advanced to the company is an allowable deduction against the alleged professional/business receipts-specifically, whether there is requisite nexus/commercial expediency to treat interest as business expenditure or business loss.
4. In the alternative, whether the interest could be allowed as a separate source loss and set off against income determined as salary.
5. For assessment year 2015-16, whether disallowance under section 14A r.w. Rule 8D as computed by the Assessing Officer and modified by the first appellate authority was justified.
ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Characterisation of receipt: professional income vs salary
Legal framework: Determination of head of income depends on nature of services, terms of engagement, articles/agreement, and whether remuneration is paid as salary (assessable under the head "salaries") or for professional/technical services (business/profession). Sectional references to taxation principles and Companies Act definitions (remuneration per s.2(78), managerial remuneration limits under s.197) were applied as contextual law.
Precedent treatment: The Court relied on the principle in Ram Prashad v. CIT that a director may have dual capacity (director and employee) and that the nature of the relationship may be determined by articles/terms of employment. Authorities invoked by the appellant (e.g., Durga Kumar Nanda) were considered but held inapplicable on facts; S.A. Builders and Rajeev Lochan Kaneria were distinguished on factual matrices.
Interpretation and reasoning: The Court examined the record and found absence of documentary evidence from the recipient to establish the nature/details of professional/technical services rendered. The mere treatment in the company's books and deduction of TDS under s.194J (treatment by payor) are not determinative of the recipient's correct head of income. Given the lack of articles of association, contractual terms or contemporaneous particulars describing professional engagement, and in light of the Assessing Officer's opportunity afforded to the assessee, the Court accepted the conclusion that the receipts were salary. The dual-capacity principle was applied to underscore that a director's remuneration apart from sitting fees is generally taxable under salary unless convincingly shown as professional remuneration.
Ratio vs. Obiter: Ratio - where an assessee who is a director fails to prove the nature/terms of services, receipts from the company can be treated as salary; company's accounting treatment or TDS under service-head is not conclusive. Obiter - general observations on director dual capacity and Companies Act definitions as contextual guidance.
Conclusion: The Court upheld the Tribunal's finding that the receipt of Rs. 66,00,000 is salary income and not income from profession/business.
Issue 2 - Admissibility/weight of additional evidence: service tax/central excise proceedings treating payments as professional fees
Legal framework: Principles governing characterisation of income in tax proceedings and admissibility/weight of foreign or collateral revenue findings when assessing income-tax liability.
Precedent treatment: The Court noted that prima facie findings by another revenue arm are not binding in income-tax assessments and that the onus to prove the nature of services rests on the taxpayer in income-tax proceedings.
Interpretation and reasoning: The Tribunal and the Court considered the central excise/service-tax treatment presented by the assessee but found no substantive documentary evidence in the assessee's hands to explain the nature of services. The Court held that proceedings under different statutes or different arms of revenue do not preclude the Income Tax Department from independently examining and reaching a contrary conclusion on the nature of receipts when the assessee has not discharged the burden of proof in the income-tax assessment.
Ratio vs. Obiter: Ratio - administrative or judicial treatment of a transaction by a different revenue authority does not conclusively determine the nature of receipts for income-tax purposes where the assessee fails to substantiate the claim in assessment proceedings. Obiter - remarks on inter-departmental findings' persuasive value rather than binding effect.
Conclusion: The Tribunal was justified in disregarding the service-tax/central excise treatment as determinative; additional evidence did not cure the assessee's failure to prove services rendered.
Issue 3 - Allowability of interest expenditure: nexus/commercial expediency
Legal framework: Deductibility requires expenditure to be incurred wholly and exclusively for the purpose of business/profession; borrowing cost allowed where nexus to income-earning activity is established. Commercial expediency and business nexus are recognized tests (including applicability of principles from cases like S.A. Builders where funds advanced to related concerns were for commercial expediency).
Precedent treatment: The Court analysed S.A. Builders (found favourable to claim where commercial expediency was proved) and Rajeev Lochan Kaneria (where investment in shares was the assessee's business), and distinguished both because on present facts the assessee failed to demonstrate that advancing funds to the company was out of commercial expediency or for purpose of his own business.
Interpretation and reasoning: The assessee advanced funds taken on his name to the company but failed to show the loans and advances were in furtherance of his business/profession. The Court accepted the tax authorities' view that advancing money to the company in which the assessee was a director, without proving commercial expediency or business purpose, amounts to absence of nexus between interest expenditure and the alleged professional income. The potential conflict of interest arising from being paid by the company and also advancing loans was noted as undermining the claim. Mere raising of loans and passing funds to the company does not suffice to treat interest as business expense or to characterise resulting outflow as deductible against income characterised as salary.
Ratio vs. Obiter: Ratio - interest on loan used to advance funds to a company is deductible only if nexus/commercial expediency to the assessee's business/profession is satisfactorily established; absence of such proof mandates disallowance. Obiter - comparative discussion of precedents where facts differed.
Conclusion: The Tribunal and Court rightly disallowed interest deduction for lack of nexus/commercial expediency; the interest amounts were not allowable as deduction against the receipts.
Issue 4 - Alternative claim: allowance as separate source loss and set-off against salary
Legal framework: Principles of set-off/allowance of losses under the Income-tax Act and requirement that claimed losses relate to recognised heads of income.
Interpretation and reasoning: The Court considered the appellant's alternative plea that interest should be allowed as business loss or as a separate source loss to be set off against income determined as salary. Given the primary conclusions that (a) receipts were salary and (b) interest lacked nexus to business/profession of the assessee, the Court found no basis to allow the interest as business loss or as a separate deductible source.
Ratio vs. Obiter: Ratio - where expenditure lacks nexus to a business/profession, it cannot be admitted as loss under business/profession head nor as a separate source loss for set-off against salary. Obiter - procedural observations on burden of proof for alternative pleas.
Conclusion: Alternative claims for treating interest as business loss or separate source loss for set-off were not sustainable and were rejected.
Issue 5 - Section 14A disallowance for AY 2015-16
Legal framework: Section 14A read with Rule 8D governs disallowance of expenditure in relation to exempt income; appellate scrutiny permissible as to proportionality and methodology.
Interpretation and reasoning: The Assessing Officer computed a section 14A disallowance; the first appellate authority reduced the disallowance to the amount of exempt income. The Tribunal and the Court found no error in the CIT(A)'s partial relief, noting reliance on judicial pronouncements and absence of a case to overturn that modification.
Ratio vs. Obiter: Ratio - partial reduction of section 14A disallowance to the exempt income amount was sustainable on facts; the CIT(A)'s exercise was endorsed. Obiter - no extended commentary on Section 14A principles beyond affirming the factual correctness of reduction.
Conclusion: The CIT(A)'s modification of the section 14A disallowance for AY 2015-16 was confirmed.
Salary income v/s professional/technical service fee - receipt as a director - AO held that in the absence of details regarding the nature of professional/technical services rendered to the company, the receipt of the same cannot be considered as income from profession/business
HELD THAT:- On careful perusal of the materials on record, even though the AO granted sufficient opportunity to the assessee to place the details/materials and nature of professional and technical services rendered by the assessee to the company, the assessee has failed to produce the same. Without placing any document, the assessee cannot claim that he has rendered the services as a financial expert to the Company and he has received the professional fee and not the salary.
Assessee had also been failed to prove the nexus of providing the loan to the Company which was taken in his own name. Hence, it is rightly observed by the AO that getting paid by the Company as professional service and claiming that the loan has been taken in his own name leads to the conflict of interest - AO and the CIT(A) have rightly considered that when the charges towards professional and technical service rendered is considered as salary, it would be more beneficial for the assessee than the disallowance of interest expenditure.
As in the absence of proof of services rendered to the company, the receipt cannot be considered as income from profession/business. The Appellate Tribunal on analysis of facts, has rightly held that receipt of Rs. 66,00,000/- is salaried income. The Appellate Tribunal further rightly held that the deduction of tax at source as professional charges is not the determinative factor for taxation under heads of the income.
Appellate Tribunal has also rightly held that interest expenditure of Rs. 45,26,956/- has no nexus with the business carried on by the assessee to claim as expenditure against the business/professional income. The mere raising of loan by mortgaging the assessee's property and advancing it to the company itself would not be considered as the expenditure incurred for the purpose of business/profession.
Assessee has not placed any material to contradict the finding of the Appellate Tribunal on both the issues. In the absence of such material in contra, there is no reason to differ from the view taken by the Appellate Tribunal. Decided against the assessee and in favour of the Revenue.
ISSUES PRESENTED AND CONSIDERED
1. Whether a Jurisdictional Assessing Officer (JAO) has jurisdiction to initiate proceedings under Section 148A and issue notice under Section 148 of the Income Tax Act after implementation of the Faceless Assessment Scheme with effect from 29.03.2022.
2. Whether notices and consequential assessment orders made pursuant to proceedings initiated by a JAO (post-29.03.2022) are vitiated for lack of jurisdiction and require quashing.
3. Whether the revenue retains any remedial or procedural remedy after quashing of notices/orders on jurisdictional grounds, and whether revival of proceedings is permissible pending outcome of challenges in higher fora.
ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Jurisdiction of JAO to initiate proceedings post-implementation of Faceless Scheme
Legal framework: The Faceless Assessment Scheme as notified with effect from 29.03.2022 operates together with provisions of the Income Tax Act (notably Sections 148A and 148, and related provisions such as Section 151/151A and Section 144B) governing the initiation of reassessment proceedings for income escaping assessment. The Scheme centralizes assessment functions to Faceless Assessing Officers (FAO) and prescribes procedure for issuance of notices and initiation of reassessment.
Precedent Treatment: A coordinate Bench decision of this Court and a number of other High Courts have held that post-implementation of the Faceless Scheme the power to initiate reassessment proceedings vests in the FAO (or the mechanism provided under the Scheme) and not in the JAO; several High Court decisions were followed to this effect. Contrasting decisions of certain High Courts have taken a different view; those contrary views are noted but not adopted here.
Interpretation and reasoning: The Court reviewed the chronology showing initiation of proceedings by JAOs after 29.03.2022 and found the initiation inconsistent with the Scheme's allocation of functions. The core reasoning is that where the statutory scheme and executive notifications vest initiation and conduct of faceless reassessment in the FAO/centralized mechanism, the JAO lacks jurisdiction to issue notices under Section 148A/148 in matters governed by the Scheme. The Court relied on settled coordinate-bench jurisprudence and consistent High Court rulings which interpret the Faceless Scheme and relevant statutory provisions as ousting JAO's power to commence reassessment post-notification.
Ratio vs. Obiter: The holding that JAOs lack jurisdiction to initiate proceedings under Section 148A/148 after the Faceless Scheme took effect is ratio decidendi. Observations about the body of conflicting High Court decisions are explanatory; reliance on the coordinate-bench line of authorities is operative ratio in these matters.
Conclusions: Initiation of reassessment proceedings by JAOs post-29.03.2022 is procedurally impermissible; such initiation is without jurisdiction and therefore legally invalid.
Issue 2 - Validity of notices and consequential assessment orders issued pursuant to such JAO-initiated proceedings
Legal framework: Where the initiation of proceedings is jurisdictionally flawed, principles of procedure and statutory competence govern whether subsequent orders survive or fall.
Precedent Treatment: The Court followed the coordinate-bench approach and decisions of other High Courts which have held that when the initiation itself is procedurally invalid, consequential notices and orders flowing therefrom must be quashed.
Interpretation and reasoning: The Court applied the principle that a chain of authority dependent on an invalid starting act collapses - if the notice/assessment initiation is void for want of jurisdiction, consequential orders (including assessments) made pursuant thereto cannot stand. The Court therefore set aside both the impugned notices under Section 148A/148 and any consequential orders passed in reliance upon them.
Ratio vs. Obiter: The quashing of notices and consequential orders on the ground of want of jurisdiction is ratio decidendi for these petitions.
Conclusions: Notices issued and assessment orders passed pursuant to JAO-initiated proceedings after the Faceless Scheme came into force are quashed; consequential orders are similarly set aside.
Issue 3 - Preservation of revenue's remedial rights and possibility of revival of proceedings
Legal framework: Principles permitting revival or recommencement of proceedings where a higher forum or statutory power authorizes a substitute procedure (including the exercise of powers by apex courts or by statutory provisions enabling substituted procedure) and subject to outcomes of pending appellate/leave proceedings.
Precedent Treatment: The Court followed prior orders which protected the substantive rights of the revenue by permitting revival/re-initiation of proceedings in accordance with law, where such remedy is available, subject to pending higher court adjudication. The Court noted earlier higher-court authority where the revenue was permitted, in specified circumstances, to proceed under substituted provisions as a one-time remedial measure.
Interpretation and reasoning: While quashing the impugned proceedings for procedural infirmity, the Court balanced the interests of both parties by granting the revenue liberty to proceed afresh in accordance with law and subject to the outcome of pending challenges before the Supreme Court. The Court explicitly allowed either party to seek revival of the writ petitions in light of any adverse or favorable higher-court decision, thereby preserving the revenue's substantive remedy without endorsing the procedural act already struck down.
Ratio vs. Obiter: The core direction quashing notices is ratio; the grant of liberty to the revenue to revive or re-initiate proceedings in accordance with law and subject to higher-court outcomes is an operative direction (binding in these matters) but contains procedural latitude that is ancillary to the principal ratio and may be treated as prospective guidance rather than expansion of jurisdictional doctrine.
Conclusions: Revenue is permitted liberty to pursue reassessment by appropriate lawful route consistent with the Faceless Scheme and statutory provisions; revival of these writ petitions to contend effects of subsequent higher-court outcomes is allowed.
Ancillary Observations and Cross-References
1. The present conclusions are premised on the factual finding that initiation of reassessment proceedings by JAOs occurred after the Faceless Scheme became operative (post-29.03.2022); see Issue 1 above.
2. The Court's decision follows and applies the reasoning of the coordinate-bench precedent which held the initiation by JAO to be invalid; this Court expressly follows that line of authority and similar High Court precedents (see Issue 1 - Precedent Treatment). Conflicting High Court decisions exist and are noted, but those contrary views were not followed in these matters.
3. Because the quashing is founded on jurisdictional/ procedural infirmity, the Court declined to adjudicate other substantive objections raised in the petitions, leaving them open to be raised in appropriate proceedings if lawfully revived (cross-reference to Issue 3).
4. No order as to costs was made; miscellaneous ancillary applications were closed.
Validity of reopening of assessment - Lack of jurisdiction on the part of JAO to initiate the proceedings post implementation of the Faceless Scheme - HELD THAT:- The legal issue as regards the lack of jurisdiction on the part of JAO to initiate the proceedings post implementation of the Faceless Scheme is no longer res integra as it has been held in the case of Kankanala Ravindra Reddy [2023 (9) TMI 951 - TELANGANA HIGH COURT] and by other jurisdictional High Courts.
As a matter of fact, several orders following the ratio rendered in the above cases have been passed one after the other. Therefore, we are of the considered view that the present batch of writ petitions also stand covered by the decision rendered by this Court in the case of Kankanala Ravindra Reddy [Supra]
The impugned proceedings u/s 148A and 148 of the Act assailed in these writ petitions are set aside.
Issues: Whether the benefit of Article 8 of the India-Singapore DTAA for profits from operation of ships in international traffic was subject to Article 24, and whether the Tribunal was justified in remanding the matter for verification of the Singapore tax authority's certificate.
Analysis: The Court held that Article 8 granted exemption from source taxation on profits derived from shipping operations, and that Article 24 applied only where the other Contracting State taxed the income by reference to remittance or receipt. The certificate issued by the Singapore tax authority was already considered in an earlier decision of the Court, which had accepted that the income was assessable in Singapore on accrual basis and not on remittance basis. The Tribunal had relied on doubts about the certificate's wording and remanded the matter for fresh verification, but the Court found that no material had been brought on record to dislodge the certificate or justify giving the Revenue a second opportunity to challenge it. The Court also noted that the consequential assessment orders passed after remand could not survive once the remand itself was set aside.
Conclusion: The remand order was unsustainable, Article 8 applied in favour of the assessee, and Article 24 was held inapplicable on the facts.
Benefit of Article 8 of India-Singapore DTAA to the profits derived from operation of ships in international traffic - Whether subject to the limitation in Article 24? - HELD THAT:- When this Court has already considered the certificate dated 09.01.2013 and during the pendency of the appeal before the Tribunal for the year under consideration, the Revenue has not been able to bring any material on record or has challenged or doubted the certificate issued by the Singapore Tax Authority, as observed by the Tribunal in Para 20 of the impugned order, it has noted that the Departmental Representative has challenged the veracity of the certificate issued by the IRAS during the course of the appellate proceedings before the CIT (A) and thereafter, the Tribunal has referred to the territorial tax system of the Singapore Income Tax Act to hold that the certificate has not given any basis whatsoever as to how the assessee is deriving income from “business carried on in Singapore”, when admittedly, the appellants-assessee have been operating in international waters.
Tribunal has also considered the fact that the certificate does not specify the factual basis on which the Singapore Tax Authority has concluded that the income from shipping business have been derived by the assessee from “business carried on in Singapore”. Thus, in effect, the Tribunal has overreached the findings arrived at by this Court in case of M.T.Maersk Mikage [2016 (9) TMI 19 - GUJARAT HIGH COURT] in absence of any material brought on record by the Revenue before the Tribunal to show that the certificate issued by the IRAS is not reliable or cannot be considered for the income of ST Shipping to be taxed in Singapore on accrual basis.
Documents placed in form of paper- book filed before the Tribunal, in fact, the ST Shipping has shown the income arising from the operations as per letter dated 09.10.2012 issued by the Deloitte and Touche LLP, Certified Public Accountants, Sinagpore stating that the ST Shipping has confirmed that the position adopted in the Year of Assessment 2010 to treat charter income derived by the overseas branches as Singapore sourced income and part of qualifying income under Approved International Shipping Enterprise Incentive remains unchanged in the Year of Assessment 2012.
Tribunal ought not to have analysed the certificate in its order more particularly in Para 22 of the order in absence of any material on record. On perusal of Para 22 of the impugned order it is clear that the Tribunal has made the observation with regard to the language of the certificate more particularly, when this Court has accepted the part of the certificate which certified that the income earned by the ST Shipping from the operations carried out in ports at India was liable to be taxed at Singapore on accrual basis and as per Article 8 of DTAA, when the income accrues in Singapore and was taxed as such, the same would be exempt from tax in India. This Court has further clarified that reference to Article 24 of DTAA in the certificate is nothing but an opinion of the IRAS.
Hence, the Tribunal ought not to have further deliberated upon contents of the certificate which is already held to be applicable in the facts of the case in absence of any other material on record to demonstrate that the veracity of the certificate issued by IRAS is doubtful and merely because the Tribunal is of the opinion that the language of the certificate is not conducive to the opinion of the Tribunal, the matter could not have been restored to the Assessing Officer in face of the observation made by this Court regarding the same certificate dated 09.01.2013 issued by the IRAS.
Therefore, in view of the decision of this Court in case of M.T. Maersk Mikage [2016 (9) TMI 19 - GUJARAT HIGH COURT] and in view of the certificate dated 09.01.2013 issued by IRAS, the benefit of Article 8 of DTAA to the profits derived from the operation of ships in international traffic at Indian Port would be governed by Article 8 and not Article 24 and the matter could not have been restored to the Assessing Officer to give a second inning to the Revenue to verify the certificate issued way back in 2013.
Tribunal ought not to have restored the matter to the Assessing Officer to verify the veracity of the certificate dated 09.01.2013 and in view of the decision of M.T.Maersk Mikage (supra) Article 8 would be applicable in the facts of the case. The Tax Appeals are accordingly allowed. The question of law is answered in favour of the assessee and against the Revenue.
The order of the Tribunal so far as it relates to restoring the matter to the file of the Assessing Officer is hereby quashed and set aside and it is held that the appellants-assessee are entitled to the benefit of Articles 8 of the DTAA and Article 24 of the DTAA would not be applicable in the facts of the case.
We are not again analyzing Articles 8 and 24 of the DTAA as the same is already considered by this Court in case M.T. Maersk Mikage (supra) and we adopt the same reasoning for applicability of Article 8 of the DTAA in similar facts of this case.
Special Civil Applications are therefore, allowed. Assessment orders are hereby quashed and set aside.
ISSUES PRESENTED AND CONSIDERED
1. Whether a notice issued under section 148 of the Income Tax Act, 1961 after issuance of a deemed notice under the Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 (TOLA) between 01.04.2021 and 30.06.2021 is valid or time-barred where the Assessing Officer supplied relevant information to the assessee after 30.06.2021 and issued a fresh section 148 notice thereafter.
2. Whether proceedings and consequential orders (including order under section 148A(d), assessment under section 147 read with section 144, demand notices and penalty under section 271(1)(c) read with section 154) survive where the foundational section 148 notice is held to be time-barred.
3. How the concept of "surviving time" (the period of limitation left as on 30.06.2021 under the Act/TOLA) is to be calculated and applied to determine validity of reassessment notices issued after the TOLA period, including the effect of the two-week period allowed to assessees to reply after supply of information by the Assessing Officer.
ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Validity of section 148 notice issued after TOLA period where information was supplied after 30.06.2021
Legal framework: Section 148 (reassessment notice) and the amendments/provisions effected by the Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 (TOLA) which deemed notices issued between 01.04.2021 and 30.06.2021 to have a stay; the statutory limitation periods under the Income-tax Act; and the post-TOLA regime governing issuance of reassessment notices after supply of information by the Assessing Officer and allowance of time for the assessee to reply.
Precedent treatment: The Court treats the controlling Apex Court directions concerning (a) the deemed stay of TOLA notices and (b) the requirement that reassessment notices under the new regime must be issued within the "surviving time" left as on 30.06.2021. Those high court authorities/directives are followed and applied to the facts; earlier decisions that characterized TOLA notices as to be treated under the new section 148A regime are applied as guidance for remaking validity assessments.
Interpretation and reasoning: The Court reasons that the period during which the show-cause/deemed notices were stayed runs from the date the deemed notice was issued (between 01.04.2021 and 30.06.2021) until the Assessing Officer supplies the relevant information to the assessee, plus the two-week period allowed to the assessee to respond. The reassessment notice issued under section 148 post-TOLA must therefore be issued within the remaining limitation period ("surviving time") computed as on 30.06.2021. If the reassessment notice is issued beyond that surviving time, it is time-barred. Applying those principles to the facts, the Court calculated the assessee's last permissible date for issuance of the fresh section 148 notice (taking the date of original TOLA notice, number of days remaining to 30.06.2021, date of supply of information and two-week reply period) and found the impugned notice was issued after that date.
Ratio vs. Obiter: Ratio - reassessment notices issued after the TOLA period must be issued within the "surviving time" remaining as on 30.06.2021 (measured from the original TOLA notice date to 30.06.2021), and the period of stay extends until supply of information plus the two-week reply period; notices issued beyond that surviving time are time-barred and invalid. Obiter - detailed numeric examples and the application to other assessment years are illustrative but the central principle above is the binding ratio adopted by the Court.
Conclusions: The impugned section 148 notice issued after the assessed surviving time (i.e., later than the last permissible date computed by reference to the TOLA notice date, supply of information and two-week reply period) is invalid and time-barred. The Court quashes and sets aside the notice on that basis.
Issue 2 - Consequences for subsequent orders (section 148A(d) order, assessment under section 147/144, demand and penalty) where the foundational section 148 notice is invalid
Legal framework: Principle that consequential proceedings founded upon a void or invalid foundational notice cannot survive if the initiating notice is quashed; statutory scheme for reassessment and penalties which presupposes a valid reopening notice.
Precedent treatment: The Court applies the settled approach that invalidity of the initiating notice vitiates subsequent proceedings dependent on that notice. Prior higher court directions about the temporal limits for reassessment are applied to determine invalidity, and then the usual consequence-quashing of consequential orders-is followed.
Interpretation and reasoning: Having found the section 148 notice to be time-barred for being issued after the surviving period, the Court reasons that the order passed under section 148A(d), the fresh assessment under section 147 read with section 144, demand notices and penalty order under section 271(1)(c) read with section 154 are consequent upon and dependent on that invalid notice. Therefore, none of those subsequent proceedings survive and all must be quashed.
Ratio vs. Obiter: Ratio - where a reassessment notice under section 148 is held invalid as time-barred, subsequent orders passed in consequence of that notice (including orders under section 148A(d), assessments under section 147/144, demands and penalties) are vitiated and liable to be quashed. Obiter - particulars of separate communications (e.g., show-cause to legal representatives on death of assessee) are factual and do not affect the legal consequence flowing from invalidity of the foundational notice.
Conclusions: All consequential proceedings emanating from the impugned section 148 notice are quashed and set aside as they cannot survive the invalidity of the foundational notice.
Issue 3 - Calculation and application of "surviving time" including the two-week reply period after supply of information
Legal framework: The Court relies on the statutory limitation rules as they existed on the relevant assessment years, the TOLA deemed-stay mechanism, and the remedial directions requiring supply of information and an additional two weeks for the assessee to reply before a fresh section 148 notice may be validly issued.
Precedent treatment: The Court follows the approach laid down by the higher court directions that computing surviving time requires case-specific arithmetic: note the date of issuance of the TOLA notice, compute the number of days remaining until 30.06.2021, note the date on which information was supplied, add the two-week reply period to that date, and ensure the reassessment notice is issued within the surviving time so calculated.
Interpretation and reasoning: The Court sets out a concrete method and applies it to the facts: determine (i) the date of the original deemed notice under TOLA, (ii) number of days remaining until 30.06.2021 (surviving time), (iii) date of supply of information under the post-TOLA directions, (iv) add two weeks to allow reply; then determine the last permissible date for issuance of a fresh section 148 notice. If the Assessing Officer issues the notice after that last permissible date, the notice falls outside the surviving time and is invalid.
Ratio vs. Obiter: Ratio - the described calculation method and the inclusion of the two-week reply period in determining the end of the stay/surviving time is authoritative for assessing validity. Obiter - examples and tabulated calculations in the judgment are illustrations of the application of the method to particular assessment years and fact patterns.
Conclusions: The surviving time must be calculated as of 30.06.2021 by reference to the original TOLA notice date; the stay ends upon supply of information plus two weeks; reassessment notices must be issued within the surviving time so computed. Application of that method in the present facts shows the impugned notice was issued after the permissible date and is therefore invalid.
Cross-reference: Issue 1 and Issue 3 are interdependent - the computation described in Issue 3 determines the legal conclusion in Issue 1; Issue 2 then follows as a direct legal consequence of the conclusions in Issues 1 and 3.
Reopening of assessment u/s 147 - Time limit for notice - period of limitation to issue notice - validity of a notice issued u/s 148/148A - scope of Taxation and other laws (Relaxation and Amendment of certain provisions) Act, 2020 (TOLA) application - provisions of the new reassessment law introduced by the Finance Act, 2021 - Scope of surviving time -
HELD THAT:- In view of the decision of Ashish Agarwal [2022 (5) TMI 240 - SUPREME COURT] aforesaid notice was to be treated as notice u/s 148A(b) of the Act which has come into statute with effect from 01.04.2021.
As in case of Union of India v. Rajeev Bansal [2024 (10) TMI 264 - SUPREME COURT (LB)] has laid down the law to consider such notice as valid notice or invalid notice depending upon the surviving time left between the date of issuance of notice u/s 148 of the Act read with section 3(1) of TOLA upto 30.06.2021 and the issuance of notice under section 148 pursuant to the directions issued by the Hon’ble Apex Court in case of Ashish Agarwal (supra).
This Court in case of Dhanraj Govindram Kella v. Income Tax Officer, Ward(2), Surendranagar [2025 (7) TMI 1895 - GUJRAT HIGH COURT] as considering directions issued by the Hon’ble Apex Court in case of Rajeev Bansal [2024 (10) TMI 264 - SUPREME COURT (LB)] and applying the same to the facts of the case, we are of the opinion that approval granted by the specified authority as per section 151(i) of the Act for issuance of order under section 148A(d) and notice under section 148 of the Act is valid and therefore, contention of the petitioners is not tenable in view of facts of the case.
Whether notices would be valid notice or invalid notice considering ‘surviving time’ between the date of the issuance of notices under TOLA and 30th June, 2021 or not? - Impugned notice u/s 148 is issued beyond the period of ‘surviving time’ as per the direction of Hon’ble Apex Court in case of Rajeev Bansal (supra) and therefore, such notices would be invalid notices.
The impugned notices issued u/s 148 of the Act are accordingly quashed and set aside being invalid having been issued beyond the ‘surviving time’. Accordingly, impugned orders passed u/s 148A (d) of the Act would also not survive and are accordingly, quashed and set aside.
ISSUES PRESENTED AND CONSIDERED
1. Whether levy of penalty under Section 271(1)(c) of the Income Tax Act is justified where additions in assessment were made after reassessment notice under Section 148 based on information from Sales Tax authorities and the assessee thereafter filed a revised return accepting additions to "buy peace".
2. Whether voluntary disclosure or acceptance of additions in assessment proceedings (post notice under Section 148) necessarily amounts to concealment of income or furnishing of inaccurate particulars such as to sustain penalty under Section 271(1)(c).
3. Whether reliance by the Assessing Officer on general information received from the Sales Tax Department, without furnishing that information to the assessee or undertaking independent and specific investigation, is a legally sound basis for initiating and sustaining penalty proceedings under Section 271(1)(c).
4. Whether an estimation/guess-based addition made in assessment can support a penalty under Section 271(1)(c) when the material basis for treating purchases as bogus is not established or supplied to the assessee.
ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Legality of penalty when additions accepted post Section 148 notice
Legal framework: Penalty under Section 271(1)(c) applies where an assessee has concealed particulars of income or furnished inaccurate particulars. Assessment proceedings under Section 147/148 may lead to additions which can be accepted by an assessee; penalty proceedings are separate and require independent satisfaction.
Precedent treatment: The Tribunal and this Court have followed authorities holding that mere acceptance of additions to "buy peace" in response to reopening does not ipso facto constitute concealment for penalty purposes where the AO has not established concealment; earlier Supreme Court authority recognizes that voluntary surrender does not always preclude penalty but depends on factual context (search/detection antecedent to surrender).
Interpretation and reasoning: The Court notes the factual matrix - the assessee produced bills, invoices and bank payments; after notice under Section 148 the assessee filed a revised return accepting additions to avoid protracted litigation. The AO accepted the revised return in assessment but separately initiated penalty proceedings. The Tribunal found, and this Court agrees, that where the AO has not established that purchases were bogus or that the assessee concealed particulars, acceptance of additions for peace is insufficient to sustain penalty.
Ratio vs. Obiter: Ratio - Acceptance of additions post-reopening, made to "buy peace," does not automatically translate into concealment/inaccurate particulars sufficient for penalty when the AO has not independently established the falsity of claimed purchases. Obiter - Observations distinguishing cases where surrender followed detection in searches (where surrender may be involuntary) do not apply here.
Conclusions: Penalty under Section 271(1)(c) cannot be upheld merely because an assessee accepted additions after a Section 148 notice where the AO has not proved that the underlying transactions were not genuine.
Issue 2 - Voluntary disclosure/acceptance and its effect on penalty liability
Legal framework: Explanation 1 to Section 271(1)(c) and judicial pronouncements emphasize that voluntary disclosure does not automatically absolve; however, voluntariness must be assessed against the circumstances of detection, information available to AO, and whether disclosure was truly independent.
Precedent treatment: The Court distinguishes cases where disclosure was subsequent to search/detection and thus held not to be voluntary (supporting penalty). By contrast, where disclosure/acceptance is to avoid litigation based on disputed external information not placed before the assessee, penalty may not follow.
Interpretation and reasoning: The Court finds the facts materially different from search-based cases - there was no search; material relied upon by the AO (from Sales Tax Department) was not furnished to the assessee; the assessee produced supporting documents. Hence the acceptance of an addition to buy peace is treated as tactical and not necessarily an admission of concealment.
Ratio vs. Obiter: Ratio - The characterisation of a surrender/acceptance as "voluntary" for penalty purposes turns on factual context; involuntariness in search/detection cases is distinct from tactical acceptance to avoid litigation when adverse material was not supplied to the assessee. Obiter - General statement that voluntary disclosure per se cannot defeat penalty (derived from other precedents) is noted but not applied on facts.
Conclusions: Voluntary disclosure/acceptance of additions, made in response to a reassessment notice and without the AO proving falsity of transactions, does not automatically attract penalty; context of disclosure is determinative.
Issue 3 - Reliance on Sales Tax Department information without furnishing or independent inquiry
Legal framework: Principles of fair play and natural justice require that adverse material relied upon by the revenue be furnished to the assessee and that the AO make an independent and specific inquiry before impugning claimed transactions as bogus. Assessment and penalty proceedings are distinct; parameters for initiating penalty demand independent satisfaction.
Precedent treatment: The Tribunal and this Court rely on prior Division Bench observations that mere general information from Sales Tax authorities is insufficient to brand transactions as bogus; the AO must procure specific and admissible evidence and afford opportunity to the assessee to meet such material.
Interpretation and reasoning: The Court emphasises that the AO's approach was to act on general information from the Sales Tax Department without furnishing it to the assessee and without case-by-case verification. The Tribunal correctly held that such an approach cannot sustain a penalty where the assessee had produced invoices, delivery challans and bank payments and where AO failed to establish that supplies were not genuine.
Ratio vs. Obiter: Ratio - An Assessing Officer cannot sustain penalty proceedings on the basis of unparticularised information from Sales Tax authorities without furnishing that material to the assessee and conducting independent enquiry; failure to do so vitiates the penalty imposition. Obiter - Strong language urging coordinated inquiry with Sales Tax Authorities and cautioning against superficial inquiries.
Conclusions: Reliance on non-furnished, general Sales Tax information without independent proof or opportunity to the assessee undermines penalty proceedings under Section 271(1)(c).
Issue 4 - Estimates/guesswork in assessment and penalty viability
Legal framework: Additions made on estimate or guesswork require careful application; penalty requires proof of concealment/inaccurate particulars beyond mere estimation used for assessment.
Precedent treatment: Prior decisions cited (Division Bench authority) disallow penalty where additions are sustained on estimate/guesswork and there is no independent proof of concealment.
Interpretation and reasoning: The AO estimated income from alleged bogus purchases (e.g., applying a percentage). The Tribunal held, and the Court agrees, that estimating additions for assessment does not automatically provide a foundation for penalty unless the AO has shown that the estimation reflects concealment rather than assessment pragmatics. Where estimation stems from unproven external information, penalty is not sustainable.
Ratio vs. Obiter: Ratio - Penalty cannot be sustained where the underlying addition is based on estimation/guesswork uncorroborated by proof of concealment. Obiter - Emphasis that AO must adhere to stringent norms when alleging bogus transactions.
Conclusions: Additions based on estimate or guesswork, absent proof that such estimation masks concealment, do not support levy of penalty under Section 271(1)(c).
Cross-references and final conclusion adopted by The Court
Cross-reference: Issues 1-4 are interrelated: the absence of furnished adverse material from Sales Tax authorities (Issue 3) and the assessee's tactical acceptance of additions to avoid litigation (Issues 1-2) combine to render an estimate-based addition (Issue 4) an inadequate foundation for penalty.
Final conclusion: The Court upholds the Tribunal's view that penalty under Section 271(1)(c) is not sustainable on the facts - the AO did not establish that purchases were bogus or that the assessee had concealed particulars; material from Sales Tax authorities was not supplied to the assessee; acceptance of additions to buy peace does not automatically amount to concealment; and estimation-based additions cannot alone justify penalty. The appeal does not raise a question of law warranting interference with the concurrent findings; penalty deletion stands.
Penalty under Section 271(1)(c) of the Income Tax Act - reassessment under Section 148 of the Income Tax Act - acceptance of addition to "buy peace" - reliance on information from Sales Tax Department without furnishing same to assessee - onus on Assessing Officer to establish concealment for levy of penalty - independence of assessment and penalty proceedings
Penalty under Section 271(1)(c) of the Income Tax Act - reliance on information from Sales Tax Department without furnishing same to assessee - acceptance of addition to "buy peace" - onus on Assessing Officer to establish concealment for levy of penalty - Whether penalty under Section 271(1)(c) was sustainable where additions were made after reassessment based on information from Sales Tax Department and the assessee accepted additions to "buy peace" - HELD THAT: - The Court upheld the Tribunal's concurrent findings that the Assessing Officer had not established that the purchases were bogus nor furnished the adverse information received from the Sales Tax Department to the assessee or given opportunity to meet that material. The Tribunal found that the assessee had produced bills, vouchers and payment evidence and had voluntarily agreed to additions in the reassessment proceedings to avoid protracted litigation. The Court reaffirmed that assessment and penalty proceedings are distinct: whereas additions may be made in assessment proceedings on the basis of available material or estimates, initiation and imposition of a penalty under Section 271(1)(c) requires the AO to independently establish concealment or furnishing of inaccurate particulars. Reliance on unsupplied general information from the Sales Tax Department, without specific proof or giving the assessee an opportunity to meet that material, is not a sound basis to invoke the penal provision. The Court found the approach of the AO to be superficial and not in accordance with the required norms for imposing penalty, and agreed with authorities holding that voluntary acceptance of an addition simply to buy peace does not automatically establish concealment for penalty purposes where the AO has not proved the bogus nature of transactions. [Paras 12, 13, 14, 15, 16]
Penalty under Section 271(1)(c) was not sustainable on the material before the AO; the Tribunal's deletion of the penalty is affirmed.
Final Conclusion: The appeal is dismissed; the Tribunal's order allowing the assessee's appeal and deleting the penalty is affirmed. No costs.
ISSUES PRESENTED AND CONSIDERED
1. Whether the Commissioner (revisionary authority) validly exercised jurisdiction under section 263 by holding the assessment to be "erroneous and prejudicial to the interests of revenue" where the Assessing Officer (AO) had examined ICDS-related submissions and framed assessment without making additions.
2. Whether an assessment order is "erroneous and prejudicial to the interests of revenue" within the meaning of section 263 where (a) the AO has carried out an investigation and adopted one of two plausible views on ICDS adjustments, or (b) the alleged lapse is merely a difference of opinion between AO and Commissioner.
3. What standard of proof and findings the Commissioner must record to justify invoking section 263 where the AO has investigated the issue - specifically, whether mere disagreement or a remit is permissible, and when a remand versus making an addition is appropriate.
ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Validity of exercise of jurisdiction under section 263 where AO examined ICDS submissions and made no addition
Legal framework: Section 263 permits the Commissioner to revise an assessment if the order is both erroneous and prejudicial to the interests of the revenue; both conditions must coexist.
Precedent treatment: Followed the principles in Malabar Industrial (twin conditions), as well as M/s V-Con Integrated Solutions (acceptance by inaction where AO investigated), Max India (two possible views), and DG Housing (distinguishing failure of investigation from erroneous decision). These authorities were applied rather than distinguished or overruled.
Interpretation and reasoning: The Tribunal found AO had specifically called for ICDS details, the assessee furnished extensive submissions, and the AO examined these materials and accepted the assessee's view by framing the assessment without additions. Where the AO has investigated and not made an addition, it is permissible to infer acceptance of the assessee's stance. Thus, the Commissioner failed to establish contemporaneous error and resulting prejudice; mere disagreement does not satisfy section 263.
Ratio vs. Obiter: Ratio - Where the AO makes a considered decision after investigation and records no addition, the Commissioner must demonstrate that the AO's order is both legally erroneous and prejudicial; absent such demonstration, exercise of section 263 is invalid. Observational/obiter - emphasis on factual particulars of the ICDS entries in this assessment.
Conclusion: The Tribunal concluded the revision under section 263 was invalid as the twin conditions were not satisfied; the AO's assessment was not shown to be erroneous and prejudicial.
Issue 2 - Permissibility of two reasonable views and effect on section 263 jurisdiction
Legal framework: Tax assessment often allows for competing reasonable views; section 263 is not a vehicle to supplant a sustainable view taken by the AO merely because the Commissioner prefers another view.
Precedent treatment: Followed Max India and related authorities holding that if two views are possible and the AO adopts one, the order is not "erroneous" for section 263 purposes unless the AO's view is unsustainable in law. Applied DG Housing's distinction between error in law/unsustainable conclusion and failure to investigate.
Interpretation and reasoning: The Tribunal held that the ICDS treatment involved factual and accounting determinations where two plausible positions existed; the AO adopted one such plausible position after examination. The Commissioner's disagreement without demonstrating the adopted view was unsupportable did not convert the assessment into an "erroneous" one within section 263.
Ratio vs. Obiter: Ratio - Where two reasonable views exist, the Commissioner cannot invoke section 263 unless the view taken by the AO is legally unsustainable or the AO failed to make required enquiries. Obiter - remarks on the nature of ICDS adjustments as often giving rise to divergent but plausible conclusions.
Conclusion: The Tribunal held that two-view doctrine defeats the exercise of section 263 absent demonstration that the AO's view was untenable in law or contrary to facts.
Issue 3 - Requirement to record "abject failure" or other specific findings to remit or revise under section 263
Legal framework: Section 263 may be used where there is either (a) an erroneous order prejudicial to revenue, or (b) a failure of investigation/enquiry by AO rendering the order erroneous; when the latter is invoked, the Commissioner must record the failure/lapse that caused prejudice.
Precedent treatment: Applied the guidance in M/s V-Con Integrated Solutions that distinguishes (i) wrong conclusion (correctable on merits by the Commissioner by making additions) from (ii) failure of enquiry (which may justify remit but requires recorded findings of abject failure). The Tribunal followed these authorities rather than distinguishing them.
Interpretation and reasoning: The Tribunal found no record of abject failure by the AO; on the contrary, AO had sought ICDS details and considered them. The Commissioner issued a remit direction but without establishing the requisite failure of investigation or that the AO's decision was legally unsupportable. The Tribunal noted that if the Commissioner believes an addition is required, the correct course is to make an addition on merits with recorded reasons, not to remand absent proof of inadequate investigation.
Ratio vs. Obiter: Ratio - To justify section 263 on grounds of inadequate investigation, the Commissioner must record specific, demonstrable failures of the AO that render the order erroneous and prejudicial; a mere remand without such findings is not permissible. Obiter - observations on procedural fairness where reassessment proceedings will follow remand.
Conclusion: The Tribunal concluded that the Commissioner did not establish or record any abject failure in the AO's investigation; remit was not justified and the exercise of section 263 was invalid.
Cross-references and Interplay of Issues
All three issues converge: the AO's prior investigation and adoption of a plausible ICDS position precluded finding of an erroneous and prejudicial order unless the Commissioner established (a) the AO's view was unsustainable in law, or (b) there was a demonstrable failure of investigation. The Tribunal applied established precedent to find none of these predicates present and therefore quashed the section 263 order.
Final Disposition
Conclusion: The Tribunal held the revisionary jurisdiction under section 263 was invalidly invoked, quashed the Commissioner's section 263 order, and allowed the appeal.
Revision u/s 263 - holding the assessment to be "erroneous and prejudicial to the interests of revenue" - PCIT observed that the assessee’s treatment of ICDS adjustment does not seem to be not in order - HELD THAT:- We find that the scrutiny was selected under Computer Assisted Scrutiny Selection (CASS) in this case for examination of certain items, out of which one item was ICDS compliance and adjustment. We note that during the course of assessment proceedings, the learned AO specifically called upon the assessee to furnish the details of ICDS compliance and adjustment which were duly furnished before the learned AO and the learned AO only, after examining the same, accepted the stand of the assessee and framed the assessment accordingly, without making any addition in respect of ICDS compliance/ adjustment.
In our opinion, the order passed by the learned AO is in accordance with law and does not suffer any infirmity, illegality or otherwise. Therefore, the order passed by AO cannot be said to be erroneous in so far as prejudicial to the interest of the Revenue. In our considered view the jurisdiction u/s 263 was invalidly invoked. In order to invoke the jurisdiction u/s 263 the assessment has to be erroneous and prejudicial to the interest of the revenue. Both the conditions are to be satisified simultaneously and even if one of the two conditions is satisfied, the jurisdicition u/s 263 of the act is not available to the ld PCIT.
he case of the assessee find support from the decision of Malabar industrial Co. [2000 (2) TMI 10 - SUPREME COURT].
In our opinion, once the learned AO has carried out investigation into the issue and has not made any addition then it can be presumed that he has accepted the plea and stand of the assessee. The PCIT has to prove that the assessment framed by the AO is wrong as there was failure to investigate. In our opinion the PCIT has to record the abject failure and lapse on the part of the assessee which rendered the assessment as erroneous and prejudicial to the interest of the revenue and not otherwise.
Similarly, where the learned AO has taken a plausible view of one of the two views even then the order passed by the learned AO cannot be said to be erroneous and prejudicial to the interest of the Revenue unless if the view taken by the ITO is not in accordance with law or contrary to the facts on record. The case of the assessee find support from the decision of Max India Ltd. [2007 (11) TMI 12 - SUPREME COURT] where two view existed and AO has taken one view, it can not said erroneous order prejudicial to the interest of the Revenue unless the view taken by the AO is unsustainable in law. Jurisdiction u/s 263 was invalidly invoked by the ld. PCIT - Decided against revenue.
ISSUES PRESENTED AND CONSIDERED
1. Whether the delay of 166 days in filing the appeal ought to be condoned for "reasonable cause".
2. Whether notional rental income under the head "Income from House Property" is exigible where immovable properties owned by the assessee are used by a partnership firm (of which the assessee is a partner) for carrying on business/professional activities.
ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Condonation of Delay
Legal framework: Procedural law permits condonation of delay in filing appeals if delay is shown to be for a "reasonable cause".
Precedent treatment: The Court relied upon established principles in which relief on grounds of "reasonable cause" and a justice-oriented approach have been applied by the Apex Court and other superior fora in similar circumstances.
Interpretation and reasoning: The affidavit disclosed that the tax consultant handling appellate work was seriously ill and hospitalised with a locomotor disability of 90% and thus unable to perform the work. The Tribunal accepted that the assessee largely depends on the consultant for appellate filings and that the consultant's incapacity prevented timely filing.
Ratio vs. Obiter: Ratio - the factual finding that a health-related incapacitation of the consultant who handles appellate matters can constitute a "reasonable cause" to condone delay. Obiter - reference to general principles of justice-oriented exercise of discretion.
Conclusion: Delay of 166 days was condoned and the appeal admitted for adjudication.
Issue 2 - Taxability of Notional Rent where Property is Used by a Partnership Firm of which Assessee is a Partner
Legal framework: Chargeability of income from house property (notional rent) is governed by the statutory head "Income from House Property" (section referenced in the record). Section excludes from its charge any portion of house property "occupied by the owner for the purposes of his business or profession." The legal question is whether occupancy by a partnership firm in which the owner is a partner amounts to "occupation by the owner for business or profession" so as to exclude notional rent.
Precedent treatment: The Tribunal considered and followed prior judicial decisions of superior fora and coordinate benches which conclude that where a partner uses premises for partnership business, each partner is carrying on the business and the portion so used is to be treated as occupation for the partner's business; accordingly notional rent is not exigible in the hands of the owner partner. The Tribunal relied on the line of authority from higher courts and tribunal decisions that interpret partnership law and income-tax principles to treat partnership business as business carried on by each partner for purposes of such exclusions.
Interpretation and reasoning: The Tribunal examined the factual record - ownership details, firm returns showing business carried on from the premises, and the assessee's uncontroverted submissions that specific properties were used as office space and store rooms by the partnership firm. The Tribunal found that (a) the properties were used for the partnership's business/professional activities, (b) the assessee is a partner in that firm, and (c) there was no contradictory evidence from the revenue challenging actual use. Applying the principle that a partnership is not a separate legal entity and that partners carry on the partnership business collectively, the Tribunal held that use of premises by the partnership constitutes occupation by the owner for the purposes of his business/profession and therefore section exclusion applies. The Tribunal also addressed and rejected the AO's estimates of monthly rent as unrealistic and unsupported by record.
Ratio vs. Obiter: Ratio - where the owner of immovable property is a partner in a firm which uses the property for carrying on the same business/profession, such use constitutes occupation by the owner "for purposes of his business or profession" and therefore notional rent is not exigible under the head "Income from House Property." Obiter - ancillary comments on software limitations and unrealistic rent estimates used by the AO.
Conclusions: The addition of notional rental income assessed in respect of the identified immovable properties was deleted. The Tribunal set aside the finding of the appellate authority and allowed the appeal on this ground.
Cross-References and Interplay between Issues
The condonation of delay (Issue 1) was a procedural prerequisite allowing examination of the substantive issue (Issue 2). The substantive conclusion (deletion of notional rent) rests on both the factual finding of business use by the partnership and the legal principle equating partnership occupation with the partner's occupation for business/profession.
Addition towards notional rent income from letting out house property - taxing of 50% deemed rental income in the respect of certain immovable properties - HELD THAT:- Immovable properties in question have been used by the partnership firm for carrying out business and professional activities which includes running them for office purposes, using some properties as a store room for instruments, records etc. and other professional activities. The facts narrated for the use of immovable properties remains uncontroverted by ld. DR.
Since the properties in question have been used for business purposes by the partnership firm in which the assessee is a partner, therefore, in light of the decision of Dhadda Diamonds (P) Ltd. [2016 (10) TMI 9 - ITAT MUMBAI] no addition for notional rent deserves to be made in the hands of assessee. Finding of ld.CIT(A) is set aside and the impugned addition stands deleted. Decided in favour of assessee.
ISSUES PRESENTED AND CONSIDERED
1. Whether an addition made under section 68 in an assessment completed under section 153A can be sustained in respect of a completed/unabated assessment year where no incriminating material relating to that year was found in the search or requisition proceedings.
2. Whether an Assessing Officer may rely on analysis of publicly available financial statements and price movement of a company (characterised by AO as a "penny stock") - without any seized documents or statements from the search - to make additions in a section 153A proceeding for a completed assessment year.
ISSUE-WISE DETAILED ANALYSIS
Issue 1: Validity of additions under section 68 in a section 153A assessment where no incriminating material was seized for the completed assessment year
Legal framework: Section 153A confers jurisdiction to assess or reassess total income for assessment years falling within the six-year block where a search under section 132 or requisition under section 132A is made; the second proviso to section 153A provides that pending assessments/ reassessments shall abate, while completed/unabated assessments ordinarily remain unaffected unless incriminating material is found during the search in relation to those years. Where no incriminating material is found during search, the appropriate remedy for reopening completed assessments is under sections 147/148 subject to statutory conditions.
Precedent treatment: The Tribunal applied and followed the Supreme Court pronouncement (referred to in the impugned order) holding that additions in completed/unabated assessments under section 153A are permissible only if incriminating material relating to those years is unearthed during the search; otherwise the Revenue's remedy is to initiate reassessment under sections 147/148. High Court decisions consistent with this view were also cited as being in agreement.
Interpretation and reasoning: The Court examined the assessment record and the CIT(A) order and observed absence of any reference to seized material or statements arising from the search supporting the addition. The AO's addition was based on analysis of share price movement and company financials, not on any incriminating document unearthed in the search. Applying the established principle that section 153A assessments are linked to incriminating material found in search/requisition, the Tribunal reasoned that the necessary predicate for interfering with a completed assessment was missing.
Ratio vs. Obiter: Ratio - In the context of section 153A, additions in respect of completed/unabated assessment years require incriminating material discovered during the search/requisition; absent such material, additions cannot be sustained under section 153A and the correct statutory route is reopening under sections 147/148. Observations characterising the precise contours of what constitutes "incriminating material" as against other material are explanatory but supportive of the ratio.
Conclusion: The addition under section 68 in respect of the completed assessment year is not sustainable under section 153A because there was no incriminating material seized or discovered during the search relating to that year; the CIT(A)'s deletion of the addition is upheld.
Issue 2: Reliance on analysis of financial statements and market movement (penny stock characterization) in absence of seized material
Legal framework: The scope of section 153A is limited to assessing undisclosed income found during search or requisition; material external to the search may be relevant when incriminating materials are seized, but cannot alone convert a completed assessment into a block assessment basis without the statutory trigger.
Precedent treatment: The Tribunal relied on the Supreme Court decision emphasising that assessment under section 153A must be linked to incriminating material unearthed during search and that reliance solely on other material (market data or financial statements) without seized evidence is impermissible for completed years.
Interpretation and reasoning: The AO had characterised the shares as "penny stock" because of a significant price rise and purportedly analyzed ten years of financial statements; however, the assessment order did not cite any seized documents or statements from the search to corroborate such suspicion. The Tribunal found no concrete material in the record showing that the analysis constituted or derived from incriminating material obtained during the search. Absent that connection, use of financial analysis or price movement amounted to adjudication on returns without the statutory foundation required by section 153A.
Ratio vs. Obiter: Ratio - Market behaviour or company financial analysis, standing alone and not tied to incriminating material seized during search, cannot justify additions under section 153A for completed assessment years. Obiter - The assessment officer should explicitly record nexus between any seized incriminating material and the proposed additions when invoking section 153A.
Conclusion: The AO's reliance on financial statement analysis and price movement, unaccompanied by seized incriminating material, does not validate the addition; therefore the addition based on characterization as a "penny stock" fails and is properly deleted in the section 153A proceeding.
Cross-reference and final determination
Cross-reference: Issue 2 is consequential to Issue 1 - the absence of seized incriminating material (Issue 1) renders reliance on other analyses (Issue 2) insufficient to sustain additions under section 153A; the statutory scheme and precedents require the AO to either produce incriminating material from the search or follow sections 147/148 to reopen completed assessments.
Final conclusion: The deletion of the addition made by the AO under section 68 in the section 153A assessment is affirmed because the addition was not based on any incriminating material seized or discovered during the search; the Revenue's grounds to sustain the addition are rejected.
Assessment u/s 153A - addition u/s 68 denying long term capital gain claimed by the assessee u/s 10(38) - HELD THAT:- As we observed that there is no reference to any seized materials based on which the addition was made u/s 68 of the Act denying the claim for exemption in respect of long term capital gains shown by the assessee. On careful perusal of the order of the Ld. CIT(A), we do not see any valid reason to interfere with the findings of the Ld. CIT(A) and the decision in deleting the addition made by the AO in the absence of any seized materials relating to the addition. Thus, the grounds raised by the Revenue are rejected. Appeal filed by the Revenue is dismissed.
ISSUES PRESENTED AND CONSIDERED
1. Whether the Commissioner's revisionary jurisdiction under section 263 can be validly exercised where the Assessing Officer has made specific enquiries into a claim (depreciation on immovable properties) and taken a legally permissible view thereon.
2. Whether an Assessing Officer's acceptance of depreciation claimed on immovable properties that were partly let out and partly used for business (with depreciation computed pro rata or on the basis of actual period of business use) amounts to an erroneous order prejudicial to the revenue warranting revision under section 263.
3. On the merits, whether depreciation under section 32 is allowable where assets were let out for part of the year and used for business for the remaining part, having regard to statutory conditions (including period of use in the previous year).
ISSUE-WISE DETAILED ANALYSIS - Exercise of Section 263 Jurisdiction
Legal framework: Section 263 empowers the Commissioner to call for and examine records and, if an order by the Assessing Officer is "erroneous insofar as it is prejudicial to the interests of the revenue", to make inquiry and pass consequential orders including setting aside the assessment; procedural safeguards include issuance of show cause and opportunity to be heard.
Precedent treatment: Jurisprudence establishes that section 263 is not a tool to correct every mistake; it applies only where the AO's order is erroneous (e.g., incorrect application of law, lack of application of mind, or an order not in accordance with law). Where the AO has conducted enquiries (even if arguably inadequate) and adopted one of two plausible views, revision is inappropriate. Distinctions are drawn between "lack of enquiry" (may justify revision) and "inadequate enquiry" (generally not).
Interpretation and reasoning: The Tribunal examined the assessment record and found that the AO had raised specific queries about the heightened depreciation claim, issued a show cause during assessment proceedings, obtained detailed explanations and documentary material from the taxpayer, and accepted the taxpayer's explanation in the assessment order. These facts demonstrate that the AO applied his mind and made inquiries on the issue.
Ratio vs. Obiter: Ratio - where the AO has specific enquiries on an issue and takes a legally permissible view after considering the replies and supporting material, the Commissioner cannot substitute his judgment by invoking section 263. Obiter - observations on the four-stage description of section 263's operation as an administrative framework.
Conclusion: Revision under section 263 was not justified. The Commissioner's assumption of jurisdiction on an issue thoroughly examined by the AO and decided by him (a debatable/plausible view) amounted to impermissible re-examination; the section cannot be used to initiate a roving or fishing inquiry or to substitute the Commissioner's opinion for that of the AO absent an unsustainable or legally indefensible view by the AO. The tribunal quashed the revision order on this ground.
ISSUE-WISE DETAILED ANALYSIS - Whether AO's Order Was Erroneous and Prejudicial
Legal framework: The dual condition for section 263 is that the AO's order must be (i) erroneous and (ii) prejudicial to revenue; mere loss of revenue is insufficient unless the AO's view is untenable in law or there is absence of application of mind.
Precedent treatment: Authorities hold that an assessment cannot be branded erroneous merely because the Commissioner would have reached a different conclusion; there must be prima facie material showing non-imposition of tax lawfully exigible or an incorrect application of statutory provisions. Where the AO has examined documents and recorded that evidence was kept on file, it evidences application of mind.
Interpretation and reasoning: The AO had specifically queried the large depreciation, required proof of business use, and recorded acceptance of the taxpayer's evidence (purchase deeds, tenancy details, bank entries, confirmations, affidavit). That constitutes enquiry; there is no material showing the AO's conclusion was legally unsustainable. The Commissioner did not bring fresh material proving the AO's conclusion was erroneous.
Ratio vs. Obiter: Ratio - an order is not "erroneous" for the purposes of section 263 where the AO, after enquiries, adopts a plausible view supported by material on record; absence of fresh prima facie material by the revising authority precludes revision. Obiter - discussion of administrative limits and finality principles underlying section 263.
Conclusion: The AO's order could not be characterised as erroneous and prejudicial to revenue; therefore exercise of revisionary powers was unjustified and set aside.
ISSUE-WISE DETAILED ANALYSIS - Merits: Allowability of Depreciation for Properties Partly Let and Partly Used for Business
Legal framework: Depreciation under section 32 is allowable where the asset is owned by the assessee and used for the purposes of business or profession during the previous year; statutory rules address apportionment/restriction where asset is used for less than 180 days in the previous year.
Precedent treatment: Authorities recognise allowance of depreciation for the period an asset is used for business; a change in use during the year (from letting to business use) can justify pro rata depreciation for business-use period, subject to statutory thresholds and proper verification.
Interpretation and reasoning: The taxpayer's submissions, supported by tenancy agreements, communication with tenants, bank entries, tenant confirmations and affidavit, showed that properties were let for part of the year and subsequently taken into business use. The depreciation claimed related to the period of business use and was computed in accordance with the statutory provisions governing period of use and rate application.
Ratio vs. Obiter: Ratio - depreciation is allowable in respect of the period an asset is genuinely used for business even if the same asset was let out for part of the year; where records substantiate the change in use and the AO has accepted such material, the claim is maintainable. Obiter - remarks on the specific numerical breakdown of depreciation and rent received as corroborative facts.
Conclusion: On merits, the depreciation claim was sustainable: assets were used for business for the requisite period and the claim fell within section 32's scheme. The Tribunal found no infirmity in allowing depreciation on the facts and evidence before the AO.
OVERALL CONCLUSION
The Commissioner's revisional order under section 263 was quashed because (a) the Assessing Officer had made specific enquiries on the depreciation claim, (b) the assessee furnished detailed supporting material which the AO accepted, and (c) the AO's conclusion represented a legally permissible view. Consequently, there was no demonstrable error in law or lack of enquiry to justify section 263 intervention. On merits, the depreciation allowance for properties partly let and partly used for business was found to be allowable in accordance with statutory provisions and evidence on record; the assessment order was restored.
Revision u/s 263 - on certain immovable properties the assessee has shown rental income during the year and has claimed depreciation by observing that when income from let out property has been offered under the head ‘Income from House Property' then the depreciation claimed on such properties cannot be allowed u/s. 32 for the year under consideration and as per CIT AO failed to disallow the depreciation claimed by the assessee alleging use of properties for business purposes.
HELD THAT:- We find that the issue which has been referred by PCIT in the impugned order relating to claim of depreciation on the buildings has specifically been enquired by AO during the course of assessment proceedings and the assessee has also given detailed reply to such queries. On perusal of evidence placed on record, it is discernible that for the partial period assessee has rented those properties and has shown rental income and for the remaining period when it was used for business purposes it has claimed depreciation. Now for the issue that has been thoroughly examined by ld. AO and assessee has given detailed replies to the satisfaction of the ld. AO and a legally permissible view has been taken, then in such case PCIT cannot assume jurisdiction u/s. 263 of the Act on such issues.
Similar view has been taken by this Tribunal in the recent decision in the case of Goel Eisha Capitals [2025 (6) TMI 704 - ITAT PUNE] Respectfully following the above referred decisions and on due consideration of the facts of the case in hand, we find that since AO in the instant case has raised specific queries regarding the claim of depreciation on immovable properties which have been rented partly during the year, the assessee has replied in detail and the AO after considering the reply of the assessee has accepted the submissions made by the assessee, therefore, it is not a case of lack of enquiry or inadequate enquiry and under such facts and circumstances jurisdiction u/s. 263 of the Act cannot be invoked. In view thereof, the grounds raised by the assessee challenging the assumption of jurisdiction u/s. 263 of the Act are hereby allowed.
Even on merits also, assessee has successfully demonstrated that along with offering rental income from letting out the properties for part of the year a valid claim of depreciation has been made for remaining part of the year on such immovable properties which have been used for business purposes. Appeal filed by the assessee is allowed.
ISSUES PRESENTED AND CONSIDERED
1. Whether disallowance under section 14A read with Rule 8D is leviable where exempt income has been earned but the assessee contends no expenditure was incurred in relation to such exempt income and the Assessing Officer has not recorded any separate satisfaction regarding incorrectness of the claim.
2. Whether Rule 8D computation must be restricted to only those investments from which income not forming part of total income has been earned during the year.
3. Whether general/administrative expenses having direct nexus with taxable business activities can be included for disallowance under section 14A, and to what extent expenses allocable to distinct proprietary concerns (with separate books) should be excluded.
4. Whether particular components of profit & loss items (education cess, depreciation, property insurance, property tax) are relevant for disallowance under section 14A.
ISSUE-WISE DETAILED ANALYSIS
Issue 1: Liability to disallow under section 14A where no specific AO satisfaction recorded and assessee claims no expenditure incurred for earning exempt income
Legal framework: Section 14A disallows expenditure incurred in relation to income not forming part of total income; Rule 8D prescribes a method for computing such disallowance where actual expenditure cannot be conveniently identified.
Precedent Treatment: The parties relied on various authorities (cited in proceedings) addressing requirement of AO satisfaction and scope of Rule 8D; Tribunal considered these authorities in determining whether disallowance was warranted.
Interpretation and reasoning: The Tribunal observed that the assessee declared specific exempt receipts (profit share from firms/AOPs, dividend from Indian companies, PPF interest) and contested that no expenditure had been incurred to earn those exempt receipts. While noting the assessee's contention that the AO did not record a formal satisfaction as to incorrectness of the claim, the Tribunal nonetheless examined factual matrix and apportionment of expenses and found some nexus of remaining administrative expenses with earning exempt income.
Ratio vs. Obiter: Ratio - absence of a formal recorded satisfaction by AO is a relevant factor but does not automatically preclude application of section 14A/Rule 8D where facts indicate nexus of expenses to exempt income. Obiter - observations on the sufficiency of AO's satisfaction in other factual permutations.
Conclusions: The Tribunal accepted that lack of recorded satisfaction and the assessee's submissions weigh against a full disallowance, but on facts a partial disallowance was justified; accordingly directed a reasonable disallowance rather than complete deletion.
Issue 2: Whether Rule 8D computation must be limited to investments yielding exempt income during the year
Legal framework: Rule 8D prescribes formulae for computing disallowance, and allows consideration of investments relevant to exempt income; the CIT(A) had directed AO to compute disallowance at 1% taking only investments from which exempt income arose.
Precedent Treatment: The appellate authority's direction to focus computation on investments actually yielding exempt income follows the principle that only expenditures referable to such investments should be disallowed.
Interpretation and reasoning: The Tribunal endorsed a limited approach: disallowance should be computed only in respect of investments from which exempt income was earned in the relevant year, rather than across all investments. This aligns Rule 8D application with nexus principle - matching disallowance to the source of exempt receipts.
Ratio vs. Obiter: Ratio - Rule 8D application should, on facts, be confined to investments producing exempt income for the year under consideration. Obiter - none beyond factual application.
Conclusions: The Tribunal sustained the CIT(A)'s approach in principle and applied a fact-specific, restricted computation of disallowance rather than a blanket invocation of Rule 8D on consolidated investments.
Issue 3: Apportionment - exclusion of expenses attributable to separate proprietary concerns and exclusion of expenses directly related to taxable business
Legal framework: Section 14A disallows only expenditure in relation to exempt income; where distinct businesses maintain separate books, expenses of those businesses lacking investments or exempt-income nexus should be excluded from disallowance.
Precedent Treatment: The Tribunal relied on the fact-findings in the order below and on established allocation principles that expenses directly related to taxable activities are not subject to section 14A disallowance.
Interpretation and reasoning: The assessee maintained separate books for two principal proprietary concerns and identified that a large portion of administrative expenses related to one concern (Nyati Housing) which had no investments giving exempt income. The Tribunal accepted that amount (Rs. 5.48 crores in the facts) should be excluded from section 14A computation. For remaining consolidated expenses, the Tribunal scrutinised each component and excluded items with no nexus to exempt income while recognising some residual nexus for other items.
Ratio vs. Obiter: Ratio - expenses properly attributable to separate business activities with no link to exempt investments must be excluded from section 14A disallowance. Obiter - suggested methodology for bifurcation where consolidated accounts exist (practical, fact-specific approach).
Conclusions: The Tribunal directed exclusion of expenses attributable to distinct proprietary concerns with no investments and excluded specific expense items lacking nexus; for the remaining expenses it accepted limited disallowance rather than full Rule 8D computation on consolidated figures.
Issue 4: Treatment of particular P&L items (education cess, depreciation, property insurance, property tax) for section 14A purposes
Legal framework: Only expenditure "incurred in relation to" exempt income is disallowable under section 14A; not all P&L items are expenditure in that sense or are relevant to the Rule 8D computation.
Precedent Treatment: Tribunal referred to authorities (noted in the record) treating depreciation as allowance (not to be disallowed under section 14A) and recognising items separately added back in assessment should not be double-counted.
Interpretation and reasoning: The Tribunal examined the breakdown of Rs. 1.06 crore administrative expenses and held that: (a) education cess (already separately added back) must not be included in 14A computation to avoid double disallowance; (b) depreciation is an allowance and not expenditure for 14A purposes; (c) property insurance and property tax related to house property/real estate business were not relevant to earning the exempt income. These items were therefore excluded from the section 14A disallowance base.
Ratio vs. Obiter: Ratio - items categorised as not constituting expenditure in relation to exempt income (depreciation, items already added back) are excluded from section 14A disallowance. Obiter - application of these exclusions is fact-sensitive to characterisation in the books and computation schedules.
Conclusions: Specific P&L components identified by the assessee were held not to be subject to section 14A disallowance and directed to be excluded from Rule 8D computation.
Issue 5: Quantum of disallowance where partial nexus exists and parties agree on reasonable disallowance
Legal framework: Where precise apportionment is difficult and facts show some nexus of expenses with exempt income, appellate authority may adopt a reasonable/ pragmatic disallowance to meet ends of justice.
Precedent Treatment: The Tribunal applied a balanced approach consistent with authorities permitting pragmatic apportionment when exact linkage cannot be strictly determined.
Interpretation and reasoning: After exclusion of clearly unrelated expenses and recognising residual nexus for certain items, the Tribunal - taking into account parties' willingness to accept a reasonable figure and the peculiar facts - fixed a lump-sum disallowance of Rs. 10,00,000 under section 14A read with Rule 8D as meeting the ends of justice.
Ratio vs. Obiter: Ratio - where factual matrix demonstrates partial nexus and precise apportionment is impracticable, Tribunal may determine a reasonable lump-sum disallowance. Obiter - the quantum fixed is fact-specific and not a universal benchmark.
Conclusions: The appeal was partly allowed by directing the Assessing Officer to restrict the section 14A/Rule 8D disallowance to Rs. 10,00,000 after excluding unrelated expense items and amounts attributable to separate businesses.
Disallowance u/s 14A r.w.s. 8D - expenditure incurred on earning exempt income - HELD THAT:- We find that out of total amount of Rs. 1,06,34,501/- an amount of Rs. 50,79,854/- relates to education cess which has already been disallowed Rs. 23,25,150/- relates to depreciation Rs. 2,58,748/- relates to property insurance and Rs. 12,78,739/- relates to the property tax which have no relevance to the earning of exempt income. However, for the remaining expenses, we are of the considered opinion that there is some nexus with earning of exempt income.
Therefore, a balance approach has to be taken in the instant case. When it was pointed out to both sides, they agreed that a reasonable amount may be disallowed u/s 14A read with Rule 8D. Considering the peculiar facts and circumstances of the case, we are of the considered opinion that a reasonable disallowance u/s 14A read with Rule 8D will meet the ends of justice. We hold and direct accordingly. AO is directed to restrict the disallowance u/s 14A read with Rule 8D to Rs. 10,00,000/-. The grounds raised by the assessee are accordingly partly allowed.
ISSUES PRESENTED AND CONSIDERED
1. Whether the revisional jurisdiction under section 263 can be validly invoked where the Assessing Officer, after issuing specific queries under section 142(1), accepted the assessee's explanation that amounts (excess cash and excess stock found during survey) constitute business income and assessed them accordingly rather than treating them as unexplained investment under section 69 read with section 115BBE.
2. Whether the provisions of section 115BBE (penal tax rate) are mandatorily attracted to amounts declared during survey proceedings as excess cash/stock when the assessee offers an explanation and the Assessing Officer accepts and taxes the amount as business income.
ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Validity of invoking section 263 where AO accepted assessee's explanation after enquiry
Legal framework: Section 263 permits revision by the Principal Commissioner/Commissioner if an assessment order is "erroneous in so far as it is prejudicial to the interests of the revenue." Explanation 2 to section 263 enumerates circumstances amounting to such erroneousness, including orders passed without making inquiries or verification which should have been made and orders allowing relief without inquiry.
Precedent treatment (followed/distinguished): The Court followed Supreme Court authority (principle that where two views are possible and AO has adopted a legally permissible view, section 263 cannot be invoked) and multiple High Court and Tribunal decisions holding that accepted explanations that treat surrendered amounts as business income preclude revisional interference. Decisions holding to the contrary (that surrendered amounts absent documentary source must be treated as unexplained investment) were examined and distinguished on facts where AO had made inquiries and accepted explanation.
Interpretation and reasoning: The Court examined the assessment record and noted that the AO issued a specific notice under section 142(1) asking the assessee to substantiate treatment of excess cash and stock with documentary evidence. The assessee replied explaining that the excess cash arose from unrecorded festival sales and excess stock resulted from the nature of textile trading, and that these were reflected in accounts and the return. The AO considered these explanations and accepted the returned income. Applying the principle that where two views are possible and the AO adopts one permissible view after enquiry, the revisional authority cannot substitute its opinion, the Court held that the twin conditions for section 263 (order erroneous AND prejudicial to revenue) were not satisfied. The Court emphasised that mere loss of revenue is insufficient; the AO's view must be unsustainable in law or perverse to justify revision.
Ratio vs. Obiter: Ratio - Where the AO issues specific queries, considers explanations and accepts a plausible view to treat declared survey amounts as business income, the revisional power under section 263 cannot be exercised merely because the revisional authority prefers a different view. Obiter - Observations distinguishing cases where no inquiry was made or explanations were factually unsupported.
Conclusion: Invocation of section 263 was unjustified; the assessment order could not be treated as erroneous merely because the Principal Commissioner would have taxed the amounts under section 69/115BBE. The revisional order was set aside.
Issue 2 - Applicability of section 115BBE/section 69 to excess cash/stock declared in survey
Legal framework: Section 69 treats unexplained investments as income where investments are not recorded and no satisfactory explanation is offered; section 115BBE prescribes a special (penal) rate for certain undisclosed incomes (including unexplained investments) found in searches/surveys. The taxing classification depends on (i) whether the amount is an undisclosed investment/unexplained cash or (ii) whether it represents business income duly accounted for and reflected in computation.
Precedent treatment (followed/distinguished): The Court relied on authorities holding that where excess stock/cash is not separately identifiable, is explained as accumulated business profits and is recorded or included in the computation as business income, it cannot be treated as 'undisclosed investment' under section 69 to attract section 115BBE. Contrasting authorities holding unexplained surrendered amounts taxable under section 69/115BBE were distinguished on facts where no satisfactory explanation or accounting linkage existed.
Interpretation and reasoning: The Court analysed whether the surrendered amounts were reflected in books and whether the AO's enquiries were adequate. Given that the assessee explained the nature and source, accepted by the AO, and the amounts were disclosed in the return and/or computation as business income, the conditions for invoking section 69 (investment not recorded; no satisfactory explanation) were not fulfilled. Therefore, the penal provisions of section 115BBE did not automatically apply. The Court reiterated that the factual matrix determines applicability: absence of documentary/support or non-inclusion in computation may attract section 69/115BBE; presence of plausible explanation and acceptance by AO supports treatment as business income at normal rates.
Ratio vs. Obiter: Ratio - Section 115BBE is not mandatorily attracted to survey-surrendered amounts where the assessee offers a satisfactory explanation that the amounts constitute business income and the AO, after enquiry, accepts and taxes them as such. Obiter - Comments on distinguishing factual scenarios where the penal provisions would apply (e.g., amounts not recorded, no satisfactory explanation).
Conclusion: On the facts, excess cash and excess stock declared during survey-having been explained as business-derived and accepted by the AO after specific enquiry-were properly assessable as business income and not as unexplained investment taxed under section 115BBE; hence the revisional invocation to impose section 115BBE was unsustainable.
Cross-references and final holding
Where the Assessing Officer issues specific enquiries, considers the assessee's explanations and adopts a plausible, legally tenable view that surrendered amounts constitute business income, the revisional authority cannot overturn the assessment under section 263 merely because it views the matter differently or would have treated the amounts under section 69/115BBE. The twin conditions for valid exercise of section 263 must be satisfied; absence of perversity or lack of enquiry by the AO precludes revision.
Revision u/s 263 - Excess cash and excess stock found during survey - Revision initiated on non-taxing of such additional income by invoking the provisions of section 115BBE - HELD THAT:- We find in the case of PCIT vs. Deccan Jewellers (P.) Ltd. [2021 (9) TMI 424 - ANDHRA PRADESH HIGH COURT] while upholding the order of the Tribunal has held that where nature and source of excess stock found during search was not specifically identifiable from profits which had accumulated from earlier years, the AO was justified in holding that said excess stock was not undisclosed investment of assessee and no case of perversity or lack of enquiry on part of Assessing Officer was made out so as to render his decision erroneous under Explanation 2 to section 263 of the Act.
We find in the case of PCIT vs. Mahavir Ashok Enterprises (P.) Ltd [2024 (10) TMI 430 - CHHATTISGARH HIGH COURT] has held that where Assessing Officer accepted claim of assessee that excess stock found during survey proceedings and duly recorded in books of account of concerned year should be taxed as business income of assessee, Principal Commissioner was not justified in invoking jurisdiction under section 263 on ground that excess stock found during survey proceedings should have been declared as unexplained investment by assessee under section 69 particularly when Assessing Officer had passed order of assessment after conducting inquiry.
Since the Assessing Officer in the instant case during the course of assessment proceedings has raised specific queries to which the assessee has duly replied and it has been explained that the only source of income of the assessee is from business, therefore, such excess cash and excess stock found during the course of survey has to be treated as business income.
Therefore, the order passed by the AO cannot be held to be erroneous although it may be prejudicial to the interest of Revenue in the opinion of the Ld. PCIT on account of not invoking the provisions of section 115BBE of the Act. It has been held in various decisions that for invocation of jurisdiction u/s 263 of the Act, the twin conditions viz. (a) the order is erroneous and (b) order is prejudicial to the interest of Revenue must be fulfilled. However, as stated earlier, the order passed by the Assessing Officer cannot be held to be erroneous since the Assessing Officer has taken a plausible view although the order may be prejudicial to the interest of Revenue. Therefore, the twin conditions are not satisfied. Therefore, the Ld. PCIT in our opinion is not justified in invoking the provisions of section 263 of the Act.
We find the Hon’ble Supreme Court in the case of CIT vs. Vegetable Products Ltd [1973 (1) TMI 1 - SUPREME COURT] has held that when two views are possible, the view which is in favour of the assessee has to be adopted. In this view of the matter, we are of the considered opinion that the Ld. PCIT was not justified in invoking his revisionary powers u/s 263 of the Act for not invoking the provisions of section 115BBE of the Act on the additional income declared during the course of survey on account of excess cash and excess stock found. We, therefore, set aside the order of the Ld. PCIT and the grounds raised by the assessee are accordingly allowed.
ISSUES PRESENTED AND CONSIDERED
1. Whether there were "reasons to believe" and sufficient material to lawfully issue Provisional Attachment Orders under Section 24(4)(b)(i) of the PBPTA.
2. Whether the Approving Authority applied independent mind before approving provisional attachment or acted mechanically.
3. Whether the Adjudicating Authority's confirmation of provisional attachment under Section 26(3) of PBPTA was time-barred under the limitation in sub-section 26(7).
4. Whether the transactions in question were benami within the meaning of Section 2(8) read with Section 2(9) of PBPTA, in particular Section 2(9)(D) (consideration provided by untraceable/fictitious person), and whether the burden of proof lay on the Initiating/Respondent or on the person in whose name property stands.
5. Whether alleged procedural flaws and denial of opportunity to be heard (natural justice) vitiate the impugned orders.
6. Whether the distinction between "consideration paid" and "consideration provided" (as articulated in Pawan Kumar Gupta) excludes application of Section 2(9)(D) where purchaser paid consideration.
ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Sufficiency of reasons/material to issue PAOs (Section 24(4)(b)(i))
Legal framework: Section 24(1)-(5) (initiation and provisional attachment), requirement of "reasons to believe" and material/evidence to justify provisional attachment; Section 2(8)/2(9) definitions of benami.
Precedent Treatment: The Tribunal considered the general standard that an IO must have material on record to form belief; previous authorities referenced by parties (including Valliammal and Pawan Kumar Gupta) addressed tests for benami and relevance of source of purchase money.
Interpretation and reasoning: The Court examined the IO's contemporaneous note showing issuance of notice, inquiries, reminders, and specific findings that circumstantial evidence pointed to use of the appellant as a conduit and that consideration was cash or deposited by unidentified persons. The material included bank records, cash-deposit patterns, seller statements (cash/draft), and the IO's enquiries; the IO recorded inability to trace persons who provided consideration. The Tribunal held that these materials constituted sufficient reasons to believe and supported provisional attachment.
Ratio vs. Obiter: Ratio - contemporaneous record of inquiries and material sufficed to constitute "reasons to believe" for provisional attachment. Obiter - none beyond application to facts.
Conclusion: The PAOs were lawfully issued; the IO had material to form reasons to believe and proceeded within mandate.
Issue 2 - Whether Approving Authority applied independent mind
Legal framework: Approval under Section 24(4)(b)(i) requires the Approving Authority to examine record and evidence rather than rubber-stamp IO's draft.
Precedent Treatment: Authorities require demonstration that approving officer considered material and reached satisfaction.
Interpretation and reasoning: The Approving Authority's noting recorded perusal of records, outcome of enquiries, examination of evidence and expression of satisfaction that properties were fit for provisional attachment. The Tribunal found these entries showed application of mind and review of evidence rather than mere mechanical approval.
Ratio vs. Obiter: Ratio - recorded perusal and examination by Approving Authority satisfy requirement of independent application of mind.
Conclusion: Approval was not mechanical; Approving Authority applied independent mind.
Issue 3 - Limitation for passing orders under Section 26(3) (sub-section 26(7))
Legal framework: Section 26(7) prescribes that no order under sub-section (3) shall be passed after expiry of one year from end of month in which reference under Section 24(5) was received.
Precedent Treatment: Parties invoked time-limit principles (Pawan Kumar Gupta relied on by Appellant for other point, but here limitation is statutory).
Interpretation and reasoning: The Tribunal compared dates: references filed 28.03.2018; impugned orders passed 25.03.2019. The orders were therefore within the one-year period stipulated by Section 26(7). Allegation of delay based on reservation date was held to be speculative and unsupported.
Ratio vs. Obiter: Ratio - impugned orders were within statutory limitation period; procedural timing allegations did not render orders time-barred.
Conclusion: Orders under Section 26(3) were not time-barred.
Issue 4 - Whether transactions are benami under Section 2(8) read with Section 2(9), particularly 2(9)(D), and burden of proof
Legal framework: Definitions of benami; Section 2(9)(D) covers where consideration provided by person untraceable or fictitious; statutory scheme contemplates inquiry into source of consideration and motive.
Precedent Treatment: The Tribunal relied on Valliammal (principle that source of purchase money and motive are critical tests) and addressed burden aspects in context of available evidence.
Interpretation and reasoning: The Tribunal identified undisputed facts: payment in cash for one property and cash deposited by unidentified person for bank draft in the other; absence of ITRs; bank account entries showing frequent cash deposits and high-value transactions unexplained; seller statements corroborating cash/draft payments; inability to identify persons who furnished consideration. On these facts the Tribunal inferred that consideration was provided by others (untraceable/fictitious) and that appellant failed to prove legitimate source. The Tribunal rejected appellant's generalized claim that burden cannot be on him, finding PBPTA inquiry properly focused on whether transactions were benami and that available corroborative material supported respondent's findings.
Ratio vs. Obiter: Ratio - where consideration is paid or arranged by persons who are untraceable or fictitious and the person in whose name property stands cannot satisfactorily explain source, transactions fall within Section 2(9)(D); absence of ITRs and unexplained banking entries are material to draw inference of benami transaction. Obiter - commentary on reliance on circumstantial evidence and patterns of cash deposits.
Conclusion: Transactions held to be benami under Section 2(9)(D); appellant failed to discharge evidentiary burden to rebut inference.
Issue 5 - Procedural fairness / denial of hearing / natural justice
Legal framework: Principles of natural justice require opportunity to be heard before adverse orders; statutory notice and hearing provisions in PBPTA.
Precedent Treatment: Tribunal examined record of notices, reminders, and adjournments.
Interpretation and reasoning: Record showed notice under Section 24(1) served, reminders issued, and appellant acknowledged notice. Adjudicating Authority had fixed hearings; appellant sought adjournments and at one occasion did not appear. The Tribunal found that appellant had opportunities to be heard, and delay in passing order after reservation did not evidence denial of hearing. Allegation that request to be heard was rejected because order was reserved was unsupported.
Ratio vs. Obiter: Ratio - no violation of natural justice where procedural record shows notices, reminders, opportunities and failure by the respondent to effectively engage; mere delay in pronouncing order does not establish denial of hearing absent contrary evidence.
Conclusion: No fatal natural justice violation; procedural fairness maintained.
Issue 6 - Applicability of "consideration paid" vs "consideration provided" distinction (Pawan Kumar Gupta)
Legal framework: Distinction that "provided" may include arrangements by third parties whereas "paid" may indicate purchaser himself furnished consideration.
Precedent Treatment: Appellant relied on Pawan Kumar Gupta to argue inapplicability of 2(9)(D) if consideration was "paid" by purchaser; Tribunal accepted distinction in principle but applied it to facts.
Interpretation and reasoning: Tribunal found evidence showing that in one transaction cash was directly paid but without corroboration of source; in the other cash was funneled into appellant's account by unidentified depositor to create appearance of payment through banking channel. Thus facts supported inference that consideration was "provided" (by others/untraceable), not bona fide "paid" out of appellant's own identifiable funds. Absence of corroborative evidence to support appellant's claim of agricultural/own income precluded application of the "paid" category to bar operation of Section 2(9)(D).
Ratio vs. Obiter: Ratio - the paid/provided distinction does not immunize a transaction where evidence shows consideration was actually provided by third/untraceable persons or the purchaser cannot adequately account for source; factual showing controls application.
Conclusion: Pawan Kumar Gupta distinction does not aid appellant on these facts; Section 2(9)(D) applies.
Overall Conclusion
The Tribunal concluded that the provisional attachment and subsequent confirmation were supported by material and lawful; the Approving Authority applied mind; statutory limitation was respected; transactions were benami under Section 2(9)(D); procedural objections failed. The appeals were dismissed as devoid of merit.
Benami transactions - purchase of the two properties - Provisional Attachment Order (PAO) based on assumptions and presumptions - without application of independent mind -beyond the limitation period stipulated in sub-Section 26(7) of the PBPTA - transactions executed by the unidentified land mediators - agricultural income without any corroboration - unexplained cash - burden of proof - HELD THAT:- We find that the available record and materials were perused by the Approving Authority. Moreover, it is clear from the note dated 21.03.2018 of the Approving Authority that he examined the evidence gathered during the enquires conducted by the IO. In the face of the overwhelming evidence in the form of the two notes, we observe that the contentions made with regard to the alleged procedural flaws are nothing, but surmises based on presumptions.
We do not agree that the impugned Orders are time barred since the References were filed on 28.03.2018 and the Adjudicating Authority issued the impugned Orders on 25.03.2019. The Orders were thus issued well within the limitation period stipulated in sub-Section 26(7) of the PBPTA. The said sub- Section is as follows: “No order under sub-section (3) shall be passed after the expiry of one year from the end of the month in which the reference under Sub-section (5) of Section 24 was received.” The apprehensions and contentions of the Appellant are unjustified without any corroborative evidence.
Payment was made in cash directly in one case and indirectly in the second case where cash was deposited in the bank account of the Appellant under the deposit slip on which the signature is not of the Appellant. It is also not disputed that the Appellant had not filed the ITRs.
We also note that often after the cash deposits of high denominations, withdrawal cheques have been issued on the same account. In the absence of any explanation about high amount transactions reflected in the said bank account, the inference that the Appellant was dealing with money arising not only from agriculture and allied activities is inescapable.
The Appellant failed to state and show evidence as to who provided the consideration for the purchase of the two impugned properties. While for the property of 1 Decimal at R.S. Dag No. 1084 directly cash was paid attributing it to agricultural income without any corroboration, for the other property of 1.65 Decimal at R.S. Dag No. 5967 deliberate efforts were made to deposit unexplained cash in the bank account of the Appellant, so as to make it appear that payment was made by the Appellant through the Banking Channel.
Thus, we dismiss the two Appeals.
ISSUES PRESENTED AND CONSIDERED
1. Whether the material on record establishes a "benami transaction" within the meaning of Section 2(9)(A) of the Prohibition of Benami Property Transactions Act, 1988, where consideration for property was paid by one person and the property was held in the name of another for the immediate or future benefit of the payer.
2. Whether the provisional attachment order (PAO) issued under Section 24(3) of the Act of 1988 was valid where prior approval of the Approving Authority was obtained on a date preceding service of the Section 24(1) notice.
3. Whether the initiating authority and adjudicating process complied with the burden and standard of proof required in benami proceedings, including the proper evaluation and weight to be given to documentary and seizure evidence (notably a diary) relied on by the person alleged to be benamidar.
ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Existence of a benami transaction under Section 2(9)(A)
Legal framework: Section 2(9)(A) defines "benami transaction" as a transaction where (a) property is transferred to or held by a person, and the consideration is provided or paid by another person; and (b) the property is held for the immediate or future benefit, direct or indirect, of the person who provided the consideration, subject to specified exceptions.
Precedent treatment: No direct judicial precedents were relied upon by the Court in the judgment; the Court proceeded by applying statutory tests to the facts.
Interpretation and reasoning: The Court arranged facts in seriatim and analyzed timing and quantum of payments, sequence of registration, construction expenditure and subsequent transfer. Key findings included: (a) initial payment of purchase consideration was made by the person ultimately characterized as the beneficial owner; (b) the registered title remained in that person's name through a period when substantial construction expenditure (around Rs. 4.13 crores) was incurred; (c) there was no reliable documentary or contemporaneous record proving that the construction expenditure was borne by the registered proprietor who later became benamidar; (d) the final sale to the registered holder was for a comparatively low consideration (Rs. 1.1 crores) and payment was delayed, with the purchaser taking loan and the earlier payer standing as guarantor - circumstances that, on the totality of material, pointed to an arrangement where consideration and benefit diverged from formal title.
Ratio vs. Obiter: Ratio - The Court's core ratio is that where evidence shows the consideration and substantial benefit of property ownership were provided by one person while title was held by another, and subsequent transfers and payment patterns are inconsistent with an arm's-length commercial bargain, a benami transaction under Section 2(9)(A) is established. Obiter - Observations on potential valuation expectations and appreciation are ancillary to the primary finding.
Conclusions: On the facts and material produced, the Court concluded that a benami transaction was established to the extent found by the Initiating Officer and Adjudicating Authority; the PAO was founded on a legitimate belief of benami holding supported by collected evidence.
Issue 2 - Validity of provisional attachment where approving authority's approval preceded service of notice (Section 24(3))
Legal framework: Section 24(3) permits provisional attachment by the Initiating Officer, with previous approval of the Approving Authority, where the Initiating Officer is of the opinion that a person in possession of property held benami may alienate it during the notice period; prior notice under Section 24(1) is otherwise required.
Precedent treatment: The Court did not cite precedents nullifying attachments for temporal mismatches between approval and notice; analysis relied on statutory interpretation and the curative provision in Section 63.
Interpretation and reasoning: The Court accepted that the approval was obtained on a date prior to issuance of the Section 24(1) notice. It evaluated whether such temporal order vitiated the PAO. The Court held that the Initiating Officer had power to provisionally attach with the Approving Authority's previous approval and that the only procedural defect was the sequence in which approval and notice occurred. The Court invoked Section 63 - a saving provision stating that notices, orders or proceedings shall not be invalid merely by reason of mistake, defect or omission if they are, in substance and effect, in conformity with the Act's intent and purpose - and found the procedural irregularity cured by Section 63 because the substantive prerequisites for provisional attachment had been met and the proceeding conformed with the Act's purpose.
Ratio vs. Obiter: Ratio - Temporal irregularity between approval and notice, standing alone, is not fatal where Section 63 applies and the substance of the proceeding conforms with the Act's intent. Obiter - Statements about administrative practice (that approval is ordinarily sought after notice) are observational.
Conclusions: The PAO was not rendered invalid by the fact that approval preceded issuance of the Section 24(1) notice; Section 63 saved the proceeding and no interference on this ground was warranted.
Issue 3 - Burden and standard of proof; evaluation of diary and other evidence relied upon by the alleged benamidar
Legal framework: The Act places an initial onus on the Initiating Officer to have reason to believe a benami holding exists; once sufficient material is gathered, the onus shifts to the person claiming to be benamidar to rebut the inference with cogent evidence of legitimate ownership and sources of consideration. Evidence must be credible, contemporaneous and capable of displacing the statutory inference.
Precedent treatment: No authority was relied upon; Court applied general evidentiary principles to statutory proceedings.
Interpretation and reasoning: The appellants relied in particular on a diary seized during search purporting to show construction expenditure by the benamidar. The Court examined entries and transaction timings and found the diary largely recorded construction payments for a different location until 2019, and entries referring to the property in question did not conclusively establish that the substantial construction cost (Rs. 4.13 crores) was borne by the registered holder prior to acquisition or that funds originated from known, provable sources of that person. The Court noted inconsistencies: inability to explain how the purported benamidar, earlier claimed to be short of funds for purchase, could fund large construction; delayed and partial payment of sale consideration; and the guarantor linkage for the loan used to pay the consideration. The Court held that the Initiating Officer had collected sufficient material to establish a reasonable basis for belief in a benami transaction, thereby shifting the onus to the appellants to produce reliable evidence - which, on analysis, they failed to do.
Ratio vs. Obiter: Ratio - Documentary records seized must be sufficiently specific, contemporaneous and corroborated by source proof to rebut a benami finding; generalized ledger entries or contested diary entries that do not account for timing and source of funds are inadequate. Obiter - Comments on the appellant's business activities and credibility are contextual observations supporting the evidentiary conclusion.
Conclusions: The evidence proffered by the appellants, including the diary, did not satisfactorily rebut the material relied upon by the Initiating Officer; therefore the burden-shifted rebuttal failed and the Adjudicating Authority's confirmation of the PAO was sustainable.
Overall Disposition
The Court, after marshaling evidence and applying the statutory definitions and saving provision, found no ground to interfere with the Adjudicating Authority's confirmation of the provisional attachment or its answer to the reference; the appeals were dismissed. The Court's conclusions on the existence of a benami transaction, the curative reach of Section 63 for procedural irregularity, and the required quantum and quality of rebuttal evidence constitute the operative ratios of the judgment.
Benami Transactions - purchase of the land - Validity of Provisional Attachment Order (‘PAO’) - non -compliance of the provisions of the Section 24(4) -Prior approval of the Approving Authority - invoked by the Initiating Officer - element of benami transaction as defined under Section 2(9)(A) of the Act of 1988 is missing - previous approval of the provisional attachment of the property taken from the approving authority, which according to the appellant should have been after causing u/s Section 24(1) -
Initiating Officer considered it to be a case of benami transaction - payment of consideration on construction by the beneficial owner and the land was then registered in the name of benamidar making out a case of benami transaction under Section 2(9)(a) of the Act of 1988 as amended by the Amending Act of 2016 -
HELD THAT:- The appellant has tried to take benefit of the documents to show that money was spent by benamidar for construction of resort in Village Murad. It is without clarifying as to how he was running the business and spending the money on it and apart from that, on the construction of two resorts separately at different places. The source sufficient to prove the fact aforesaid could not be disclosed and proved by the appellant. It is no doubt burden lies on the respondent to prove a case of benami transaction but they remained successful in collecting the evidence to show a case of benami transaction and thus onus was passed on the appellant to defend their case. It cannot be based on the imagination or pleadings but needs to be proved otherwise.
There is nothing on record to prove that the complete consideration was passed to the beneficial owner and accordingly respondent has taken it to be a case of benami transaction.
The analysis has been made in view of the fact that even according to the appellant, construction of the resorts was undertaken between 2017 and 2018 and thereupon the issue of violation of Coastal Regulation Zone was raised and was broken in the media. The diary makes a reference of payment for resort at Murad but largely involving the period after purchase of the property and Registration of the Sale Deed in favour of the benamidar. The fact, however, remains that a sum of Rs. 4.13 Crore was spent on construction in the year 2017-2018 when the land was existing in the name of beneficial owner.
Thus, we find a case of the benami transaction where the consideration of property in the name of the benamidar or held by him was pass on by the beneficial owner to the extent of Rs. 4.13 Crore and even no consideration was taken at the time of execution of Sale Deed on 30.12.2020. It was passed on after six months and that too only a sum of Rs. 1.1 Crore.
We find that the appellant was served with notice under Section 24(1) of the Act of 1988. However, previous approval of the provisional attachment of the property was taken from the approving authority on 30.08.2022 which according to the appellant should have been after causing notice under Section 24(1) of the Act of 1988. The objection to that effect could have been raised before the Adjudicating Authority and in any case it is saved by Section 63 of the Act of 1988.
Section 63 of the Act of 1988, quoted above, makes it clear that no order or proceeding taken or purported to have been furnished shall be invalid merely for the reason of any mistake, defect or omission in the notice, summons, order, document or other proceeding if the notice, summons, order, document or other proceeding is in substance and effect in conformity with or according to the intent and purpose of this Act. It is not that the Initiating Officer was not having power to provisionally attach the property, rather, it has to be with the previous approval of the approving authority which has been taken. The only omission or mistake is that it was taken prior to issuance of notice but that is saved by Section 63 of the Act of 1988. Thus, we do not find any substance even in the said argument of the Ld. Counsel for the appellants.
We are not inclined to accept the arguments of the Ld. Counsel for the appellants in reference to Section 24(3) of the Act of 1988.
Accordingly, appeals fail and are dismissed.
ISSUES PRESENTED AND CONSIDERED
1. Whether customs authorities may sell perishable seized imported goods and retain sale proceeds pending completion of adjudication to prevent irretrievable loss.
2. Whether re-export of seized imported goods may be permitted prior to completion of adjudication or investigation, and what statutory or policy constraints (including Section 125 of the Customs Act and relevant notifications) govern re-export.
3. Whether customs authorities are obliged to take reasonable steps to prevent perishability of seized goods while adjudication is pending, and what reliefs are available to mitigate prejudice to the importer.
4. Whether objections as to maintainability of the petition and the petitioner's locus standi should be decided at this stage or kept open.
ISSUE-WISE DETAILED ANALYSIS
Issue 1: Sale of perishable seized goods pending adjudication
Legal framework: Customs possess statutory powers over seized goods during investigation and adjudication. Administrative discretion may exist to deal with detained/seized goods, but such powers are exercised subject to statutory limits and policy (including any prohibitions on sale of goods that are unlawful to be sold in the domestic market).
Precedent Treatment: The parties referred to prior submissions before higher fora where the Union contended that destruction or re-export were the only permissible options for certain prohibited-origin goods; however, no binding precedent was applied by the Court to categorically preclude sale in all circumstances.
Interpretation and reasoning: The Court recorded the petitioner's pragmatic proposal that the customs authorities sell the perishable dates and retain the sale proceeds until adjudication concludes as a means to mitigate irretrievable loss from perishability. The customs representative opposed sale on the ground that if the goods are found to originate in a prohibited jurisdiction, they could not lawfully be sold in the Indian market; thus sale was asserted to be impermissible in that scenario. The Court did not resolve the legal question definitively on the papers; instead it noted the competing contentions and the discretionary nature of remedies available to prevent prejudice to the importer.
Ratio vs. Obiter: The observations about the viability of sale as a mitigation measure are interlocutory and exploratory rather than definitive ratio. The Court's direction to procure affidavit material to clarify statutory/policy position indicates that the point is to be determined on fuller material, not decided in this order.
Conclusions: No final determination was made; sale of perishable seized goods remains contested. The Court accepted the issue as a live legal question requiring factual and statutory clarification and directed further affidavits rather than granting or denying authorization to sell.
Issue 2: Permissibility of re-export prior to adjudication and applicability of Section 125/notifications
Legal framework: Re-export of imported goods seized by customs touches on statutory provisions governing seizure, detention, adjudication, and disposal of goods (notably Section 125 of the Customs Act as invoked) as well as executive notifications/policies (e.g., Notification No. 6/2025-2026) that may regulate treatment of prohibited-origin goods or grant powers for re-export or destruction. Administrative practice and any circulars/guidelines are relevant.
Precedent Treatment: The customs side relied on submissions previously made in higher proceedings to the effect that destruction or re-export are the appropriate routes for prohibited-origin goods; however, authority was not cited to conclusively establish that re-export could not be permitted before adjudication. The Court did not overrule or follow any precedential directive; it required documentary basis for the contention that Section 125 or policy mandates that re-export must await adjudication.
Interpretation and reasoning: The customs counsel asserted that re-export would not be permitted until adjudication concluded and that no timeline could be given for adjudication; the petitioner offered to re-export immediately to avoid loss. The Court found these competing positions material and ordered the respondents to file affidavits specifying statutory provisions, policies, circulars or guidelines that govern re-export requests and whether re-export can be authorized before adjudication, and on what conditions (for instance, retention of samples).
Ratio vs. Obiter: The requirement to file an affidavit setting out the legal and policy basis for the customs position is instructive and forms part of the Court's operative direction; it is not a final legal pronouncement on the permissibility of re-export prior to adjudication and thus is not a ratio deciding the underlying legal issue.
Conclusions: The Court did not decide whether re-export may be authorized pre-adjudication. It directed respondents to produce authoritative material (statutory provisions, notifications, circulars, guidelines) clarifying whether and under what conditions re-export may be permitted, leaving the substantive question open for determination after receipt of those materials.
Issue 3: Duty to prevent perishability and available interim reliefs to mitigate prejudice
Legal framework: Administrative authorities exercising custody over seized goods are subject to duties to safeguard property and avoid undue prejudice to interested parties, especially where goods are perishable. Remedies to mitigate loss include preservation measures, sample retention, sale with proceeds held in escrow, re-export, or destruction - subject to statutory constraints and policy considerations.
Precedent Treatment: No conclusive precedent was applied resolving that sale or re-export is mandatory or forbidden as an interim measure; the submissions referenced broader positions taken by executive representatives in other proceedings but did not supply binding judicial authority prescribing the sole remedies.
Interpretation and reasoning: The Court accepted the petitioner's concern about perishability and the practical prejudice of long detention without steps to prevent loss. The customs side's refusal to permit sale or immediate re-export, coupled with the absence of a timeline for adjudication, intensified the need for formal clarification of policy/statute. The Court ordered the respondents to address in affidavit form whether statutory or policy provisions require waiting for adjudication, and to indicate any timelines or practices for commencing/completing adjudication - thereby seeking to balance the authority's investigatory interests against the risk of irretrievable harm to seized perishable goods.
Ratio vs. Obiter: The Court's direction to obtain factual and legal material concerning protective measures and timelines is operative but not a definitive ruling on the substantive duty; therefore, it is interlocutory rather than ratio on the broader duty question.
Conclusions: The Court recognized an administrative obligation to consider measures to prevent perishability but refrained from prescribing a specific remedy without further material. It mandated disclosure by respondents of governing statutory/policy provisions and practice, enabling an informed adjudication of interim reliefs to mitigate prejudice.
Issue 4: Maintainability of petition and locus standi of petitioner
Legal framework: Jurisdictional challenges and questions of locus are preliminary questions that may affect the Court's competence to entertain substantive reliefs. Such objections are frequently raised and, depending on material, may be decided at preliminary stages or deferred.
Precedent Treatment: The customs counsel raised objections to maintainability and locus; the Court did not resolve these on the hearing of oral submissions but preserved the objections for determination at an appropriate stage.
Interpretation and reasoning: Given outstanding factual and legal material sought by the Court (affidavits on statutory/policy provisions, timelines, and options for re-export/sale), and because the petition seeks interlocutory measures, the Court kept objections to maintainability and locus open rather than adjudicating them immediately.
Ratio vs. Obiter: The decision to keep procedural objections open is procedural and interlocutory; it is not a substantive ratio on jurisdiction or standing.
Conclusions: Objections to the petition's maintainability and the petitioner's locus standi are kept open for later adjudication; no decision was reached in the present order.
Additional operative directions (procedural and evidentiary)
The Court directed specified respondents to file and serve affidavits by a fixed date setting out: (a) statutory provisions, circulars, guidelines or policies governing re-export, sale or destruction of seized goods (including reference to Section 125 where relied upon); (b) whether re-export can be authorized prior to adjudication and on what conditions (for example, retention of samples); and (c) any customary or expected timelines for investigation and adjudication or reasons why such timelines cannot be stated. The matter was listed for further hearing following filing of affidavits. These directions are interlocutory and aimed at factually and legally underpinning subsequent resolution of the issues above.
Detention of imported dates - perishable goods - whether the Petitioner is willing to re-export the goods? - HELD THAT:- The petitioner’s request that the customs authorities sell the perishable dates and retain the amounts received until the adjudication concludes is unacceptable to the customs authorities, even though the petitioner pointed out that a discretion was vested to permit such a course of action. The alternate proposal for re-export [by retaining samples for investigation] is being resisted by submitting that re-exports may be possible only after the conclusion of adjudication, and that no timeline can be indicated for the commencement and, consequently, the conclusion of adjudication.
The Respondent Nos. 5 and 6 are directed to file affidavits inter alia, regarding the Petitioner’s proposal for re-export of the seized goods. This proposal for re-export will be without prejudice to the Respondents' right to investigate this export transaction.
Petition disposed off.
ISSUES PRESENTED AND CONSIDERED
1. Whether a refund claim for amount paid twice (manual challan and later electronic challan pursuant to re-assessment) is barred by the one-year limitation under Section 27(1B) of the Customs Act, 1962.
2. Whether double payment made pursuant to directions of the Supreme Court and in the absence of an issued departmental procedure (CBIC circular issued on same date or after payment) amounts to a tax paid "under the Act" so as to attract the limitation provisions, or whether it is a payment made without authority of law requiring refund notwithstanding statutory limitation (Article 265 of the Constitution).
3. What is the relevant date for computing limitation for refund claims in cases of reassessment and/or payments made under mistake of law - date of payment, date of re-assessment, or date of judicial direction - and whether the Cosmo Films directions and ensuing CBIC circular affect computation of limitation or entitlement to refund.
4. Whether interest is payable on a refunded sum where double payment was made voluntarily in the circumstances described.
ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Applicability of Section 27(1B) limitation to refund of double payment
Legal framework: Section 27 of the Customs Act prescribes a one-year limitation for filing refund claims, with sub-clauses specifying computation from dates such as issue of special orders, judicial directions, or re-assessment. The Court also considered comparable limitation provisions under GST/CGST and Central Excise statutes and the general law on refund of amounts paid under mistake (Limitation Act principles).
Precedent treatment: The Court reviewed and relied upon a line of authorities (High Court and Supreme Court decisions) holding that where amounts are paid under a mistake of law or are paid/collected without authority of law, the strict statutory limitation may not apply; the period for seeking relief may run from the date the mistake was discovered (Salonah Tea, ITC, Doaba/related pronouncements, and several High Court decisions). The Court treated these precedents as followed and applicable, specifically those that distinguish refund of amounts not truly "duty" from ordinary refund claims under the relevant statutory scheme.
Interpretation and reasoning: The Court accepted that the petitioner paid the same IGST amount twice - once by manual challan prior to issuance/circulation of the CBIC procedural circular and once by electronic challan after re-assessment. The Court held that such double payment is not proper taxation retained by the State; it is in substance a payment made without authority (or a mistaken payment/self-assessment in circumstances where statutory position was unsettled). The Court reasoned that permitting the Revenue to retain the second payment would amount to collection without authority and would offend Article 265. Given the admitted double payment, the statutory limitation under Section 27(1B) cannot be mechanically applied to deny refund where the payment retained is not a tax properly due. The Court relied on decisions which held that limitation for mistaken payments begins when the mistake was or could with reasonable diligence be discovered (three-year measure under Limitation Act and relevant equitable principles), and that the bar in a specific refund provision does not oust the court's discretionary remedial power where retention is without authority of law.
Ratio vs. Obiter: Ratio - Section 27(1B) limitation cannot be applied to deny refund where the sum retained represents a double payment or payment without authority, and the entitlement to refund is governed by Article 265 and principles recognizing that limitation for mistakes runs from discovery. Obiter - detailed citations of earlier decisions and full discussion of GST/CGST explanation-date provisions are supportive but ancillary.
Conclusions: Section 27(1B) did not bar refund of the double-paid amount in these facts; the adjudicating authority erred in rejecting claim solely on limitation grounds.
Issue 2 - Nature of payment (tax under statute vs payment without authority) and effect of Article 265
Legal framework: Article 265 prohibits levy or collection of tax except by authority of law. Where an amount is collected or retained without statutory authority, constitutional principles and case law require refund unless there has been unreasonable delay or prejudice to third parties.
Precedent treatment: The Court relied on established authorities holding that payments made under mistake of law or payments which were not exigible by statute cannot be retained by the Revenue and may be refunded notwithstanding statutory refund schemes (Salonah Tea, ITC, Swastik Sanitarywares, Joshi Technologies, Karnataka and other High Court decisions). These precedents were followed and applied to the facts.
Interpretation and reasoning: The Court found that the double payment resulted from the interim legal landscape (Supreme Court directions and absence of a clearly communicated cash-payment procedure at the relevant time). The admitted duplication meant the second payment was not a lawful tax liability to be retained; retention would be contrary to Article 265. The Court therefore treated the claim as one for recovery of money retained without authority rather than a routine refund claim governed exclusively by the statutory refund limitation.
Ratio vs. Obiter: Ratio - double payment/mistaken payment that amounts to retention without statutory authority must be refunded; Article 265 underpins entitlement. Obiter - remarks on policy considerations and examples from other statutes were explanatory.
Conclusions: The double payment is not to be treated as a tax properly due that the State may retain; the petitioner is entitled to refund under constitutional and equitable principles regardless of the strict application of Section 27 in these circumstances.
Issue 3 - Relevant date for limitation and effect of judicial directions / CBIC circular
Legal framework: Section 27 and corresponding CGST/Section 54 constructs identify multiple possible "relevant dates" (payment date, date of re-assessment, date of judicial direction). Limitation law (Limitation Act, Section 17) governs accrual where mistake is involved: limitation runs from discovery of mistake or when with reasonable diligence it could have been discovered.
Precedent treatment: The Court followed authorities holding that where legal position is unsettled and amounts were paid under mistake or in compliance with judicial directions, the relevant date for limitation may be the date of discovery/reassessment/judicial communication rather than the earlier payment date; the period may be tolled where confusion persisted and the taxpayer acted within reasonable time after clarity was provided.
Interpretation and reasoning: The Court noted the petitioner paid manually to adhere to the six-week window indicated by the Supreme Court and paid again electronically after re-assessment pursuant to the CBIC circular. Given the uncertainty and the procedural lacuna when the manual payment was made, the Court concluded that the limitation computation cannot defeat a refund claim where double payment arose from the transitional circumstances and where the taxpayer acted promptly once direction/procedure crystallized. The Court therefore declined to treat the manual payment as conclusively fixing the limitation bar so as to preclude refund of the duplicate payment made later.
Ratio vs. Obiter: Ratio - in transitional or uncertain legal contexts, limitation for refund of mistaken/double payments must be interpreted in light of when the mistake could reasonably be discovered and the taxpayer's compliance with judicial directions; reassessment and judicial directions may control computation. Obiter - detailed mapping to CGST explanation clauses was explanatory.
Conclusions: The petitioner's conduct and the sequence (manual payment to meet a judicially prescribed window, later electronic payment after reassessment in accordance with circular) put the duplicate payment within the ambit of refundable sums; limitation could not be used to defeat refund in the factual matrix before the Court.
Issue 4 - Entitlement to interest on refund
Legal framework: Interest on refunds is governed by statutory provisions and equitable considerations; entitlement may be affected by voluntariness of payment and conduct of the claimant.
Precedent treatment: The Court considered precedents where interest was denied where payment was voluntarily made or where refund was granted in exercise of discretionary jurisdiction without statutory mandate for interest.
Interpretation and reasoning: Although refund was ordered, the Court found that the petitioner had voluntarily deposited the amount twice (to comply with perceived time limit) and that interest was not warranted in the circumstances. The Court balanced the equities and exercised discretion to grant refund without interest.
Ratio vs. Obiter: Ratio - refund ordered but interest denied where duplicate voluntary payment was made in the transitional context described. Obiter - general remarks on interest principles.
Conclusions: Refund to be made without interest; adjudicating authority to issue refund order within eight weeks (as directed by the Court).
Final Disposition (Court's Conclusion)
The Court quashed and set aside the impugned Order-in-Original rejecting the refund. The matter was remanded to the adjudicating authority to process and issue the refund order for the duplicate payment of Rs. 78,55,766/- within eight weeks, without allowance of interest, on the stated reasoning that Section 27(1B) could not bar refund where the Revenue admits double payment and retention would amount to collection without authority contrary to Article 265. No order as to costs.
Rejection of claim of the petitioner for refund of the double payment of duty deposited through Challan TR-6 - rejection on the ground of time limitation - fulfilment of condition of Advance Authorization in terms of the exemption notification - HELD THAT:- In view of the analysis made in the decision in case of Gujarat State Police Housing Corporation Ltd [2024 (1) TMI 1409 - GUJARAT HIGH COURT] referred to and relied upon in case of Messars Aalidhra Texcraft Engineers and Anr. [2025 (1) TMI 50 - GUJARAT HIGH COURT] which is squarely applicable to the facts of the present case more particularly, when the petitioner has deposited Rs. 78,55,766/- twice, it would not be covered by the provision of section 27 of the Act and no limitation would apply as the same is required to be refunded by the respondent-authority and could not have been rejected on the ground of limitation under section 27(1B) of the Act in view of the provision of Article 265 of the Constitution of India.
The impugned Order-in-Original dated 26.11.2024 passed by respondent No. 2-Assistant Commissioner (Refund) is therefore, quashed and set aside. The respondents are directed issue refund order for the amount of Rs. 78,55,766/- deposited by the petitioner within a period of 08 weeks from the date of receipt of copy of this order.
Petition allowed.
ISSUES PRESENTED AND CONSIDERED
1. Whether revocation of the suspension of a Customs Broker Licence was justified on the facts and reasons recorded by the Adjudicating Authority.
2. Whether the Adjudicating Authority failed to consider the gravity of alleged violations of Customs Broker Licensing Regulations, 2013 (CBLR, 2013) before revoking suspension.
3. Whether action under CBLR, 2013 must proceed in accordance with prescribed timelines (show cause notice, appointment of enquiry officer, report and adjudication) and whether any non-completion of such process affects the validity of revocation.
4. Whether subsequent suspension of the same Customs Broker Licence in a different matter renders an appeal against earlier revocation infructuous.
ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Justification for revocation of suspension of Customs Broker Licence
Legal framework: Suspension and revocation of Customs Broker licences are governed by Customs Broker Licensing Regulations, 2013, which prescribe grounds for suspension and the procedure for adjudication.
Precedent Treatment: The impugned order refers to judicial pronouncements relied on by the broker in representations but no specific precedent was adopted, distinguished or overruled by the Tribunal in its reasoning.
Interpretation and reasoning: The Adjudicating Authority recorded that the Show Cause Notice (SCN) from SIIB alleged clear violations of CBLR, 2013 - lending of licence to a non-broker, failure to obtain authorization, and failure to verify importer correctness. Simultaneously, the Adjudicating Authority found that evidences on record nonetheless required further inquiry and that continuation of suspension did not merit consideration at that juncture. The Tribunal examined the record and found that the Adjudicating Authority had considered the alleged offences before revoking suspension and had explicitly stated that further enquiry was required, thereby justifying revocation pending completion of enquiry.
Ratio vs. Obiter: Ratio - where the Adjudicating Authority records existence of prima facie violations but also concludes that further inquiry is required, it may revoke a suspension if continuation is not warranted at that stage. Obiter - references to the broker's submissions contending illegality of invocation of suspension provisions, which were noted but not treated as determinative.
Conclusions: The Tribunal concluded revocation was justified because the Adjudicating Authority had adverted to the alleged violations and given recorded reasons - namely that evidence required further inquiry and continuation of suspension was not merited at that stage.
Issue 2 - Whether the Adjudicating Authority failed to consider the gravity of alleged violations
Legal framework: Adjudicating Authorities must balance the seriousness of alleged contraventions with the evidence on record and principles of natural justice when deciding on interim measures such as suspension.
Precedent Treatment: The broker's written submissions cited judgments/ orders asserting limits on suspension absent pending or contemplated enquiry, but the Adjudicating Authority considered those contentions and the allegations in the SCN.
Interpretation and reasoning: The Tribunal found express language in the impugned order noting that the SCN made clear allegations of breaches of CBLR, 2013. That observation demonstrates the Adjudicating Authority considered the gravity of the offences. The decision to revoke rests on assessment that further inquiry was necessary and that continuation of suspension at that point was not warranted, rather than on an oversight of gravity.
Ratio vs. Obiter: Ratio - explicit recognition of alleged breaches coupled with a reasoned conclusion that suspension continuation was unwarranted satisfies requirement to consider gravity. Obiter - the broker's reliance on authorities to bar suspension where no enquiry is pending, which the Adjudicating Authority referenced but did not mechanically apply.
Conclusions: The Tribunal held that the Adjudicating Authority had adequately considered the alleged gravity and therefore the contention that suspension was revoked without regard to seriousness of the offence was unsustainable.
Issue 3 - Requirement to follow timelines and procedural steps under CBLR, 2013
Legal framework: CBLR, 2013 prescribes procedural steps and timelines for initiating action on contraventions (issuance of SCN within stipulated period, appointment of enquiry officer, report submission and adjudication), which guide but do not rigidly preclude interim administrative decisions.
Precedent Treatment: The Tribunal noted the statutory timelines and observed that, given the appeal was filed in 2017, the procedural milestones (issue of SCN within 90 days of offence report, appointment of enquiry officer, submission of report and adjudication) were reasonably presumed to have been completed by the Department thereafter.
Interpretation and reasoning: The Tribunal treated adherence to CBLR timelines as relevant to the overall adjudicatory process but not as undermining the Adjudicating Authority's record-based decision to revoke suspension pending further inquiry. The Tribunal inferred that departmental compliance with timelines likely occurred after the impugned revocation and that any remedial or punitive action could still follow under the Regulations.
Ratio vs. Obiter: Ratio - where action is to be taken under CBLR, prescribed timelines guide enforcement and the existence of ongoing compliance or subsequent proceedings may render interlocutory reliefs non-final. Obiter - the Tribunal's presumption that timelines were complied with post-2017 is a factual inference specific to this record.
Conclusions: The Tribunal concluded that non-completion of the full regulatory process at the time of revocation did not vitiate the Adjudicating Authority's reasoned decision to lift suspension; and that the departmental process under CBLR could still proceed according to timelines.
Issue 4 - Effect of subsequent suspension on the appeal's justiciability (infructuousness)
Legal framework: An appeal may become infructuous if the relief sought is rendered academic by subsequent events (supervening act affecting the subject matter).
Precedent Treatment: The Tribunal applied the established principle that subsequent events which alter the practical effect of the appealed order may render an appeal infructuous.
Interpretation and reasoning: The Tribunal accepted the Appellant's representative's statement that the Customs Broker Licence was again suspended on 27.02.2023 in relation to another matter. Given that the licence was not in active use by reason of the later suspension, the practical remedy sought (revocation of the licence or forfeiture of security) in respect of the earlier revocation lost operative significance.
Ratio vs. Obiter: Ratio - where supervening events (e.g., subsequent suspension) remove the operative impact of the impugned order, appeal challenging that order may be dismissed as infructuous. Obiter - none significant beyond applying the established doctrine of mootness/infructuousness.
Conclusions: The Tribunal found the appeal to be infructuous in view of the subsequent suspension and therefore dismissed the appeal without interfering with the impugned order.
Revocation of the Customs Broker Licence - adjudicating authority has not spelt out the reasons for revocation of suspension of Customs Broker licence - adjudicating authority should have waited for the outcome of the inquiry before revoking the suspension of the Customs Broker licence - HELD THAT:- There is nothing in the impugned order to support the Appellant’s contention that the adjudicating authority has not considered the enormity of the offence before revoking the suspension of the Customs Broker licence of the Respondent. On the contrary, the Adjudicating Authority has observed in the impugned order that according to the SCN received from SIIB, it is clear that CB has violated provisions which are laid down under CBLR, 2013. Therefore, it is apparent that while revoking the suspension of the Customs Broker Licence issued to the Respondent, the Adjudicating Authority has taken into consideration the alleged offence committed by the Respondent.
Thus, the grounds on which the Appellant has challenged the impugned order are found to be unsustainable even for the reason that for contravention of provisions of CBLR action is required to be initiated as per the timelines prescribed therein. This appeal was filed in 2017 and that issuance of Show Cause Notice within 90 days from the receipt of offence report, appointment of an enquiry officer, submission of his report to the Adjudicating Authority and passing the order on revocation or otherwise are reasonable presumed to have been computed long back by the Department.
There are no ground to interfere with the impugned Order-in-Original - appeal dismissed.
1. ISSUES PRESENTED AND CONSIDERED
1. Whether the transaction value declared in bills of entry could be rejected and redetermined on the basis of proforma invoices, insurance documents, handwritten entries and an unsigned fax recovered during search operations.
2. Whether statements recorded under Section 108 (referred to in text) that were subsequently retracted and not subjected to cross-examination can be relied upon for valuation and other adverse findings, in view of the procedures required by Section 138B.
3. Whether the methodology of applying an unexplained ratio of "actual value to declared value" derived from certain proximate consignments to redetermine value of other consignments is legally sustainable.
4. Whether contemporaneous import evidence adduced by the importer must be considered and whether ignoring such evidence is permissible when undervaluation is alleged.
5. Whether a power-of-attorney holder may be made jointly liable with the proprietor/importer for differential duty without issuing specific notice under Section 147(3) proviso read with Section 28 or establishing that the agent held himself out as importer.
6. Whether equal/alternate penalties (Section 114A) ought to have been imposed by the adjudicating authority when differential duty was confirmed.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Reliance on proforma invoices, insurance documents, handwritten slips and unsigned fax for rejecting transaction value
Legal framework: Sections 14(1)/14(1A) (deemed value/valuation rules) and Rules under Customs Valuation Rules 1988 govern acceptance of transaction value and permitted departures; evidentiary value of commercial documents is assessed in adjudication.
Precedent treatment: Authorities establish that proforma invoices are, at best, offer prices and insufficient per se to reject a declared transaction value; insurance memos cannot automatically be equated with CIF/transaction value absent mercantile practice or corroboration; casting suspicion on invoice alone is insufficient.
Interpretation and reasoning: The Court held that proforma invoices evidence an offer price, open to negotiation, and cannot form the basis for enhancement unless evidence shows the proforma became firm and payment occurred accordingly. Insurance documents cannot be presumed to reflect true CIF value since insuring at 110% is a contractual/commercial choice and not conclusive of transaction value. Handwritten slips and unsigned fax recovered in search lack authentication and authorisation; their probative value is weak in absence of proof connecting them to the importer or showing reliance by the importer.
Ratio vs. Obiter: Ratio - proforma invoices and insurance memos, without corroboration, do not justify rejection of transaction value; unreliably sourced slips/faxes recovered from search cannot alone establish actual value.
Conclusion: Rejection of declared transaction values solely on the basis of proforma invoices, insurance documents and unverified slips/fax was unsustainable.
Issue 2 - Reliance on retracted statements recorded under Section 108 without cross-examination; compliance with Section 138B
Legal framework: Statements recorded under the statutory provision (referred in text) are subject to procedural safeguards under Section 138B(1) - deponent must be examined as witness to establish voluntariness and be made available for testing by cross-examination for use against the noticee.
Precedent treatment: Tribunal and higher court decisions require that statements relied upon must be tested by cross-examination and the procedure of Section 138B must be complied with before such statements are used in adjudication; mere production of statement without adherence to procedure renders it of little or no probative value.
Interpretation and reasoning: The adjudicating authority relied on the deponent's statements despite retraction and denied the importer the requested cross-examination; the deponent was a power-of-attorney acting for principals, and denial of cross-examination violated principles of natural justice and statutory procedure. Because Section 138B procedure was not followed, the statements lost relevancy and could not support valuation findings.
Ratio vs. Obiter: Ratio - statements recorded under the provision cannot be relied upon in adjudication unless the deponent is examined and allowed to be cross-examined in accordance with Section 138B; denial of cross-examination where evidence is to be used against the noticee vitiates reliance on those statements.
Conclusion: Reliance on retracted, untested statements was impermissible; findings premised on such statements are unsustainable.
Issue 3 - Validity of adopting an unexplained ratio from proximate consignments to redetermine value of other consignments
Legal framework: Rules 5-8 provide structured, sequential methods for valuation when transaction value under Rule 4(1) is rejected; any alternate methodology must be explained, justified and consistent with Rules and Section 14.
Precedent treatment: Prior authorities require transparent reasoning and evidentiary basis when choosing alternate valuation methods; mechanical or unexplained application of ratios lacks lawful foundation.
Interpretation and reasoning: The impugned orders reproduced a statement that values for certain consignments were to be determined "by adopting the same ratio of actual value to declared value as found in such proximate consignment," but neither SCNs nor OIOs explained how the ratio was computed, what constituted 'proximate consignments', or the rationale for applying that ratio to dissimilar consignments. Adoption of values from proforma/insurance documents (already held unreliable) to compute a ratio compounds the infirmity.
Ratio vs. Obiter: Ratio - unexplained, arbitrary application of a purported ratio derived from unreliably sourced 'actual values' is not a legally sustainable method of valuation.
Conclusion: The methodology of applying an unexplained ratio to redetermine values is legally flawed and cannot sustain differential duty demands.
Issue 4 - Treatment of contemporaneous import evidence produced by the importer
Legal framework: When undervaluation is alleged, the department bears the burden to prove invoice price is incorrect - generally by producing evidence of contemporaneous imports of identical/similar goods at higher prices; if department discharges burden, onus shifts to importer to show declared invoice valid.
Precedent treatment: Apex Court authorities emphasize that invoice is prima facie evidence and contemporaneous comparable imports must be sought and considered before rejecting transaction value; absence of such evidence entitles importer to benefit of doubt.
Interpretation and reasoning: Appellants produced contemporaneous import documents supporting declared values; adjudicating authority admitted their production but ignored them, preferring search-recovered documents. Ignoring contemporaneous import evidence without adequate reasons contravenes settled law and indicates biased approach. Department cannot rest on suspicion while refusing to consider contemporaneous evidence offered by importer.
Ratio vs. Obiter: Ratio - contemporaneous import evidence supportive of declared transaction value must be considered; failure to consider it when present warrants setting aside adverse valuation.
Conclusion: The adjudicating authority's disregard of contemporaneous import evidence was impermissible and undermines the confirmed demands.
Issue 5 - Liability of power-of-attorney holder versus proprietor/importer under Sections 28 and 147
Legal framework: Section 28 provides recovery from the person chargeable with duty (importer); Section 147 governs agent/principal liability, including deeming provisions and a proviso that limits recovery from agent unless duty cannot be recovered from owner/importer or agent's wilful act/negligence is shown and appropriate notice issued.
Precedent treatment: Authorities hold that demand on agent (clearing agent/power-of-attorney) requires distinct notice under proviso to Section 147(3) and factual satisfaction that duty cannot be recovered from importer; absent such notice or finding that agent held himself out as importer/owner, demand on agent is invalid.
Interpretation and reasoning: Power-of-attorney holder was treated by adjudicating authority as de facto importer based on wide powers, and demands were made jointly on proprietor and agent. There was no finding that the agent held himself out as importer or that recovery from importer was impossible, nor was specific notice under proviso to Section 147(3) issued addressing agent's liability. Thus the joint demand on the agent lacked the statutorily required basis.
Ratio vs. Obiter: Ratio - demand of duty jointly on agent and importer without statutory notice under Section 147(3) proviso and without establishing necessity to recover from agent is unsustainable; agent cannot be saddled with recovery unless conditions in Section 147 are satisfied.
Conclusion: Joint demands on the power-of-attorney holder were untenable and liable to be set aside.
Issue 6 - Non-imposition of penalty under Section 114A when differential duty is confirmed
Legal framework: Penalty provisions (Section 112A, Section 114A, etc.) provide for imposition of penalties on different grounds; exercise of discretion and applicability depend on facts and proofs of culpability or wilful evasion.
Precedent treatment: Courts examine whether statutory conditions for alternate penalties are satisfied and whether adjudicator exercised discretion lawfully; penalties are not automatic and must be founded on established violations.
Interpretation and reasoning: Given the infirmities in the valuation exercise (unreliability of relied documents, failure to comply with Section 138B, neglect of contemporaneous evidence, and flawed methodology), the finding underlying any additional penalty claim (Section 114A) lacked merit. Consequently, the department's appeal seeking imposition of equal penalty under Section 114A was dismissed.
Ratio vs. Obiter: Ratio - where foundational valuation findings are unsustainable, consequential penalty claims predicated on those findings cannot stand.
Conclusion: Department's appeal for imposition of Section 114A penalty was without merit and dismissed.
Overall Conclusion: The adjudicating authority's rejection of declared transaction values and consequent demands and penalties were founded on improperly relied documents and untested statements, ignored contemporaneous import evidence, employed an unexplained ratio methodology, and made untenable joint demands on the power-of-attorney holder; these cumulative infirmities rendered the impugned orders unsustainable and justified setting them aside. The department's appeal for penalty under Section 114A was dismissed.
Rejection of the transaction value declared - enhancement of value of goods imported during Jan 2003 to June 2007 - re-determination of value in terms of the Customs Valuation (Determination of Price of Imported goods), Rules, 1988, read with Section 14 of the Customs Act, 1962 - Confiscation - recovery of differential duty with interest and penalty - HELD THAT:- A journey down the well-trodden path takes us to the well-known decision of the Apex Court in Eicher Tractors Ltd v Commissioner of Customs, Mumbai, [2000 (11) TMI 139 - SUPREME COURT] wherein it was laid down as to how the transaction value has to be determined and it was also held that it is only when the transaction value under Rule 4 is rejected, then under Rule 3(ii) the value shall be determined by proceeding sequentially through Rules 5 to 8 of the Rules. The Apex Court also held that, conversely, if the transaction value can be determined under Rule 4(1) and does not fall under any of the exceptions in Rule 4(2), there is no question of determining the value under the subsequent Rules.
The appellants have also protested the rejection of transaction value and its enhancement on the basis of insurance documents. In the instant case, the reliance on insurance documents has been made by the adjudicating authority on the surmise that it would not be a prudent business practice to accept higher insurance value, unless it was the true value. It is also noticed that the adjudicating authority has placed reliance on the insurance documents without stating the basis, premised on customs valuation rules, that accord sanction to infer the 110% insurance premium shown in the insurance documents to be the CIF value. The appellants have contended that insurance is paid by the foreign supplier who has sought to indicate higher value since the tapes are very delicate and the gum gets damaged due to vagaries of temperature, humidity contained in the air etc, to avoid loss and litigation - the entire case as well as the reliance on the proforma invoices/insurance documents, paper and fax message hinge on the purported admissions made by Shri. Surya Prakash Bhandari in his statements. There is no cavil that these statements have also been retracted by the deponent.
The rejection of the evidence of contemporaneous import is clearly opposed to the principles laid down by the Apex Court in its decisions in Eicher Tractors [2000 (11) TMI 139 - SUPREME COURT] and Sanjevani Non -Ferrous Trading [2018 (12) TMI 738 - SUPREME COURT], whereby it has been laid down in unambiguous terms that, when undervaluation is alleged, the Department has to prove it by evidence or information about comparable imports. It has been held that casting suspicion on invoice produced by the importer is not sufficient to reject it as evidence of value of imported goods. The Apex Court has also held that if the charge of undervaluation cannot be supported either by evidence or information about comparable imports, the benefit of doubt must go to the importer.
Section 147 of the Customs Act stipulates the liability of principal and agent. Sub-section (1) of the said Section 147 stipulates that where the Act requires anything to be done by the owner, importer or exporter of any goods, it may be done on his behalf by his agent - It is seen that sub-section 3 of Section 147 ibid stipulates that when any person is expressly or impliedly authorised by the owner, importer or exporter of any goods to be his agent in respect of such goods for all or any of the purposes of this Act, such person shall, without prejudice to the liability of the owner, importer or exporter, be deemed to be the owner, importer or exporter of such goods for such purposes.
The evidences relied upon by the revenue in the SCN that form the basis of the allegations, coupled with the unexplained ratios adopted while arriving at the purported “actual value” and consequent determination of differential duty, as well as the demand of duty jointly made on the proprietary firm/proprietor/proprietrix and the power of attorney holder, are instances of incurable lacunae existing in the SCN. Such lacunae, when considered along with the factum of non-controverting of the evidence in the form of contemporaneous imports adduced by the appellant in support of its contentions more than a decade ago at the first instance of their production before the adjudicating authority, and also the fact that the statements relied upon are to be eschewed for their unproven relevancy; the scales of justice clearly tilt in favour of the appellants.
The impugned orders in original are unsustainable and are liable to be set aside - Appeal allowed.
ISSUES PRESENTED AND CONSIDERED
1. Whether the customs authority could confirm demand, confiscation and penalties for alleged breach of conditions of an EPCG-derived concession when the Directorate General of Foreign Trade (DGFT) had issued an Export Obligation Discharge Certificate (EODC) and the EODC had not been cancelled by DGFT.
2. Whether statements recorded under section 108 of the Customs Act could be relied upon by the Commissioner (Preventive) for adjudication of breach of the Notification when the procedural protections under section 138B of the Customs Act had not been invoked.
3. Whether a professional who issued installation/utilization certificates (a Chartered Engineer) could be held liable to penalty under section 112(a) of the Customs Act for alleged facilitation/abetment of evasion of customs duty where (a) the certificate concerned installation (not use), (b) DGFT had issued an EODC and the DGFT proceedings had not cancelled it, and (c) reliance was placed on statements under section 108 without section 138B having been followed.
ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Customs authority's jurisdiction where DGFT has issued and not cancelled EODC
Legal framework: The EPCG scheme and Notification authorize concessional import benefits subject to export obligations; DGFT issues EODC upon satisfaction of export-obligation fulfillment; the FTDR (Foreign Trade Development/Regime) statutory scheme confers administration of export obligation discharge to DGFT whereas Customs administer import duties and concessions under the Customs Act.
Precedent Treatment: The Tribunal relied on the Supreme Court precedent holding that where a licence/certificate issued by the licensing authority is not questioned by that authority, customs cannot refuse exemption on an allegation of misrepresentation; it treated that principle as followed by a High Court decision which held that Customs cannot ignore or deprive a holder of a certificate issued under the FTDR/EXIM regime absent adjudication or declaration of invalidity by DGFT, and that there cannot be overlapping/parallel adjudicatory power between DGFT and Customs over the same instrument.
Interpretation and reasoning: The Tribunal reasoned that once DGFT exercised its jurisdiction, satisfied itself that export obligation was fulfilled and issued EODC (with bank guarantee redeemed), the Customs department lacks jurisdiction to sit in judgment over the EODC. The Tribunal treated the EODC as an administrative certificate whose validity, origin and cancellation fall within DGFT's domain; therefore confirmation of demand, confiscation or denial of concession by Customs in the absence of prior DGFT cancellation of EODC would amount to impermissible interference with DGFT's certificate.
Ratio vs. Obiter: Ratio - where an instrument (EODC) is issued by DGFT and not cancelled, Customs cannot adjudicate to deny concession or confirm demand premised on alleged breach of export obligation; such power to question the EODC belongs to DGFT and requires DGFT adjudication/cancellation first. Obiter - ancillary remarks on administrative propriety of concurrent inquiries were explanatory.
Conclusions: Demand, confiscation and penalties premised on alleged non-fulfilment of export obligation could not be sustained in absence of DGFT cancellation of EODC; Customs lacked jurisdiction to adjudicate validity of EODC and therefore could not confirm demand based on the same facts absent DGFT action.
Issue 2 - Admissibility and weight of statements under section 108 when section 138B procedure not followed
Legal framework: Section 108 permits recording of statements by customs officers; section 138B prescribes a specific procedural route for examination and use of statements obtained during investigation (including protections/conditions for use in adjudication/prosecution) - the statutory scheme contemplates that certain procedural safeguards must precede reliance on such statements.
Precedent Treatment: The Division Bench placed reliance upon Tribunal decisions (as cited in the order) holding that statements made under section 108 are not automatically admissible or determinative where the procedure under section 138B has not been complied with; those decisions were applied to disallow reliance on section 108 statements in the absence of section 138B procedure.
Interpretation and reasoning: The Tribunal held that the Commissioner (Preventive) was not justified in using the appellant's statements recorded under section 108 to conclude that the Notification's provisions had been violated because the mandated procedural safeguards under section 138B had not been followed. The Tribunal emphasized procedural compliance before such statements can be given evidentiary weight for penal or confiscatory outcomes.
Ratio vs. Obiter: Ratio - statements under section 108 cannot be relied upon for adjudication of violations unless the procedural prescriptions of section 138B (and related safeguards) have been complied with; failure to follow section 138B renders reliance on such statements improper. Obiter - comments on the appropriate investigatory sequence were explanatory.
Conclusions: The Commissioner's reliance on section 108 statements (without section 138B compliance) was unjustified, and such statements could not sustain findings of violation or penalties.
Issue 3 - Liability of professional certifier under section 112(a) where certificate related to installation, EODC not cancelled, and evidentiary procedure defective
Legal framework: Section 112(a) contemplates penalty for certain offences including aiding/abetting evasion of customs duty; professionals issuing certificates may be liable where their act or omission knowingly facilitates evasion; however, liability requires proper proof of culpability and compliance with evidentiary/procedural requirements.
Precedent Treatment: The Tribunal applied the reasoning from its consideration of Issues 1 and 2 and precedent that limits Customs' capacity to challenge DGFT-issued instruments and that limits reliance on section 108 statements absent section 138B compliance.
Interpretation and reasoning: The Tribunal noted that the Corrigendum/Addendum relied on the appellant's section 108 statements and alleged that the appellant issued installation/utilization certificates without verifying conditions, thereby aiding evasion. The Tribunal observed (i) the appellant's function was to certify installation (not usage), (ii) EODC had been issued by DGFT and not cancelled, and (iii) the impugned statements were improperly relied upon because section 138B procedure was not followed. Given that confiscation, demand and penalties against the importer and directors had been set aside, and the EODC remained intact, the imposition of penalty on the professional could not be sustained.
Ratio vs. Obiter: Ratio - penalty under section 112(a) cannot be imposed on a professional certifier where (a) the certificate was limited to installation (not use), (b) the EODC stands uncancelled by DGFT, and (c) the only incriminating material relied upon comprises section 108 statements obtained without compliance with section 138B. Obiter - observations on the timing and manner of issuance of corrigenda to show-cause notices are explanatory.
Conclusions: The penalty imposed under section 112(a) on the professional certifier was unsustainable and was set aside because (i) the Customs authority lacked jurisdiction to challenge an uncancelled EODC issued by DGFT, (ii) statements under section 108 were improperly relied upon absent section 138B procedure, and (iii) the certificate issued related to installation and did not substantiate aiding of duty evasion once import-related penalties against the importer and directors were vacated.
Levy of penalty on the appellant, Chartered Engineer, u/s 112(a) of the Customs Act 1962 - issuance of certificate in respect to BMW cars which were imported under EPCG scheme - two cars imported by Bestech Hospitalities under the EPCG scheme were not used for transport of foreign guests or Non-Resident Indians, but were used for personal use by the two Directors - HELD THAT:- Initially the show cause notice was not issued to the appellant and it was only by a Corrigendum/Addendum to the show cause notice dated 18.04.2012 that the appellant was also required to show cause as to why penalty should not be imposed upon him u/s 112(a) of the Customs Act.
It would be seen from the show cause notice that the statements made by the appellant under section 108 of the Customs Act on 29.09.2011 and 03.10.2011 have been relied upon. These statements could not have been considered as relevant as the procedure completed under section 138B of the Customs Act had not been followed - This apart, the appellant was only required to issue the issue certificate with regard to the installation of the goods and not with regard to the use of the goods. Further, once the confiscation of the two imported BMW cars for having violated the terms and confirmation of demand has been set aside and the penalty upon Bestech Hospitalities and on the two Directors has also been set aside, the imposition of penalty upon the appellant cannot be sustained.
The impugned order imposing penalty upon the appellant under section 112(a) of the Customs Act cannot be sustained and is set aside - Appeal allowed.
Issues: Whether the appellant was entitled to convert the free shipping bill into a drawback shipping bill and claim drawback despite non-compliance with Rule 4(a) and the delayed filing of the claim under Rule 5(1) of the Re-export of Imported Goods (Drawback of Customs Duties) Rules, 1995.
Analysis: The claim arose from re-export of imported goods, where the shipping bill did not initially disclose drawback. The Tribunal found that the appellant had not satisfied the condition in Rule 4(a), and more importantly, had also failed to file the drawback claim within the prescribed period under Rule 5(1). The statutory scheme provided only limited extension up to twelve months, and the claim filed beyond that period could not be further condoned. In these circumstances, the authorities' refusal to permit conversion of the shipping bill and to grant drawback was upheld.
Conclusion: The appellant was not entitled to conversion of the free shipping bill into a drawback shipping bill or to drawback relief, and the challenge failed.
Grant of drawback - modification of free shipping bill into drawback shipping bill - at the time of re-export, the fact that the goods were being re-exported under the duty drawback scheme was mistakenly not mentioned - non-fulfilment of the condition specified under Rule 4(a) of the Re-export of Imported Goods (Drawback of Customs Duties) Rules, 1995 - HELD THAT:- It is found that the appellant has not fulfilled the condition specified under Rule 4(a) as well as Rule 5 of the Drawback Rules, 1995. In case there was a contravention of only Rule 4(a), reliance may be placed on the case-law and directed the adjudicating authority to convert the free shipping bill into drawback shipping bill. However, it is found that non-fulfilment of Rule 5 of the said Rules has proved fatal to the case of the appellant. There are no provision under these Rules for any further condonation after the expiry of twelve months, by any official.
Thus, no case has been made out by the appellant - appeal dismissed.
Issues: (i) Whether the consent terms executed during mediation were vitiated and liable to be set aside on the grounds of coercion, undue influence and duress under the Indian Contract Act, 1872. (ii) Whether the alleged non-compliance with the mediation rules, including forwarding and recording of the settlement, rendered the consent terms unenforceable.
Issue (i): Whether the consent terms executed during mediation were vitiated and liable to be set aside on the grounds of coercion, undue influence and duress under the Indian Contract Act, 1872.
Analysis: The consent terms were admittedly signed by the parties. The challenge was confined to the absence of finality in two annexures and to allegations of pressure, coercion and undue influence. The record showed that the mediator's reports treated the settlement as concluded, that the annexures were later signed, and that the objections raised were unsupported by particulars. The allegations of coercion and undue influence were found to be vague and unsubstantiated, and no material was shown to establish that the consent was not free or that the agreement was invalid under the Contract Act.
Conclusion: The consent terms were not vitiated and were held to be valid and binding.
Issue (ii): Whether the alleged non-compliance with the mediation rules, including forwarding and recording of the settlement, rendered the consent terms unenforceable.
Analysis: Rule 25 required the settlement to be reduced to writing, signed by the parties and forwarded to the Tribunal. Rule 26 required the Tribunal to fix a hearing and, upon satisfaction, pass an order in terms of the settlement. The record showed compliance with this framework. The Tribunal's timing was held to be directory and not mandatory, and the challenge based on Rule 26 was also not part of the pleadings before the Tribunal or in the appeals. No breach sufficient to invalidate the settlement was established.
Conclusion: The mediation rules were substantially complied with and the settlement was not rendered unenforceable.
Final Conclusion: The appeals failed and the impugned order rejecting the challenges to the mediated settlement was sustained.
Ratio Decidendi: A mediated settlement duly signed by the parties will not be invalidated in the absence of clear proof that free consent was vitiated or that any procedural lapse under the mediation framework caused legal prejudice; directory time requirements do not defeat an otherwise concluded settlement.
Valid consent terms or not - free consent or not - case of the Respondents is that the annexures were duly signed but could not be attached with the consent terms due to unavoidable circumstances - HELD THAT:- Rule 25 provides the settlement agreement shall be reduced to writing and signed by the parties. As per Rule 25(2), such agreed terms of the settlement agreement shall be submitted before the Ld. Tribunal (Ld. NCLT in the present case). Further, Rule 26(1) mandates the Ld. Tribunal to fix a date and record its satisfaction that the parties have settled their dispute.
Reading of Rule 25 stipulates following three factors; a) the agreement must be reduced to writing. b) it must be signed by the parties, and c) it must be submitted to the proper authority with a proper covering letter. In the instant matter, it is clear from the record after entering the duly signed consent terms by the parties, the mediator had forwarded the consent terms dated 7.1.2023 along with his letter dated 18.03.2023 to the Ld. NCLT. Rule 26 lays down the time frame requiring the Ld. Tribunal to fix a hearing date “normally within 14 days “of receiving the mediator’s report. This is to ensure the expedious and quick disposal of the settled matters. This provision is directory and not mandatory in nature.
Hon’ble Supreme Court in State of UP vs Babu Ram Upadhyay [1960 (11) TMI 116 - SUPREME COURT], has held “The question as to whether a statute is mandatory or directory depends upon the intent of the legislature and not upon the language in which the intent is clothed. The meaning and the intention of the legislature must govern, and these are to be ascertained not only from the phraseology of the provision, but also by considering its nature, its design, and the consequences which would follow from construing it one way or the other”. Rule 26 is a logical corollary to Rule 25. Rasion d’etre and the scheme of the Mediation Rules 2016 is to give effect to the settlement as expediously as possible. Rule 26 cannot be interpreted narrowly.
Additionally the ground qua non-compliance of Rule 26 was never, till the date of the final hearing before NCLAT, was ever taken. This ground has no foundation in pleadings either. It was neither taken before Ld. NCLT nor in the present Appeals.
There are no merit in these appeals and accordingly the appeals are dismissed.
Issues: Whether the delay of 512 days in filing the appeal deserved condonation.
Analysis: The appeal was filed with substantial delay, and the explanation offered was that the appellant was unaware of the proceedings and had not received notices or communications. The record showed that the appellant, through the karta of the HUF, had acknowledged receipt of the show cause notice and had requested time to reply. The address in that acknowledgment matched the address used in the proceedings and in the appeal, which that the appellant had knowledge of the matter. The explanation for delay was therefore found to be factually incorrect and no sufficient cause was shown.
Conclusion: The delay was not condoned and the application was rejected.
Condonation of delay - service of notice and acknowledgment of receipt - violation of principles of natural justice - dismissal of appeal for delay
Condonation of delay - service of notice and acknowledgment of receipt - dismissal of appeal for delay - Application for condonation of delay of 512 days in filing the appeal - HELD THAT: - The appellant sought condonation of a 512-day delay contending non-receipt of notices and unawareness of the impugned order until initiation of recovery proceedings. The Tribunal examined the record and relied on a letter dated December 29, 2021 from the Karta of the HUF to the Adjudicating Officer which expressly acknowledged receipt of the show cause notice dated November 30, 2021 (acknowledged as received on December 9, 2021). The address in that letter matched the address in the memorandum of appeal and the show cause notice, demonstrating that the appellant was aware of the proceedings. The appeal was filed only after a recovery notice was issued to the same address. On these facts the Tribunal found the appellant's plea of non-receipt and ignorance to be factually incorrect and held that the cause shown did not justify condonation of delay. [Paras 6, 8, 9]
Prayer for condonation of delay rejected and the appeal dismissed.
Violation of principles of natural justice - service of notice and acknowledgment of receipt - Allegation that the impugned order violated principles of natural justice because notices were not received - HELD THAT: - The appellant claimed the order should be set aside for breach of natural justice on the ground of non-receipt of notices. The Tribunal found this contention untenable in view of the appellant's own letter acknowledging receipt of the show cause notice and requesting time to reply, and the fact that subsequent communications (including the recovery notice) were sent to the same address. Therefore the alleged violation of natural justice was not established. [Paras 6, 8, 9]
Allegation of violation of principles of natural justice rejected.
Final Conclusion: The application for condonation of delay was rejected as the appellant was held to have been aware of the proceedings (acknowledging receipt of the show cause notice), the plea of non-receipt was factually incorrect, and consequently the appeal was dismissed; interlocutory applications disposed of and no costs awarded.
Issues: (i) Whether the appellant, having not participated in the challenge mechanism and not submitted a final resolution plan, could maintain the challenge to the successful resolution applicant's eligibility and the CIRP process. (ii) Whether the successful resolution applicant was ineligible under Section 29A of the Insolvency and Bankruptcy Code, 2016 on the basis of alleged share purchase arrangements, alleged control, alleged guarantee/co-obligation, and alleged connected persons.
Issue (i): Whether the appellant, having not participated in the challenge mechanism and not submitted a final resolution plan, could maintain the challenge to the successful resolution applicant's eligibility and the CIRP process.
Analysis: The appellant had initially submitted a preliminary plan but did not participate in the challenge process and did not submit the final resolution plan. The adjudicatory forum also noted that the CIRP process and approval of the same resolution plan had already been examined in connected proceedings and upheld. In that background, the appellant's attempt to reopen the process and question the approved plan was not entertained.
Conclusion: The challenge was not entertained on this ground, and the appellant failed to establish a basis to interfere with the CIRP process.
Issue (ii): Whether the successful resolution applicant was ineligible under Section 29A of the Insolvency and Bankruptcy Code, 2016 on the basis of alleged share purchase arrangements, alleged control, alleged guarantee/co-obligation, and alleged connected persons.
Analysis: The alleged share purchase arrangement with the shareholders of the corporate debtor had never fructified, and no shareholding was transferred. On that footing, neither de facto nor de jure control of the corporate debtor could be attributed to the alleged group entities. The alleged arrangement was also held not to amount to a guarantee within Section 29A(h). Since no disqualifying control or transfer of shares was established, the plea under Section 29A(i) failed. The further plea under Section 29A(j) also failed because no ineligible connected person was shown to exist. The objections were therefore unsupported by the record and by the prior findings upholding the non-transfer of shareholding.
Conclusion: The successful resolution applicant was held not to be ineligible under Section 29A, and the objection to its resolution plan was rejected.
Final Conclusion: The impugned order rejecting the appellant's application was upheld, and no interference was warranted with the approval of the resolution plan.
Ratio Decidendi: A resolution applicant cannot be disqualified under Section 29A on the basis of an unconsummated share purchase arrangement or unproved control, and a challenge to an approved resolution plan will not succeed absent a legally sustainable basis to disturb the CIRP process or the commercial decision of the Committee of Creditors.
Eligibility u/s 29A of the I&B Code - locus of appellant to file any application or challenge the Resolution Process - Resolution Plan has been approved by the Adjudicating Authority which order has not even challenged by the Appellant - HELD THAT:- Section 29A(h) of the I&B Code comes into play when a person is not eligible to submit a Resolution Plan if such person or any other person has executed a guarantee in favour of the creditor in support of the Corporate Debtor against which an application for insolvency resolution made by such creditor has been admitted. The Share Purchase Agreement dated 17.05.2019 in no manner can be read to be guarantee to the Creditor. It is further relevant to notice that Share Purchase Agreement was never given effect to due to events as noted above and judgment of this Tribunal dated 16.04.2024 found that under Share Purchase Agreement no shares were transferred in favour of the Respondent No. 8 and 9. The Respondent No. 8 and 9 never gave any guarantee within the meaning of Section 29A(h) in favour of the Creditor. Hence, ineligibility as alleged under Section 29A(h) is non-existent.
Section 29A(j) has no applicability since there is no connected person who is not eligible under Clause (a) to (i) with the Corporate Debtor.
The submission of the Appellant that SRA is ineligible to submit the Resolution Plan cannot be accepted. The Appellant is an Unsuccessful Resolution Applicant who after submitting preliminary Resolution Plan did not submit final Resolution Plan and did not participated in the Challenge Mechanism. Further the Resolution Plan of the SRA has already been approved by the order of the same date passed in plan approval application, which order was unsuccessfully challenged by another Unsuccessful Resolution Applicant (Consortium of Sakshi Chandana) who had participated in the process and was one of the two Resolution Applicant’s whose plans were considered by the CoC. The Appeal filed by the Consortium of Sakshi Chandana challenging the approval of Resolution Plan has also been dismissed by this Tribunal and plan approval of the SRA has been affirmed. This is another reason for not entertaining the appeal challenging the order rejecting objection raised by the Appellant.
There are no error in the order impugned rejecting the application filed by the Appellant. There is no merit in the appeal. Appeal is dismissed.
ISSUES PRESENTED AND CONSIDERED
1. Whether repayment plans submitted by multiple personal guarantors under Section 105 of the IBC can be considered collectively as a "group" process or must be considered independently for each guarantor.
2. Whether the Resolution Professional's conduct in convening meetings under Section 106 and recording minutes indicating joint discussion vitiates the independent consideration requirement and renders the subsequent rejection under Section 115 and report under Section 112 invalid.
3. Whether failure of personal guarantors to submit modified repayment plans within time, after assurances and extensions, justifies rejection under Sections 114-115 of the IBC and forecloses appellate interference.
4. Whether principles enunciated in the controlling precedent concerning involvement of debtors and personal guarantors in repayment-plan discussions were followed and, if not, whether any deviation affected legality of the rejection.
ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Individual v. Group Consideration of Repayment Plans
Legal framework: Sections 95, 97, 100, 105-107, 112-115 and 123 of the Insolvency and Bankruptcy Code (IBC); IBBI (Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Regulations, 2019 (Regulation 10); duties of Resolution Professional under Section 105(1) and meeting/consideration procedures under Section 106(3)-(4).
Precedent treatment: The Court relied upon and applied the principles of the apex decision emphasizing participation of erstwhile management and guarantors in discussions of repayment plans (referred to in the judgment as binding guidance). That precedent was followed for the proposition that involvement and opportunity to negotiate are required.
Interpretation and reasoning: The Tribunal examined minutes and proceedings of meetings convened by the Resolution Professional and found that, despite being convened in common sittings, each repayment plan was individually deliberated, considered and rejected on its own merits. The mere fact that multiple guarantors were represented jointly or that meetings were held in a consolidated manner does not, without more, convert individually submitted plans into a single "group" insolvency plan. The record showed independent discussion of terms, voting, and specific findings on each plan (e.g., offered Rs.21 crores vs expected Rs.25 crores and 10% upfront cash requirement).
Ratio vs. Obiter: Ratio - repayment plans submitted under Section 105 must be considered on their individual merits and procedural consolidation (e.g., joint meetings) does not convert independent plans into a group insolvency process where the minutes and decision-making demonstrate independent consideration. Obiter - observations on practical aspects of representation and commercial negotiations.
Conclusions: The Court concluded that the Resolution Professional and Committee of Creditors considered each plan independently; therefore, the rejection could not be impugned on the ground of impermissible "group" consideration.
Issue 2 - Legality of Resolution Professional's Procedure and Minutes
Legal framework: Sections 105-107, 112 and 114-115 IBC; Section 105(1) duties of the RP to assist debtors/guarantors in preparing repayment plans; Section 106(3)-(4) regarding meetings of creditors; Section 114(1) and 115 on rejection and grounds.
Precedent treatment: The Court applied the cited precedent requiring engagement of creditors and guarantors in plan discussions and construed Section 105(1) as imposing an active consultative role on the Resolution Professional. That precedent was treated as followed insofar as meetings must allow negotiation and involvement.
Interpretation and reasoning: The appellants alleged ignorance and lack of assistance by the Resolution Professional, arguing this made the procedure unfair. The Tribunal, however, on review of the record, found that the RP had given prior information, afforded opportunities to submit revised offers, granted extensions, and recorded assurances from guarantors seeking time to revise proposals. The minutes reflected that the RP informed guarantors of CoC conditions, and assurances to provide modified plans were given but not honored. Lack of submission of modified plans, not any procedural deficiency, was the critical fact.
Ratio vs. Obiter: Ratio - where the RP conducts meetings in accordance with Sections 105-106, provides information, and creditors deliberate individually, the absence of further assistance does not invalidate rejection if the guarantors themselves fail to respond or revise proposals. Obiter - remarks on what constitutes adequate assistance in other factual matrices.
Conclusions: The procedure adopted by the RP and CoC did not vitiate the process; the minutes and conduct demonstrated compliance with statutory requirements and the guiding precedent.
Issue 3 - Effect of Failure to Submit Revised Repayment Plans and Applicability of Sections 114-115
Legal framework: Sections 106(3)-(4), 112, 114(1), 115 and 123 IBC; consequences of non-compliance with CoC directions and deadlines.
Precedent treatment: The Tribunal relied on statutory scheme and prior holdings that allow rejection where applicants fail to comply with time-limited directions or fail to submit revised proposals after being afforded opportunities; the precedent requiring meaningful involvement does not insulate a party from consequences of inaction.
Interpretation and reasoning: The record showed repeated opportunities (meeting on 21.11.2022, extensions to 29.11.2022 and later to 05.01.2023) and specific instructions to submit modified proposals. The guarantors repeatedly sought time, accepted conditions subject to modification but ultimately did not submit modifications. CoC rejected plans by 100% voting and directed report under Section 112, leading to rejection order under Section 115. The Tribunal held that rejection was compelled by statutory provisions when applicants default in updating proposals within the provided time and that this procedural failure-standing unchallenged as per the record-justified dismissal of appellate challenge.
Ratio vs. Obiter: Ratio - where applicants are afforded opportunities and fail to submit revised repayment plans within the time permitted, rejection under Sections 114-115 is legally sustainable. Obiter - comment that subsequent bankruptcy declarations may render standalone challenge to plan rejection academic.
Conclusions: The rejection of repayment plans was warranted by the applicants' failure to submit modified proposals despite extensions; appellate interference was unwarranted.
Issue 4 - Compliance with Controlling Precedent on Debtor/Guarantor Involvement
Legal framework: Statutory duties under Section 105(1) and the requirement of meaningful participation in plan negotiations as elucidated by the controlling precedent.
Precedent treatment: The controlling decision (referred to in the judgment) was expressly applied and held to have been complied with because the RP enabled discussions, the guarantors participated and were given opportunities to revise, and minutes reflect such engagement.
Interpretation and reasoning: The Tribunal contrasted formal compliance (provision of opportunities and recorded discussions) with appellants' later assertion of ignorance. Given the documentary record showing invitations, meetings, offers, counteroffers and extensions, the Court held the precedent's requirements were met. The fact that guarantors ultimately did not perform their promised revisions negated any prejudice claimed from procedural non-compliance.
Ratio vs. Obiter: Ratio - statutory and judicially required involvement of guarantors was satisfied by the RP's conduct as evidenced by the record; lack of follow-through by guarantors cannot be converted into procedural infirmity. Obiter - cautionary note that different factual records could lead to different outcomes.
Conclusions: The Tribunal found adherence to the precedent; no ground for setting aside the rejection on this basis.
Outcome
Given independent consideration of each repayment plan, compliance with statutory meeting procedures, repeated opportunities and extensions afforded to the guarantors, and failure of the guarantors to submit modified plans, the rejection orders under Section 115 were held to be lawful and interlocutory appeals dismissed; consequential findings that further bankruptcy declarations render the present challenge largely academic were also recorded.
Admission of section 95 application under IBC - classification of personal insolvency - Appellants case is that the repayment plan should have been independently and individually considered - HELD THAT:- The Learned Tribunal did not have any other option, but to exercise its power under Section 114(1) of the I & B Code and to reject the repayment plan, and that is what has been arrived at by the impugned order, where the Learned Tribunal, after giving finding qua the method and procedure adopted for consideration of the personal repayment plans of each of the personal guarantors has appropriately rejected the same. At no point of time in any of the process that were adopted, and in any of the minutes of the meetings conducted, it reflects that it was a group insolvency process, as it has been sought to be projected by the Appellants in the instant Company Appeals nor any of the minutes, which were considered by the Learned Tribunal. Since there was an apparent failure on the part of the Appellants to furnish the modified repayment plan within the time period, as it was prayed for by them in the light of the discussions held on 29.11.2022 and on 01.12.2022, and since there was an apparent default on part of Appellants, by not submitting the repayment plan as it was sought by them, the ground taken by the Appellants as contended in the instant appeals is not available to them. Further, admittedly it had never been the Appellant's case that the finding, which has been recorded in the impugned order passed by Learned Adjudicating Authority is perverse and contrary to the records.
The rejection of the independent Interlocutory Applications denying to accept the repayment plan as submitted without availing an opportunity of its revision in the light of the provision contained u/s 115 of the I & B Code does not suffer from any apparent error calling for an interference at this stage, particularly when after the rejection of the repayment plan of the Appellants, the proceedings u/s 123 of the I & B Code has further been proceeded and the corporate guarantors had been declared to be bankrupt by another set of orders that were passed on 18.04.2024, which are the subject matter of challenge in another bunch of appeals, which is to be independently decided. Even otherwise also, in the light of the order passed of declaration of bankruptcy, the instant Company Appeals, which relate to the limited aspect of rejection of the repayment plan, for all practical purposes, lose its cause to be agitated as of now any further.
Appeal dismissed.
ISSUES PRESENTED AND CONSIDERED
1. Whether non-submission of a repayment plan by a personal guarantor has the same legal effect as rejection of a repayment plan and thereby permits creditors or the debtor to file for bankruptcy under Section 115(2) read with Section 114 of the Insolvency and Bankruptcy Code (I&B Code), 2016.
2. Whether the Adjudicating Authority's declaration that the moratorium under Section 101 ceases to have effect (and consequent permission to initiate bankruptcy) was justified where no repayment plan was filed by personal guarantors under Sections 105-106 and Regulation 20 & 22 of the IBBI (Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Regulations, 2019.
3. Whether a financial creditor who initiated proceedings under Section 7 (in respect of the corporate debtor) and Section 95 (as applicant against personal guarantors) is a necessary party entitled to intervene in appeals challenging orders under Sections 114/115/121-123 and whether intervention should be permitted.
4. Whether, in the exercise of appellate discretion, the impugned orders should be quashed and appellants afforded an additional, limited period to submit repayment plans to be processed under Section 106, subject to conditions/undertakings by the financial creditor.
ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Legal effect of non-submission of repayment plan: legal framework
Legal framework: Sections 105-106 (submission and RP's report on repayment plan), Section 112 (RP's report), Section 114 (application on report), Section 115(2) (effect of rejection of repayment plan - entitlement to file for bankruptcy under Part III, Chapter IV), Section 101 (moratorium), Regulations 20 & 22 of IBBI (Insolvency Resolution Process for Personal Guarantors).
Precedent Treatment: The Court noted facts that an Apex Court stay in a related proceeding affected timing but did not treat any prior authority as determinative on the legal effect of non-filing. No precedent was overruled or followed as binding; statutory text and scheme governed the conclusion.
Interpretation and reasoning: The Tribunal accepted the Adjudicating Authority's understanding that where a debtor/personal guarantor fails to submit a repayment plan as mandated by Section 105, such non-filing has the same practical and legal effect as a rejection of a repayment plan for the purposes of Section 115(2). That is because Section 106 requires the RP to submit the repayment plan (if filed) with the report; absence of any plan means nothing can be presented to permit approval, and the statutory consequence (triggering bankruptcy entitlement) follows. The Tribunal, however, considered context - including communications, efforts and reasons for non-filing - before applying this legal consequence.
Ratio vs. Obiter: Ratio - non-submission of a repayment plan can be treated as equivalent to rejection for the operation of Section 115(2) where there is no plan placed before the RP/Adjudicating Authority. Obiter - factual considerations (e.g., interim stay in related proceedings) that may excuse or justify non-filing in particular cases; these are case-specific.
Conclusion: Statutory scheme supports the consequence that absent any repayment plan, the procedural pathway under Section 115(2) is available to creditors (and debtors) to apply for bankruptcy. Nevertheless, the Court emphasized that equitable considerations and intervening undertakings may justify granting further time before that consequence is permitted to be executed.
Issue 2 - Validity of Adjudicating Authority's order ceasing moratorium and permitting bankruptcy where repayment plans were not filed
Legal framework: Sections 101, 105-106, 112-115; IBBI Regulations 20 & 22.
Precedent Treatment: No controlling authority displacing the statutory structure was applied. The Tribunal considered legislative intent and statutory procedure for personal guarantor proceedings under the 2019 Regulations.
Interpretation and reasoning: The Adjudicating Authority's order followed the statutory pathway: RP's report under Section 112 recorded absence of repayment plans, which under the Adjudicating Authority's reading equates to rejection; Section 115(2) consequence (entitlement to file for bankruptcy) was thus triggered, and culminated in declaration that moratorium (Section 101) ceases to have effect for the purpose of enabling bankruptcy proceedings. The Tribunal acknowledged this legal route as available but also recognized the appellate power to supervise exercise of such consequence when parties seek to negotiate or submit plans post-order and when the financial creditor offers a conditional extension to allow resolution rather than immediate bankruptcy initiation.
Ratio vs. Obiter: Ratio - the statutory consequence of non-submission can lead legitimately to cessation of moratorium and permission to proceed to bankruptcy; Obiter - administrative or equitable relief (grant of further time) is within appellate discretion where the creditor consents or where procedural fairness warrants.
Conclusion: The Adjudicating Authority's legal basis for its order was valid in principle; however, the Tribunal exercised supervisory jurisdiction to quash the order in the particular circumstances because parties (including the financial creditor) agreed to permit submission and consideration of repayment plans under an agreed timeline and terms.
Issue 3 - Intervention by financial creditor: necessity and propriety
Legal framework: Principles of necessary/affected parties on appeal and appellate practice; relevance of intervenor where it initiated underlying proceedings under Sections 7 and 95 and holds direct interest in outcome.
Precedent Treatment: The Tribunal treated intervention as appropriate in view of the intervenor's role in initiating insolvency and personal guarantor proceedings and its vested interest in enforcement and recovery. No authority was disapproved; intervention was accepted as consistent with interest-based intervention principles.
Interpretation and reasoning: The Tribunal found the financial creditor to be a necessary and directly affected party because it had instituted the proceedings and stood to be impacted by appellate orders (including interim relief restraining bankruptcy proceedings). The proposed intervenor's offer (oral and then formal memorandum) to grant a limited time extension for submission of repayment plans further justified its participation and made intervention both appropriate and consensual. Appellants did not oppose intervention.
Ratio vs. Obiter: Ratio - an initiating financial creditor is a necessary/appropriate intervenor in appeals that affect the substantive remedies and enforcement rights it seeks to exercise; Obiter - the extent of participatory rights may depend on court rules and facts of each case.
Conclusion: Intervention by the financial creditor was rightly permitted as it was necessary for a just adjudication and aided consensual resolution (granting of limited time for repayment plans).
Issue 4 - Exercise of appellate discretion to quash impugned orders and permit fresh submission under Section 106
Legal framework: Section 106 (RP's report and timeline), Section 112, Section 114, Section 115(2), Sections 121-123 (bankruptcy initiation), and applicable appellate powers to set aside orders in appropriate circumstances; IBBI Regulations 20 & 22 for personal guarantors.
Precedent Treatment: The Tribunal relied on the statutory scheme and the parties' consensual undertakings rather than on any expansionary precedent. The Court treated the creditor's written memorandum and oral proposal as a legitimate basis for granting relief by consent.
Interpretation and reasoning: Given (a) the RP's admission that bankruptcy proceedings would not be proceeded with during the interim, (b) the intervenor-creditor's explicit offer to grant a 30-day period (subject to conditions) for submission of repayment plans and to reserve rights, and (c) no opposition by appellants to intervention, the Tribunal exercised its discretion to quash the impugned orders and allow the appeals on terms: appellants to submit repayment plans within the agreed timeline; RP and CoC to process plans per Section 106; compliance deemed from date of judgment uploading; interlocutory matters closed. For separately covered appeals where bankruptcy applications had been admitted under Section 123, the Tribunal likewise quashed those orders subject to the same conditions/undertaking from the creditor.
Ratio vs. Obiter: Ratio - appellate courts may, by exercising discretion, quash orders permitting bankruptcy initiation where parties, particularly the initiating creditor, agree to afford a further limited opportunity to submit repayment plans and preserve creditor rights; Obiter - the particular duration (30 days) and specific reservation of rights are fact-driven and not a general rule for all cases.
Conclusion: The Tribunal correctly exercised appellate discretion to set aside the impugned orders and direct submission/consideration of repayment plans under Section 106 on the creditor's undertaking; interlocutory relief and moratorium implications were thereby temporarily re-framed to enable potential resolution rather than immediate bankruptcy.
Entitlement of debtor and the creditors to file an application for bankruptcy under Chapter IV of IBC - No repayment plan, has been submitted by the personal guarantor which they were required to file u/s 105 of the I & B Code, 2016 - non-filing of the respective repayment plan will have the same effect of rejection of the repayment plan, which will attract the provisions under Section 115(2) of I & B Code, 2016 or not - HELD THAT:- It is seen that due to the non-submission of the repayment plan, the proceeding was drawn under Section 114 of the I & B Code, 2016, to be read with Regulations 20 & 22 of IBBI (Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Regulations, 2019, and consequent to passing of orders dated 13.10.2023 permission was given to Financial Creditor to initiate bankruptcy proceeding.
It is already decided in the context of the present Appellants, by this judgment as rendered in Comp App (AT) (CH) (Ins) No.424/2023 and Comp App (AT) (CH) (Ins) No.425/2023, where the order of 13.10.2023 has been quashed and the Appeals have been allowed, with the liberty left open for the Appellants to submit their repayment plan in the light of the provisions contained under Section 106 of the I & B Code, to be read with the undertaking given by the Intervenor State Bank of India in the memorandum submitted before this Appellate Tribunal.
Owing to the order that has been passed in the aforesaid two Company Appeals preferred by the Appellants of the present Company Appeals, and owing to the stand taken by State Bank of India has that they would be withdrawing the applications that was filed by them against the Appellant under Section 123 of the I & B Code, 2016, with the rider that, all their rights are reserved to have recourse to law, as available under the I & B Code, consequent to the grant of the further extension, subject to the submission of the repayment plan and its consequential consideration.
The impugned order as passed under Section 123 of the I & B Code, 2016, would hereby stand quashed and both the Company Appeals stand allowed, subject to satisfying of the conditions passed in the Comp App (AT) (CH) (Ins) No.424/2023 & 425/2023 respectively.
ISSUES PRESENTED AND CONSIDERED
1. Whether gross delay in adjudication of a show cause notice (issued 2013, adjudicated 2025) vitiates the impugned order imposing monetary penalty under the Foreign Exchange Management Act and its Regulations.
2. Whether the penalty of Rs.50 Crores imposed on individual directors for delays in reporting foreign inward remittances and in filing Form FC-GPR is disproportionate to the contraventions under paragraph 9(1)(A) and 9(1)(B) of Schedule-I of Regulation 5(1) of the Foreign Exchange Management (Transfer or Issue of Securities by a Person Resident outside India) Regulations, 2000 read with Section 6(3)(b) of the FEMA Act.
3. Whether the comparatively small compounding penalty imposed by the Reserve Bank of India on the company is a factor bearing on the reasonableness or proportionality of the large penalty imposed on directors by the adjudicating authority.
4. Whether prima facie satisfaction of delay and disproportionality suffices to grant ad-interim relief restraining enforcement of the adjudication order pending final disposal, and what interim directions are appropriate (including timelines for affidavits and listing).
ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Delay in adjudication vitiating the order
Legal framework: Administrative law principles concerning timely adjudication; fairness and reasonableness in enforcement proceedings; applicable provisions under the FEMA Act and Regulations which create offences/penalties for non-compliance with foreign exchange reporting requirements.
Precedent treatment: The judgment does not cite or apply specific precedents; the Court proceeds on established administrative law principles without distinguishing or overruling authority.
Interpretation and reasoning: The Court observes that the show cause notice was issued in 2013 but adjudication occurred only in September 2025, with hearings in 2018 and again in August 2025. The Court reasons that such gross delay has an important bearing on the impugned order and, at least prima facie, renders the proceeding susceptible to challenge on grounds of unfairness and prejudice arising from excessive delay in adjudication.
Ratio vs. Obiter: The finding that gross delay can vitiate adjudication is treated as ratio for purposes of granting interim relief in the facts of the case (i.e., that delay is a substantive factor to be weighed in the court's consideration). The judgment does not lay down a general rule or fixed timeline; the observation is applied to the present record as a determinative factor for interim relief.
Conclusions: The Court concludes that the delay is a prima facie ground undermining the impugned order and supports restraint of enforcement pending final adjudication.
Issue 2 - Proportionality of the penalty imposed on directors
Legal framework: Principles of proportionality in administrative penalties; requirement that monetary sanctions be commensurate with the nature and gravity of the contravention; relevant FEMA/Regulatory scheme empowering adjudicating authority to impose penalties for delayed reporting/submission under specified regulatory provisions.
Precedent treatment: No specific authorities are invoked; the Court applies the proportionality principle in administrative law to evaluate the penalty quantum.
Interpretation and reasoning: The Court, on a prima facie basis, finds the penalty of Rs.50 Crores on each director to be "rather disproportionate" to the violations (delays of approximately 16 days and 13 days in reporting/submission). The comparison with the Reserve Bank of India's compounding fine (Rs.4,20,000 on the company) is noted as persuasive of disproportionality. The Court reasons that excessive penalties, particularly where administrative delay exists, warrant interim protection against enforcement.
Ratio vs. Obiter: The conclusion that the penalty is disproportionate in the present facts is part of the ratio supporting interim relief; however, the judgment does not set a legal standard for penalty quantum beyond applying proportionality to the circumstances.
Conclusions: The Court determines, prima facie, that the penalty is disproportionate and that this factor, combined with the delay, justifies interim restraint of enforcement actions.
Issue 3 - Relevance of RBI compounding fine
Legal framework: Interaction between penalties imposed by different regulatory authorities; relevance of prior or concurrent regulatory treatment in assessing reasonableness of subsequent sanctions.
Precedent treatment: Not addressed by citation; Court relies on comparative assessment as a contextual indicator.
Interpretation and reasoning: The Court notes that the Reserve Bank of India imposed a compounding fine of Rs.4,20,000 on the company for the same or related delays. While the adjudicating authority before the Court imposed a substantially larger penalty on individual directors, the Court treats the RBI penalty as a datum bearing on the proportionality inquiry, observing that the large discrepancy supports the claim of excessiveness.
Ratio vs. Obiter: Treated as persuasive, not determinative; the comparative observation informs the Court's prima facie view and interim decision rather than constituting a conclusive legal rule about inter-regulatory penalty consistency.
Conclusions: The RBI compounding penalty is a relevant factor that, at least prima facie, indicates disproportion and supports interim relief restraining enforcement.
Issue 4 - Entitlement to ad-interim relief and interim directions
Legal framework: Principles for grant of interim relief - prima facie case, balance of convenience, and irreparable injury; court's power to stay enforcement pending adjudication; directions concerning pleadings, affidavits, and listing under court's general administrative control.
Precedent treatment: No specific precedent invoked; Court applies established interlocutory principles to the facts.
Interpretation and reasoning: The Court finds that the Petitioners have made out a strong prima facie case based on delay and disproportionality. On this basis the Court grants ad-interim relief restraining respondents from acting on or taking further steps pursuant to the impugned order dated 08.09.2025. The Court also gives procedural directions: respondent to file an affidavit-in-reply by a fixed date (14.11.2025), petitioners may file affidavit-in-rejoinder by a fixed date (21.11.2025), and the matter is listed for consideration of ad-interim reliefs on 27.11.2025, with the caveat that the Court may dispose the petition at that stage if time permits.
Ratio vs. Obiter: The grant of ad-interim relief and procedural directions are operative findings (ratio) for the interim stage. Observations on the strength of the case and the likely impact of delay and disproportionality are factual-legal reasoning supporting interim relief rather than pronouncements of broad legal principle.
Conclusions: The Court grants interim injunction restraining enforcement of the adjudication order, imposes a timeline for pleadings and affidavits, and lists the matter for further interim consideration; the Court signals willingness to dispose finally at the next hearing depending on time and material.
Caveats and scope
1. The Court's findings on delay and disproportionality are expressed as prima facie conclusions supporting interim relief; they are not final adjudications on the merits.
2. No express precedential rule is laid down concerning permissible adjudication timelines or fixed standards for penalty quantification under FEMA; the decision applies established administrative law principles to the record before the Court.
Gross delay in adjudication of a show cause notice - issued far back in July 2013 and the same has been adjudicated only in September 2025 - Imposition of penalty on each of the Directors of a company - delays in reporting foreign inward remittances and in filing Form FC-GPR - contravention of paragraph 9(1)(B) of Schedule-1 of Regulation (5)(1) of the Regulations of 2000, read with Section 6(3)(b) of the FEMA Act - HELD THAT:- It is also true that a hearing was given sometime in the year 2018 and thereafter, straight away there was another hearing in August 2025, after which the impugned order was passed in September 2025. Such delay in adjudication of the show cause notice would certainly have an important bearing on the impugned order. This apart, we also, at least prima facie, find that the penalty imposed is rather disproportionate to the violation committed by the Directors of the company, namely the Petitioners.
Thus, we are of the opinion that the Petitioners have made out a strong prima facie case for grant of ad-interim relief. We accordingly direct that there shall be ad-interim relief.
ISSUES PRESENTED AND CONSIDERED
1. Whether the seized amount of Rs. 89,70,000 constitutes a "financial transaction in India as consideration for or in association with acquisition or creation or transfer of a right to acquire any asset outside India" within the meaning of Section 3(d) of the Foreign Exchange Management Act, 1999, thereby justifying confiscation.
2. Whether an attempt or preparation to effect a transfer, where the transfer was prevented by enforcement intervention before any payment or credit/change of possession occurred, falls within the ambit of Section 3(d) (i.e., whether attempt liability under the earlier FERA regime survives under FEMA).
3. Whether the penalties of Rs. 25,00,000 imposed on each noticee under Section 13(2) for alleged contravention of Section 3(d) merit interference by the Tribunal, in light of the finding on confiscation and the appellants' concession regarding adjustment of penalty against the seized amount.
ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Whether the seized sum constituted a Section 3(d) financial transaction justifying confiscation
Legal framework: Section 3(d) prohibits entering into any "financial transaction in India as consideration for or in association with acquisition or creation or transfer of a right to acquire any asset outside India by any person." "Financial transaction" is defined to include making any payment to or for the credit of any person, receiving any payment for by order/on behalf of any person, drawing/issuing/negotiating bills/promissory notes, transferring a security, or acknowledging a debt.
Precedent treatment: No judicial precedents were relied upon in the impugned order; however, the distinction between attempt-based liability under the former FERA regime and the substantive scope under FEMA was expressly noted and treated as significant.
Interpretation and reasoning: The Tribunal accepted the Special Director's factual finding that although two persons had come to collect the currency on instructions from abroad, no transfer or handing over of the seized amount actually occurred because enforcement officers intervened during the search. The statutory prohibition in Section 3(d) was interpreted to require a financial transaction as defined (i.e., an act of payment, crediting, receiving payment, transfer, negotiation, etc.). Mere preparation or attempt, without completion of any such act, does not satisfy the statutory element of "enter into any financial transaction." The Tribunal endorsed the view that an aborted attempt-where nothing of the nature of a payment/credit/transfer actually took place-does not supply the requisite factual foundation for confiscation under Section 3(d).
Ratio vs. Obiter: Ratio - The Court's authoritative determination is that, for confiscation under Section 3(d), there must be an actual financial transaction as defined in the statute; an unconsummated attempt, interrupted by enforcement action, does not constitute a Section 3(d) contravention justifying confiscation. Obiter - Observations distinguishing FERA's treatment of attempts from FEMA's lack of attempt liability are explanatory but reinforce the core ratio.
Conclusions: The Tribunal upheld the Special Director's refusal to confiscate the seized sum of Rs. 89,70,000, finding no completed financial transaction within the meaning of Section 3(d) and therefore no statutory basis for confiscation.
Issue 2 - Whether attempt or preparation to transfer is punishable under Section 3(d) (FERA v. FEMA distinction)
Legal framework: Under FERA, attempt to contravene certain provisions was actionable; FEMA's statutory text was contrasted to show absence of equivalent attempt liability in Section 3(d).
Precedent treatment: The Tribunal treated the historical distinction as directly relevant to construing liability under FEMA and relied on the absence of an explicit attempt provision in FEMA to deny attempt-based guilt.
Interpretation and reasoning: The Tribunal read Section 3(d) strictly to require an actual financial transaction and rejected the contention that preparatory acts or readiness to effect a transfer (e.g., persons present to collect cash, possession of bags) equate to the statutory act of "enter[ing] into any financial transaction." The Court found the factual admission that enforcement intervention precluded any transfer dispositive: absent the consummating act, the statutory prohibition was not engaged.
Ratio vs. Obiter: Ratio - Attempt or preparation, standing alone and absent a completed financial transaction as defined in Section 3(d), does not attract confiscation or the substantive contravention under FEMA. Obiter - Historical comparison to FERA was explanatory and used to distinguish past liability regimes.
Conclusions: The Tribunal concluded that, under FEMA, attempt liability is not available where the transfer was prevented before any defined financial transaction occurred; thus, confiscation or penalty based solely on attempt was not justified.
Issue 3 - Sustainment of penalties of Rs. 25,00,000 each imposed under Section 13(2) for alleged contravention of Section 3(d)
Legal framework: Section 13(2) (penalties) penalizes contraventions of Chapter/sections such as Section 3(d), subject to making out of substantive contravention as required by the Act.
Precedent treatment: No specific precedents were invoked by the Tribunal to alter the ordinary principle that penalty must rest upon established contravention; the Tribunal relied on its primary finding that no Section 3(d) transaction had taken place for confiscation purposes.
Interpretation and reasoning: The Tribunal noted that the Department had imposed penalties despite simultaneously refusing confiscation on the ground that no financial transaction occurred. The appellants' counsel expressed a readiness to have the penalties adjusted against the withheld amount and sought disposal on that basis. Given the Department's failure to establish a completed contravention sufficient for confiscation, and having regard to the appellants' concession to adjustment, the Tribunal declined to interfere with the penalty orders on merits but directed adjustment of the penalties against the seized amount and refund of the balance.
Ratio vs. Obiter: Obiter/Practical disposition - The Tribunal's non-interference on the penalties was tied to the parties' concession and the practical direction for adjustment and refund; the Court did not undertake an independent detailed adjudication of the legal correctness of the penalty quantum beyond finding no reason to disturb the orders given the consensual adjustment. The more authoritative ratio remains the requirement of a completed financial transaction to sustain enforcement action under Section 3(d).
Conclusions: The Tribunal (i) did not disturb the penalty orders on the appeals of the noticees, given the appellants' concession and the practical direction to adjust the penalties against the seized amount, and (ii) directed the authority to set off Rs. 25,00,000 against the seized sum for each noticee and to refund the remaining balance forthwith. Appeals by the Department against non-confiscation were dismissed.
Cross-references and Practical Outcomes
1. Issues 1 and 2 are interlinked: the finding that no completed "financial transaction" occurred (Issue 1) follows the legal conclusion that mere attempt/preparation is not actionable under FEMA (Issue 2).
2. Issue 3's disposition is pragmatic and contingent on the Tribunal's conclusions on Issues 1-2; the direction to adjust penalty sums against the withheld amount flows from the Tribunal's refusal to allow confiscation and the parties' positions.
Confiscation of the amount seized at the time of search of the premises -contravention of Section 3(c) and 3(d) of the Foreign Exchange Management Act, 1999 - impose penalty by invoking 13(2) - Effect of financial transaction in India is for consideration for acquisition or creation or transfer of a right to acquire any asset outside India by any person - period of more than 20 years has already passed by now and the appellant is intended to buy peace - HELD THAT:- The fact on records shows that no doubt there was attempt to transfer the money aforesaid but before it could take place, the amount was seized by the Enforcement Directorate and thereby it could not be transmitted to Shri Shaikh Sajid Ibrahim or anyone to make a case for contravention of Section 3(d) of the Act of 1999 for the aforesaid amount. The appeal filed by the department is quite sketchy and does not make out a case to cause interference and otherwise we do not find any error in the impugned order and accordingly appeal filed by the Department is dismissed.
We find an element of admission of the respondent that the transaction could not take place on account of intervention of the team made search of the premises. The fact remains unless transfer takes place a case for contravention of Section 3(d) of the Act of 1999 would not be made out as per the finding recorded by the Special Director and therefore, we do not find a case to cause interference in the order passed by the Special Director refusing to confiscate the amount of Rs. 89,70,000/-.
We find no reason for the respondent to withhold an amount of Rs. 89,70,000/- for 20 years without an order in their favour. It should have been released. In any case looking at the concession recorded by the Ld. Counsel for the appellants, Shri Ravi Goenka and Shri Vasudev Goenka we are not causing interference in the appeals preferred by the appellants against the penalty of Rs. 25,00,000/- each on them and at the same time direct the respondent to adjust the aforesaid sum in the amount withheld by them i.e. Rs. 89,70,000/- and refund the balance amount to the appellants- Shri Ravi Goenka and Shri Vasudev Goenka.
All the appeals are disposed of.
ISSUES PRESENTED AND CONSIDERED
1. Whether the Adjudicating Authority properly found contraventions of Section 3(b) and Section 3(d) of FEMA based on facts of diversion of duty-free imports, fraudulent exports and corresponding inward remittances.
2. Whether statements recorded by DRI (including retracted statements) and other materials from Customs/DRI proceedings could be relied upon in FEMA adjudication proceedings.
3. Whether the corrigendum to the complaint required issuance of a corrigendum to the Show Cause Notice (SCN) and whether the impugned order is a non-speaking order.
4. Whether foreign exchange or money acquired abroad qualifies as an "asset" for the purposes of Section 3(d) of FEMA.
5. Whether interception of an export consignment (Shipping Bill No. 01073) prior to actual export precluded use of that consignment as material in establishing FEMA contraventions and calculating the amount involved.
ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Liability under Sections 3(b) and 3(d) of FEMA based on diversion of duty-free imports and fraudulent exports
Legal framework: Section 3(b) prohibits making payments to/for credit of persons resident outside India in any manner in contravention of FEMA; Section 3(d) prohibits entering into financial transactions in India as consideration for or in association with acquisition/creation/transfer of a right to acquire any asset outside India. Adjudication standard: civil/adjudicatory standard (preponderance of probabilities) applies, not criminal standard.
Precedent Treatment: Reliance on High Court reasoning (Vinod M. Chitalia) accepting that clandestine transactions may be proved on common-sense appraisal and that the burden in adjudication is less than criminal proof was followed.
Interpretation and reasoning: The Tribunal accepted factual findings that duty-free imported silk yarn was diverted to the domestic market, cash receipts were admitted with no accounts maintained, and at least one intercepted export container contained bricks and textile waste instead of declared product. Those facts, together with admitted inward remittances and payments routed to persons in India to enable foreign counterparties to remit proceeds, form a consistent modus operandi: diverted inputs sold domestically generated proceeds paid to residents which were used to facilitate inward remittances from abroad in respect of fraudulent exports. The Court applied a "robust and common sense" assessment appropriate to adjudication proceedings and concluded that the material establishes contraventions of both Sections 3(b) and 3(d).
Ratio vs. Obiter: Ratio - the Tribunal's finding that diversion of duty-free imports combined with matching inward remittances and unauthorised outward transfers constitutes contravention of Sections 3(b) and 3(d) on preponderance of probabilities. Obiter - tactical observations about the illegality affecting "serious bearings" for FEMA beyond Customs violations.
Conclusion: The Tribunal upheld liability under Sections 3(b) and 3(d) based on the totality of documentary and physical evidence showing misuse of EOU benefits, diversion of imports, fraudulent exports and corresponding financial transactions.
Issue 2 - Reliance on statements recorded by DRI (including retracted statements) and Customs/DRI materials in FEMA proceedings
Legal framework: Statements recorded under the Customs Act/DRI have statutory sanctity and may be admissible; adjudicatory authorities must consider voluntariness and any subsequent retraction.
Precedent Treatment: The Tribunal relied on Supreme Court authority (Vinod Solanki; K.T.M.S. Mohamed) and High Court reasoning to the effect that retracted confessions/statements can be used as corroborative evidence if substantially corroborated by independent and cogent material; mere retraction does not automatically render a statement involuntary.
Interpretation and reasoning: The Tribunal found no material to show coercion or inducement in the recorded statements; even if retracted, the statements were corroborated by physical interception of the container, admissions about shipments, absence of accounting for cash sales, and other documentary evidence. The Tribunal also accepted that statements recorded under Customs/DRI proceedings relate to the same transactions and may be relied upon in FEMA adjudication, subject to assessment of voluntariness and corroboration.
Ratio vs. Obiter: Ratio - DRI/Customs statements, including retracted ones, may be acted upon in FEMA proceedings if there is independent corroboration and no evidence of coercion; authorities must apply their mind to retraction. Obiter - procedural admonitions about recording reasons when acting upon retracted statements, drawn from precedents.
Conclusion: Reliance on the DRI statements and related Customs materials in the FEMA adjudication was proper because those statements were corroborated by independent physical and documentary evidence and no coercion was shown.
Issue 3 - Effect of corrigendum to complainant documents on the SCN and requirement for a speaking order
Legal framework: SCNs must adequately inform noticees of allegations; corrigenda to pleadings/complaints may require corresponding clarity in the SCN where material alterations affect charges.
Precedent Treatment: The Tribunal accepted the Adjudicating Authority's order as speaking and well-reasoned; it did not find a necessity to remit the SCN merely because a corrigendum to the complainant's documents was considered by the AA.
Interpretation and reasoning: The Tribunal examined the Impugned Order and found it to be reasoned and to address relevant evidence (physical interception, admissions, diversion). Consideration of corrigendum by the AA did not render the SCN defective where the substance of allegations and supporting material were communicated and adjudicated upon.
Ratio vs. Obiter: Ratio - an adjudicating order will not be invalidated for being non-speaking where the order contains adequate reasoning and addresses material evidence; corrective documents relied upon by the AA do not automatically necessitate a fresh SCN when the core allegations remain the same. Obiter - procedural best practice for issuing corrigenda was noted but not necessary to the decision.
Conclusion: The Impugned Order was a speaking order; no separate corrigendum to the SCN was required given the AA's consideration and addressing of the evidence.
Issue 4 - Whether foreign exchange/money qualifies as an "asset" under Section 3(d) of FEMA
Legal framework: Section 3(d) covers financial transactions in India as consideration for acquisition/creation/transfer of rights in assets outside India; definition of "asset" must be applied sensibly.
Precedent Treatment: The Tribunal endorsed reasoning in prior authorities (including High Court consideration) that money/foreign exchange constitutes an asset.
Interpretation and reasoning: The Tribunal rejected the contention that money cannot be an asset, observing that money is the most liquid form of asset and convertible into other assets with minimal cost; acquisition of foreign exchange abroad therefore amounts to acquisition of an asset and falls within Section 3(d).
Ratio vs. Obiter: Ratio - foreign exchange/money acquired abroad qualifies as an asset for the purposes of Section 3(d) and thus financial transactions in India made as consideration in relation to such acquisition can attract liability. Obiter - none significant beyond this clarification.
Conclusion: The challenge that money is not an "asset" under Section 3(d) was rejected; Section 3(d) liability on the facts stands.
Issue 5 - Use of intercepted export consignment (Shipping Bill No. 01073) that was seized before reaching destination in establishing FEMA contraventions and amount involved
Legal framework: Physical interception/seizure after shipment but before destination is material evidence of fraudulent export practices; relevance for establishing the chain of transactions and quantification of contraventions.
Precedent Treatment: The Tribunal followed the logical approach that interception after shipment does not negate the intent and would-be effect of the fraudulent export had it not been intercepted.
Interpretation and reasoning: The Tribunal held that the container was intercepted at Cochin Port after having been shipped for export; but for interception, fraudulent consignments would have reached foreign destination, thus the intercepted consignment is admissible and probative of the modus operandi and of the amounts involved in the contraventions.
Ratio vs. Obiter: Ratio - interception of a shipped consignment prior to arrival at destination does not preclude its use as evidence of fraudulent export practice in FEMA adjudication and may be relied upon to determine amounts involved. Obiter - none beyond this application.
Conclusion: The intercepted consignment could properly be taken into account in adjudicating FEMA contraventions and assessing corresponding amounts.
Penalty and Outcome (connected to Issues 1-5)
Reasoning: Having upheld contraventions on the preponderance of evidence and having considered mitigating factual circumstances (economic/health matters previously addressed as to pre-deposit), the Tribunal exercised its remedial power to reduce the cumulative penalty while affirming liability.
Conclusion: Liability under Sections 3(b) and 3(d) of FEMA affirmed on the facts; cumulative penalty reduced (quantum exercise specific to the facts) - Appeal partly allowed to that extent.
Non speaking Order - EOU indulged in fraudulently diverting the imported duty - free silk yarn to the domestic market and in exporting bricks and silk waste in place of the declared product ‘powder grade silk yarn’ - contravention of Section 3(b) of FEMA - Tribunal on the grounds of economic condition and poor health of the representative of the Appellant, completely waived off the pre-deposit of the penalty amounts -Held That:- It is obvious from the facts that there was misuse of being 100% EOU, which entitled the Appellant to receive duty free imports of silk yarn which in turn were diverted to the domestic market rather being put to use as input for the product to be exported so as to illegally make earnings available for enabling M/s Seven Star Trading Co., Ajman to remit proceeds against fraudulent trash exports, would have serious bearings for the contraventions under FEMA. Payment of the proceeds for exports of junk, from M/s Seven Star Trading Co., Ajman through banking channel necessitated acquisition of Foreign Exchange abroad by it.
It thus follows that for the modus operandi to succeed the Appellant paid consideration to residents in India, for the Foreign Exchange acquired abroad. Hence, the Appellant becomes liable for the contraventions of both the Sections 3(b) and 3 (d) of FEMA.
We take note of the Order of this Tribunal allowing complete waiver of the pre-deposit of the cumulative penalty amount of Rs. 12,00,000/- and the reasons thereof. We therefore reduce the cumulative penalty amount to Rs. 6,00,000/- comprising of Rs. 3,00,000/- for each of the contravention of Section 3(b) and 3(d) of FEMA.
Thus, we partly allow the Appeal No. FPA-FE-02/BNG/2017.
Issues: Whether the bail granted to the respondent was liable to be cancelled on the alleged grounds of evasion of service and repeated non-cooperation in the trial, and what directions were required to secure the progress of the proceedings.
Analysis: The bail had been granted nearly a decade earlier, and the Court was not persuaded to reopen the question of cancellation on the material placed before it. At the same time, the Court took note of the grievance that the respondent had allegedly avoided service and caused adjournments, and considered it necessary to ensure regular representation before the trial court and to facilitate continuation of the trial without obstruction.
Conclusion: The request for cancellation of bail was declined, but the respondent was directed to remain represented on every date of hearing, with the consequence that unjustified absence or non-representation could lead to cancellation of bail. The petitioner was also left at liberty to move the trial court in case of non-cooperation, and the trial court was directed to proceed expeditiously.
Final Conclusion: The petition was disposed of with protective directions to secure the respondent's presence and ensure expeditious trial, while leaving bail cancellation open upon future unjustified default.
Ratio Decidendi: Where long-standing bail is challenged for cancellation, the Court may decline cancellation on the existing material yet impose strict directions to secure representation and preserve the trial process, with cancellation reserved for future unjustified absence or non-cooperation.
Bail granted to the respondent under the impugned order was almost a decade back - respondent tried to evade service for nearly seven years in the present case - HELD THAT:- The present petition stands disposed of with a direction that the respondent shall ensure his representation on each and every date of hearing before the trial Court.
In the event, the respondent is unable to appear physically, his counsel shall be required to be present on his behalf, and he shall not be permitted to raise any objection to the trial proceeding in his absence.
Application disposed off.
Issues: (i) whether the provisional attachment under Section 5 of the Prevention of Money Laundering Act, 2002 was invalid for want of communication of reasons to believe or absence of recorded reasons; (ii) whether the attachment of the appellants' bank balances and immovable properties, including property acquired earlier or financed through housing loan, was justified as property or value thereof involved in money-laundering; (iii) whether the transfer of funds to M/s Mind is King was proved to be tainted proceeds of crime linked to the fraudulent scheme.
Issue (i): whether the provisional attachment under Section 5 of the Prevention of Money Laundering Act, 2002 was invalid for want of communication of reasons to believe or absence of recorded reasons.
Analysis: The attachment order itself contained the material relied upon and the reasons for formation of belief. Section 5 requires the competent officer to record reasons to believe in writing on the basis of material in possession, but it does not require prior communication of those reasons to the affected persons. The material before the authority included FIRs, statements, bank records, and other investigative material showing diversion of funds and prima facie laundering activity. The requirement of a pre-decisional hearing was also not read into the provision, particularly when the statute provides for subsequent adjudication.
Conclusion: The provisional attachment was not invalid on this ground and the objection was rejected against the appellants.
Issue (ii): whether the attachment of the appellants' bank balances and immovable properties, including property acquired earlier or financed through housing loan, was justified as property or value thereof involved in money-laundering.
Analysis: The record showed that M/s Mind is King received Rs. 5.50 crores from M/s FMLC and that the balances in the two accounts represented part of those receipts. The immovable properties of the husband and wife were attached as value thereof after the proceeds were found to have been dissipated, and the property of the partner was attached because the firm was used as a conduit for receiving illicit funds. The fact that some assets were acquired earlier or through finance did not displace the statutory power to attach value equivalent assets when the direct proceeds had been layered or exhausted.
Conclusion: The attachment of the bank balances and immovable properties was upheld against the appellants.
Issue (iii): whether the transfer of funds to M/s Mind is King was proved to be tainted proceeds of crime linked to the fraudulent scheme.
Analysis: The evidence showed a massive fraudulent multilevel marketing scheme, collection of deposits from members on false promises of returns, and diversion of funds to connected entities and accounts. The appellants' firm was formed with persons connected to the scheme, received substantial funds from M/s FMLC, and the appellant's statements and bank records corroborated the flow of money. The allegation of coercion was found unsupported by any corroboration, and the explanation that the payments were advance consideration for books was not accepted in light of the surrounding material and admissions.
Conclusion: The funds credited to M/s Mind is King were treated as proceeds of crime and the challenge failed against the appellants.
Final Conclusion: The attachment was held to be lawful and the appeals were found to be without merit.
Ratio Decidendi: For provisional attachment under the money-laundering law, recording reasons to believe in writing on the basis of relevant material is sufficient, prior communication of those reasons is not mandatory, and assets may be attached as value thereof where direct proceeds of crime have been layered or dissipated.
Provisional attachment under PMLA - Reasons to believe recorded in writing - Communication of reasons not required - Attachment of property involved in money-laundering - Proceeds of crime and value thereof - Nexus between material and belief - Attachment of property acquired prior to commission of scheduled offence
Provisional attachment under PMLA - Reasons to believe recorded in writing - Nexus between material and belief - Validity of the Provisional Attachment Order (PAO) and whether the issuing authority recorded adequate reasons to believe. - HELD THAT: - The Tribunal found that the Deputy Director (Issuing Authority) had recorded reasons to believe in writing based on material in his possession, including FIRs, seizure of cash, bank transfers from M/s FMLC to various accounts, and a statement quantifying collections. The material demonstrated a prima facie nexus between the criminal activity and the properties/accounts attached, and the Tribunal held that the satisfaction of the Issuing Authority was not mere ipse dixit but was supported by relevant material. The Tribunal applied the plain language of Section 5(1) PMLA and statutory interpretation principles, observing that the statutory requirement is that reasons be recorded in writing and that the material before the Issuing Authority was neither extraneous nor irrelevant for invoking the provision. [Paras 10, 11, 12, 13, 16]
The PAO was valid; the reasons to believe were recorded in writing and were supported by material, so the provisional attachment stood.
Communication of reasons not required - Provisional attachment under PMLA - Whether the statutory scheme required the Issuing Authority to communicate the recorded reasons to the persons whose property was provisionally attached prior to attachment. - HELD THAT: - On a plain reading of Section 5 of the PMLA, the Tribunal held there is no statutory requirement that the reasons to believe, once recorded, be communicated to the affected persons before attachment. The PAO and the Impugned Order included the reasons and material; accordingly, absence of pre-decisional communication did not amount to non-compliance with Section 5. The Tribunal noted that the Adjudicating Authority heard the appellants subsequently and that the PAO is time-limited (180 days), reinforcing that the statute does not mandate pre-attachment disclosure of reasons. [Paras 13, 16]
No obligation to communicate the reasons to the appellants prior to provisional attachment; omission to do so did not invalidate the PAO.
Proceeds of crime and value thereof - Attachment of property involved in money-laundering - Validity of attachment of bank balances in the firm's accounts and attachment of immovable properties (including properties financed by loans) as 'value thereof'. - HELD THAT: - The Tribunal accepted the finding that Rs. 5.50 crores were transferred from M/s FMLC into the two bank accounts of the firm M/s Mind is King (verified by bank statements and admissions). Given that these receipts were linked to the fraudulent scheme, the accounts were rightly provisionally attached. The Tribunal further held that where proceeds of crime have been dissipated or exhausted, attachment may extend to the 'value thereof' of other assets; consequently, immovable properties of the appellants were provisionally attached as representing value traceable to the proceeds of crime, notwithstanding that those properties were financed by loans (ICICI Housing Finance). [Paras 10, 11, 17]
Attachment of the firm's bank accounts and provisional attachment of the immovable properties as 'value thereof' was lawful and sustained.
Attachment of property acquired prior to commission of scheduled offence - Proceeds of crime and value thereof - Whether a property acquired by an appellant prior to the commission of the scheduled offence (2016 acquisition) could be provisionally attached. - HELD THAT: - The Tribunal distinguished the present facts from Pavana Dibbur by noting that the appellant here was a partner in the firm into whose accounts proceeds were routed, not merely a person who lent an account. Relying on the Tribunal's earlier reasoning in a related Final Order, it rejected an interpretation that would render parts of the statutory definition of 'proceeds of crime' otiose; if properties acquired prior to the offence were immunized categorically, accused could evade attachment by rapidly dissipating proceeds. Thus, attachment of property acquired before the scheduled offence was permissible where the property can be linked to the proceeds or the value thereof and to the scheme's operation. [Paras 18]
The provisional attachment of property acquired prior to the scheduled offence was permissible on the facts and sustained.
Final Conclusion: All four appeals filed by Shri Deepak Sharma, Smt. Sunil Sharma, Shri Manish Grover and M/s Mind is King were dismissed as devoid of merit; the provisional attachment orders were upheld and the related applications disposed of accordingly.
Valuation of service tax - Inclusion of waiver from payment of telephone charges, given by the appellants to their employees, referred to as CFA is to be included for the purpose of calculating the service tax payable by the appellants - it was held by High Court that 'Service tax cannot be levied when there is no consideration received. Free allowance given to the employees by the appellant is in the nature of discount/ concession and as the same has not accrued to the service provider-appellant, the same cannot form part of the consideration for the purpose of levy of service tax.'
HELD THAT:- There are no good reason to interfere with the impugned order dated 27.01.2025 passed by the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Chandigarh.
Appeal dismissed.
ISSUES PRESENTED AND CONSIDERED
1. Whether Notification No.9/2016-ST (restoring exemption subject to a cut-off date and stamp-duty condition) is violative of Articles 14 and 245 read with Section 93 of the Finance Act, 1994 by restricting exemption to contracts entered into prior to 01.03.2015 and on which appropriate stamp duty was paid prior to that date.
2. Whether judicial interference is warranted in policy decisions relating to grant or withdrawal of tax exemptions - specifically, whether the imposition of the cut-off/stamp-duty condition is arbitrary, mala fide, or contrary to public interest.
3. Whether the imposition of penalty under Section 78 of the Finance Act, 1994 is sustainable where orders-in-original do not record allegations of fraud, collusion, willful misstatement, suppression of facts or contravention with intent to evade service tax.
4. Ancillary administrative remedies: whether aggrieved assessees should be relegated to statutory appeal; treatment of pre-deposit where amounts already remitted pursuant to recovery have been paid.
ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Validity of Notification condition (cut-off date and stamp-duty requirement)
Legal framework: Exemption from service tax was originally granted by a mega-notification (granting exemption for specified construction and allied services). A subsequent Notification withdrew the exemption with effect from 01.04.2015. Notification No.9/2016 purported to restore the exemption with effect from 01.03.2015 but conditioned restoration on contracts having been entered into prior to 01.03.2015 and having appropriate stamp duty paid prior to that date; a temporal cap (01.04.2020) was also specified.
Precedent treatment: The Court relied on a prior decision of the same Court upholding a similar notification (challenging withdrawal/restoration of exemption) and held that the earlier decision was applicable. That decision was followed.
Interpretation and reasoning: The restoration of exemption by Notification No.9/2016 is a legislative/policy measure within the fiscal domain of the State. The imposition of a cut-off date and a stamp-duty condition is construed as a policy choice aimed at determining the class of contracts entitled to benefit. Absent any demonstrable arbitrariness, mala fides, extraneous consideration, or absence of public interest, judicial interference is inappropriate. The impugned condition was viewed as not arbitrary or mala fide and, further, the Notification was beneficial to assessees insofar as it restored exemptions that had been withdrawn.
Ratio vs. Obiter: Ratio - Policy decisions on grant/withdrawal/restoration of tax exemptions are generally non-justiciable unless demonstrably arbitrary, mala fide, or contrary to public interest; the particular cut-off and stamp-duty condition in Notification No.9/2016 does not suffer from arbitrariness or mala fides and therefore is constitutionally sustainable. Obiter - The observation that with the advent of GST in 2017 the present questions are largely academic.
Conclusion: The condition limiting restoration of exemption to contracts entered into prior to 01.03.2015 with stamp duty paid before that date is upheld; challenge to Notification No.9/2016-ST is repelled.
Issue 2 - Justiciability of fiscal policy choices and standard for interference
Legal framework: Judicial review of fiscal policy (grant/withdrawal of tax exemptions) is circumscribed; the Court may only intervene where action is not in public interest, is mala fide, arbitrary, or tainted by extraneous considerations.
Precedent treatment: The Court followed prior authority that declined to interfere with policy-driven withdrawal/restoration of exemption where no illegality or malafide was shown.
Interpretation and reasoning: The present challenge did not plead or establish facts showing that the selection of 01.03.2015 as the cut-off date or the requirement of pre-paid stamp duty was arbitrary, mala fide, or lacking public interest. As the impugned measure restored previously granted exemption (thus being beneficial), and as the formulation of temporal and documentary conditions is within policy domain, the Court declined to interfere.
Ratio vs. Obiter: Ratio - Judicial review of fiscal exemptions is limited to cases of demonstrated arbitrariness, mala fides, extraneous considerations or lack of public interest; absent such proof, courts should not substitute their policy view. Obiter - None additional beyond the application of the standard.
Conclusion: No interference with the policy choice embodied in Notification No.9/2016-ST; the measure is within the State's fiscal policy and sustainable under constitutional review.
Issue 3 - Construing penalty provisions: Section 77 vs Section 78 of the Finance Act, 1994
Legal framework: Section 77 permits levy of penalty in cases such as non-registration and may operate automatically in certain circumstances. Section 78 penalizes non-payment of service tax where failure is by reason of fraud, collusion, willful misstatement, suppression of facts, or contravention with intent to evade payment of service tax.
Precedent treatment: The Court examined the statutory language and the factual matrix in the orders-in-original. No explicit precedent was necessary beyond statutory interpretation and application to facts.
Interpretation and reasoning: Orders-in-original lacked allegations or findings of fraud, collusion, willful mis-statement, suppression of facts, or intent to evade payment - the statutory elements required for imposition of penalty under Section 78. Therefore, prima facie, Section 78 cannot be invoked. Section 77 may still apply where the statutory conditions (e.g., non-registration) are satisfied; that provision can attract automatic penalty in appropriate cases. The court limited itself to prima facie observations and directed that first appellate authority decide the issue on merits if the appeals raise relevant grounds.
Ratio vs. Obiter: Ratio - Penalty under Section 78 requires specific factual findings of fraud/collusion/willful misstatement/suppression/intent to evade; in the absence of such findings in the orders-in-original, Section 78 is not attracted. Obiter - Observations that levy of interest for belated payment was not addressed and that Section 77 may attract automatic penalty where non-registration is established.
Conclusion: Prima facie, penalties under Section 78 are not sustainable in the present orders-in-original; matters relating to Section 77 and interest remain open for adjudication by the appellate authority.
Issue 4 - Administrative remedy, appeals and pre-deposit treatment
Legal framework: Statutory appellate remedy is available against orders-in-original; rules governing limitation and pre-deposit apply subject to Court's discretion in specified circumstances.
Precedent treatment: The Court exercised discretionary relief to entertain appeals filed within six weeks notwithstanding limitation, subject to compliance with other conditions including pre-deposit.
Interpretation and reasoning: The petitioners challenging orders-in-original were relegated to statutory appeals. The Court permitted appeals filed within six weeks to be entertained without reference to limitation, provided other conditions (including pre-deposit) are observed. Amounts remitted pursuant to recovery effected by authorities were to be reckoned towards pre-deposit where relevant.
Ratio vs. Obiter: Ratio - Where statutory appeals are the remedy, courts may permit belated filings within a limited period and direct appellate authorities to entertain them without reference to limitation, subject to compliance with other conditions; amounts previously remitted by assessees pursuant to recovery can be applied towards pre-deposit. Obiter - None additional.
Conclusion: Petitioners challenging orders-in-original are relegated to statutory appeal; appellate authorities shall entertain appeals filed within six weeks without reference to limitation, ensure compliance with other conditions (including pre-deposit), and reckon amounts already remitted by assessees for the purpose of pre-deposit.
Seeking a declaration that N/N. 9/2016-ST, dated 01.03.2016 is violative of Articles 14 and 245 of the Constitution of India read with Section 93 of the Finance Act, 1994 - exemption available to only those contracts entered prior into 01.03.2015 and on which, appropriate stamp duty has been paid - HELD THAT:- In the decision in Raju Constructions [2022 (12) TMI 1336 - MADRAS HIGH COURT] the Notification impugned therein came to be upheld and the batch of writ petitions came to be dismissed. Likewise, there is no infirmity insofar as the condition imposed in Notification No.9/2016-ST, dated 01.03.2016 is concerned.
In fact, Notification No.9/2016 is beneficial to assesses insofar as it restores the exemption granted in Notification No.25/2012- ST, dated 20.06.2012. The imposition of a condition falls solely within the realm of policy of the State and there is nothing arbitrary or malafide in the selection of the cut off date being 01.03.2015 - Hence, the Notification with the condition has to be upheld, reiterating, as noted by the Bench, with advent of Goods and Services tax with effect from 2017, the present questions remain largely academic today.
The challenge to N/N. 9/2016-ST, dated 01.03.2016 and the imposition of condition, are repelled and these writ petitions are dismissed.
Issues: (i) Whether service tax could be demanded on services rendered and consumed in the State of Jammu and Kashmir by applying the Place of Provision of Services Rules, 2012 notwithstanding the territorial limitation in the Finance Act, 1994. (ii) Whether the extended period of limitation, interest and penalties were sustainable.
Issue (i): Whether service tax could be demanded on services rendered and consumed in the State of Jammu and Kashmir by applying the Place of Provision of Services Rules, 2012 notwithstanding the territorial limitation in the Finance Act, 1994.
Analysis: The levy of service tax under Chapter V of the Finance Act, 1994 does not extend to the State of Jammu and Kashmir. Where the charging statute itself is inapplicable territorially, subordinate rules governing place of provision cannot enlarge the levy or create taxability. Since the services were rendered in Jammu and Kashmir and the input services also pertained to that State, the demand could not be sustained by recourse to the Place of Provision of Services Rules, 2012 or the reverse charge notification.
Conclusion: The demand of service tax was not sustainable and the issue was decided in favour of the assessee.
Issue (ii): Whether the extended period of limitation, interest and penalties were sustainable.
Analysis: The appellant had disclosed the transactions in its ST-3 returns and financial statements, and the department had access to the relevant records during audit. On those facts, suppression could not be alleged. The matter also turned on interpretation of the legal scope of the levy, for which invocation of the extended period was not justified. Once the principal demand failed, the consequential liability to interest and penalty also failed.
Conclusion: The extended period of limitation, interest and penalties were not sustainable and the issue was decided in favour of the assessee.
Final Conclusion: The impugned order was set aside and the appeal was allowed with consequential relief as per law.
Ratio Decidendi: Where the charging provision of a tax statute does not extend to a territory, subordinate rules cannot be used to impose the levy there, and a demand based on such rules cannot survive.
Liability to pay service tax - services were provided by the appellant in J&K - POPOS Rules - Invocation of extended period of limitation - Interest - penalty - HELD THAT:- In the present case it is an admitted fact that the services were provided by the appellant in J&K and the input services in respect of Passive Infrastructure Support Services rendered by the appellant were also received in the State of J&K. Further, it is found that the provision of Chapter V of the Finance Act do not extend to J&K once the provisions of Finance Act are not applicable in the State of J&K then service tax cannot be demanded by resorting to POPS Rules which cannot override the statutory provisions.
Invocation of extended period of limitation - HELD THAT:- In the present facts and circumstances, the invocation of extended period is not justified as the appellant has been filing its ST-3 Returns regularly and disclosed the said transaction in the service tax Returns filed for the period under dispute as “exempted service” - It is also found that the Department was well aware of the transaction entered into by the appellant since the proceedings have been initiated based on that disclosures made by the appellant in their financial statements and service tax Returns of the same were also provided by the appellant during the course of audit. Further, the extended period of cannot be invoked when the matter pertains to interpretation of legal provision as held in International Merchandising Company, LLC v. Commissioner, Service Tax, New Delhi [2022 (12) TMI 556 - SUPREME COURT].
Interest - penalty - HELD THAT:- When the demand itself is not sustainable, the question of payment of interest and penalty does not arise.
The impugned order is not sustainable in law and therefore set aside - Appeal allowed.
ISSUES PRESENTED AND CONSIDERED
1. Whether Cenvat credit claimed on specified input services can be availed and transferred by a manufacturer after the surrender of a unit's registration where the invoices on which credit is claimed are dated after the date of surrender.
2. Whether invoice and payment records produced after surrender suffice to prove receipt and utilization of input services prior to surrender so as to make Cenvat credit admissible under the Cenvat Credit Rules, 2004.
3. Whether absence of departmental objection during audit or subsequent distribution of credit by an Input Service Distributor (ISD) can validate a post-surrender credit claim where contemporaneous documentary link between services and pre-surrender utilization is lacking.
ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Admissibility of Cenvat credit where supporting invoices are dated after surrender of registration
Legal framework: Cenvat Credit Rules, 2004 (notably Rule 3 and Rule 10) entitle a manufacturer to credit for inputs and input services used in or in relation to manufacture of excisable goods; transfer/adjustment of unutilized credit on change/closure of registration is governed by the Rules and the principles that credit must relate to goods/services received and utilized prior to surrender.
Precedent treatment: The Tribunal's earlier remand directed that substantive entitlement should not be denied on hyper-technical procedural grounds and instructed verification whether the credit "belongs to the receipt of the goods or to the services availed" prior to surrender. That directive was followed as a remit to ascertain factual entitlement; the adjudicating authority thereafter examined documentary evidence and the Tribunal upheld that factual inquiry.
Interpretation and reasoning: The Court/Tribunal treated the date of receipt and utilization of the services as pivotal. Invoices dated after surrender (post-surrender invoices) are prima facie inconsistent with a contention that those services were received and utilized prior to surrender. The adjudicating authority examined the six invoices (all dated after the surrender date) and found no documentary nexus to show they represented services actually received prior to surrender. Mere assertion that services were received earlier was insufficient without contemporaneous records connecting those invoices to pre-surrender receipt/utilization.
Ratio vs. Obiter: Ratio - A claim to Cenvat credit must be supported by documentary evidence establishing that the goods/services were received and utilized prior to the date of surrender; invoices dated after surrender, absent corroborating linkage, cannot establish pre-surrender receipt. Obiter - Emphasis that substantive benefit should not be denied for purely procedural non-compliance, subject to proof of entitlement (this guided the remand but did not alter the documentary proof requirement).
Conclusion: Credit based on invoices dated after surrender was properly denied where no documentary evidence tied those invoices to services received and utilized prior to surrender.
Issue 2 - Sufficiency of invoices, ledger extracts and e-challans produced post-surrender to prove receipt/utilization of input services prior to surrender
Legal framework: Entitlement to Cenvat credit requires that the input or input service be used or intended to be used in or in relation to manufacture; proof of receipt/use is a factual requirement to be demonstrated by the assessee by records that establish temporal and causal connection between the service and manufacture before surrender.
Precedent treatment: The Tribunal's remand required examination of whether credit "was otherwise available" by reference to receipt/utilization; the adjudicating authority applied the standard of documentary proof. No decision overruled prior authority relaxing documentary requirements.
Interpretation and reasoning: Ledger extracts and e-challans were reviewed and compared with the six invoices. The ledger/service-wise details related to an earlier period (2006-07) while the six invoices were dated in 2010; e-challans recorded payments in December 2009 or February 2010 but did not reference invoice numbers or nature of services. The Tribunal and the adjudicating authority held that such documents did not match the invoices and thus failed to establish that the particular services invoiced in 2010 were received and utilized prior to 18.12.2009. The Court emphasized the need for specific, contemporaneous linkage - e.g., invoice identifiers, service descriptions matching ledger entries, delivery/acceptance records - none of which were present.
Ratio vs. Obiter: Ratio - Generic ledger extracts and unreferenced e-challans that do not correspond to the invoices relied upon are insufficient to prove receipt/utilization for Cenvat purposes. Obiter - The Court noted that voluminous but non-matching records do not discharge the onus; documentary sufficiency must be assessed on specific correspondence between documents.
Conclusion: The records produced were legally insufficient to prove pre-surrender receipt and utilization of the services invoiced; denial of credit on that basis was upheld.
Issue 3 - Requirement of proof of use in manufacture and effect of audit non-objection/ISD distribution on entitlement
Legal framework: Cenvat credit is available only when inputs/input services are used directly or indirectly in manufacture; ISD mechanism allows distribution of service tax credit but does not create entitlement where underlying receipt/use is unproven. Audit observations (or absence of objection) do not substitute for requisite documentary proof at the time of claim.
Precedent treatment: The Tribunal's earlier observation that substantive benefit should not be denied on technical grounds was balanced by reaffirmation that factual entitlement must be shown. No precedent was applied to dispense with proof of use where physical evidence of manufacture or utilization was absent.
Interpretation and reasoning: The adjudicating authority found no evidence that detergent or detergent cake was manufactured using the services in question; furthermore, premises were vacated by the surrender date with no inputs or capital goods remaining. The Court held that audit silence cannot validate a post-surrender claim for proportionate or distributed credit; until the date of surrender only proportionate Cenvat (if any) could validly have been availed. ISD distribution effected after surrender, without records showing services were received and used before surrender, could not create retrospective entitlement.
Ratio vs. Obiter: Ratio - Entitlement requires proof of use in manufacture; absence of evidence of such use and vacated premises at surrender negates a claim. Audit non-objection and post-surrender ISD distributions do not cure absence of contemporaneous proof. Obiter - Remedial fairness (not to defeat substantive rights for procedural lapses) remains subject to the primary requirement of factual entitlement.
Conclusion: In absence of evidence that the services were used in manufacture prior to surrender, and given vacated premises and lack of contemporaneous linkage, the claim for Cenvat credit was properly rejected; audit non-objection and post-surrender ISD actions did not validate the claim.
Overall Conclusion
The adjudicating authority's and appellate findings were upheld: the appellant failed to establish, by adequate contemporaneous documentary evidence, that the input services invoiced post-surrender were received and utilized prior to surrender; consequently Cenvat credit relating to those invoices was correctly denied and the appeal dismissed.
Denial of availment of CENVAT Credit - credit availed on Acid slurry not used in the manufacture of final products - reversal of Cenvat credit on service tax on outward transportation - denial of substantive benefit on the ground of procedural and technical violation - HELD THAT:- Though the appellant has placed on record the voluminous records including the aforesaid six invoices along with the extract of their ledger showing service wise details of the service tax paid during the period 2006-07. The copies of e-challans showing payment of service tax by the appellant are also placed on record. Perusing those documents, it is observed that there is nothing in those documents to relate to the aforesaid six invoices. Service wise details are of the year 2006-07 whereas six of the invoices are of the year 2010. No particulars of these documents match. Seen from the e-challans, the payments were made in December 2009 or February 2010 with no mention of any of the said six invoices or about the nature of service for which those payments were made.
In view of these observations, it is held that the documents are highly insufficient to show that the input services as are mentioned in the six invoices of the year 2010 were the services which were received by the appellant during the period April 2006 to March 2007. Thus, there is nothing on record in the form of any documentary evidence, which could substantiate that the services in question were received and were utilized by the appellant before the date of surrender i.e. 18.12.2009. These only are the findings in the order under challenge. Hence, there are no infirmity therein.
In addition the Cenvat credit of eligible input services is available when the services were used directly or indirectly in manufacture of the final product. The appellant has produced no evidence to show that the detergent or soap cake, the appellant’s final product, was manufactured out of the services mentioned in the invoices. It is an admitted fact that by 18.12.2009 itself the premises of Delhi unit got absolutely vacated, no capital good or inputs were left in those premises. There is no other evidence that the services received in 2006-2007 were utilized till 18.12.2009. The plea of no objection ever raise by the audit team is also not sustainable as till the date of surrender of registration, the proportionate Cenvat only would have been availed by the appellants - the documents filed before the adjudicating authorities below and before this Tribunal are insufficient to justify this claim of the appellant. The six of the invoices based whereupon the aforesaid amount of (Cenvat credit of Rs. 26,11,338/-) has been claimed are apparently of the date after the surrender of registration. No question of such credit lying prior said surrender arises.
There are no infirmity in the order under challenge where each invoice has been properly dealt with. Hence the order under challenge is hereby upheld - appeal dismissed.
ISSUES PRESENTED AND CONSIDERED
1. Whether complimentary room-nights and discounts on food and beverages granted by the lessee to the lessor constitute "consideration" and must be included in the gross/taxable value of the Renting of Immovable Property service under Section 67 of the Finance Act, 1994?
2. Whether the valuation under Section 67(1)(ii) - i.e. inclusion of non-monetary consideration - applies when such non-monetary benefits arise under the same lease agreement that fixes monetary rent?
3. Whether any issue concerning extended limitation/extended period for issuance of show-cause notice was determinative in the appeal (noted as raised by the appellant but not adjudicated as core issue)?
ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Inclusion of complimentary nights and food/beverage discounts as "consideration" under Section 67
Legal framework: Section 67 (as in force/amended) governs valuation of taxable services. Section 67(1)(i)-(iii) sets valuation rules where consideration is in money, not wholly/partly in money, or not ascertainable. Section 67(3) requires gross amount charged to include any amount received towards the taxable service before, during or after provision. The Explanation to Section 67 defines "consideration" to include amounts payable for the services and reimbursable expenditure or cost charged.
Precedent Treatment: No prior judicial precedent was cited or applied in the judgment.
Interpretation and reasoning: The Court analysed the lease agreement and found that the parties agreed a composite consideration: monetary rent (turnover-linked with minimum guarantee) together with non-monetary benefits (up to 75 complimentary room-nights per annum for directors/family/friends and discounts on food and beverages). The Tribunal construed the statutory language - particularly clause (ii) of Section 67(1) - to cover cases where consideration is not wholly monetary. The Tribunal emphasized that Section 67 contemplates valuation where part of the consideration is in kind, and that such non-monetary benefits, when provided "for" the taxable service, are to be converted into money-equivalent value for taxation. The word "such" in "such service" was interpreted to mean the specific taxable service agreed to be provided; therefore amounts or benefits received in relation to that service fall within valuation rules.
Ratio vs. Obiter: Ratio - where a lease for renting of immovable property establishes both monetary rent and non-monetary benefits under the same agreement, the non-monetary benefits constitute consideration for the taxable service and must be included in gross/taxable value under Section 67(1)(ii) and (3). Obiter - general dictionary discussion of the word "such" and ancillary observations on how Section 67 operates for non-monetary consideration.
Conclusions: The Tribunal held that the complimentary room-nights and food/beverage discounts availed by the lessor and its directors/promoters/family/friends are additional consideration over and above monetary rent and therefore liable to be included in taxable gross value. The adjudicating authorities were held to have correctly included these benefits in valuation.
Issue 2 - Application of Section 67(1)(ii) where non-monetary benefits arise under the same lease agreement
Legal framework: Same statutory provisions as Issue 1; valuation requires conversion of non-monetary consideration into a money equivalent "such amount in money" as per Section 67(1)(ii).
Precedent Treatment: None cited.
Interpretation and reasoning: The Tribunal emphasized that the lease agreement simultaneously provided for monetary and non-monetary consideration. Because the non-monetary benefits (free nights, discounts) are contractually linked to the renting service, they are consideration "for such service." The presence of a single agreement expressing composite consideration makes Section 67(1)(ii) applicable; these benefits cannot be treated as separate or gratuitous where they form part of the bargained consideration under the lease. The Tribunal also noted that Section 67 targets situations where the provider receives consideration not wholly in money, and thus requires inclusion of non-monetary elements in the gross value.
Ratio vs. Obiter: Ratio - non-monetary benefits negotiated under the same contract for renting of immovable property are part of the consideration and fall within Section 67(1)(ii) valuation. Obiter - remarks on the statutory purpose to capture un-invoiced or non-monetary consideration.
Conclusions: The Tribunal affirmed that non-monetary benefits in the lease must be valued and added to the taxable base; the lower authorities were correct in treating the complimentary nights and discounts as part of the gross value.
Issue 3 - Appellant's contentions on quantity/value of benefits and extended period
Legal framework: Burden of proof on taxpayer to establish error in valuation or that amounts included are incorrect; limitation rules for show-cause notices and extended period are governed by relevant tax law (raised but not treated as principal issue).
Precedent Treatment: No precedent applied.
Interpretation and reasoning: The appellant challenged the quantum (contending only 44 complimentary nights were availed and that inclusion of 31 additional nights and higher food discount was erroneous) and argued that the extended period invocation was improper because the lease dated 2008 had been previously audited and returns filed without objection. The Tribunal observed that the appellant failed to produce evidence to substantiate its asserted lower quantum or to show invalidity of the computation. On the extended period objection, the Tribunal framed the sole adjudicatory issue as valuation of the benefits and proceeded to decide that issue; it did not accept the appellant's factual assertions without supporting evidence and noted that re-calculation/verification was not permissible at the appellate stage without evidentiary material.
Ratio vs. Obiter: Ratio - absence of documentary evidence to rebut valuation findings precludes upsetting the adjudicating authority's computation. Obiter - procedural remark that recalculation/verification is not permissible at this adjudicatory stage in absence of supporting evidence.
Conclusions: The Tribunal found no substantiation for the appellant's quantum/valuation challenge and declined to disturb the amounts included by the adjudicating authority. The extended period/contention was not held to negate liability on the valuation issue as framed and therefore did not result in relief to the appellant.
Final Disposition
The Tribunal upheld the inclusion of complimentary room-nights and food/beverage discounts in the taxable gross value under Section 67 and affirmed the order confirming the service-tax demand; the appeal was dismissed. (No separate or dissenting opinion was recorded.)
Valuation of taxable services under Section 67 - consideration not wholly in money / consideration in kind - gross amount charged includes amounts received before, during or after provision of service - inclusion of non-monetary consideration in taxable value
Valuation of taxable services under Section 67 - consideration not wholly in money / consideration in kind - gross amount charged includes amounts received before, during or after provision of service - Complementary room nights and discount on food and beverages received by the lessor are includible in the gross taxable value for Renting of Immovable Property service. - HELD THAT: - The Tribunal examined Section 67 and its explanation which covers situations where consideration is not wholly in money and provides that value shall be such amount in money equivalent to the consideration. The lease agreement dated 25.03.2008 showed that, besides rent based on turnover, the lessor was contractually entitled to free room nights and discounts on food and beverages and that insurance and property tax were to be borne by the lessee. These benefits formed part of the agreed consideration for the renting service and therefore constituted nonmonetary consideration which falls within the ambit of gross amount charged under Section 67(3). The Tribunal held that the adjudicating authorities were right in treating the value of complimentary nights and food and beverage discounts as additional consideration to be included in the taxable gross value. The appellant's contention that such privileges were merely for verification purposes and not additional consideration was rejected for lack of evidential support, and the Tribunal declined to recompute the quantification at the appellate stage. [Paras 7, 8, 9, 10, 11]
Findings of the adjudicating authorities confirming inclusion of the value of free room nights and food and beverage discounts in the taxable gross value are upheld; the appeal is dismissed.
Final Conclusion: The Tribunal affirms that the complimentary nights and discounts enjoyed by the lessor pursuant to the lease agreement constitute nonmonetary consideration to be included in the taxable value under Section 67, upholds the impugned order and dismisses the appeal.
ISSUES PRESENTED AND CONSIDERED
1. Whether a Show Cause Notice (SCN) and consequent demand for service tax can be sustained when it is issued solely on the basis of third-party information from Form 26AS/Income Tax returns without examination of the assessee's books of account or other records.
2. Whether extended period of limitation (or invocation of extended period provisions) is permissible in the absence of fraud, suppression, or willful misstatement by the assessee.
3. Whether the Revenue discharged its burden to prove non-payment/short payment of service tax where the assessee neither charged nor collected service tax (and had ceased charging following a sectoral notification), and relatedly whether the cum-tax (inclusive tax) treatment adopted by the appellate authority affects sustainment of the demand.
ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Validity of SCN based solely on Form 26AS/Income-tax returns without examination of books/records
Legal framework: The charging and assessment of service tax under the Finance Act require that demands be founded on admissible evidence reflecting assessable value; Rule 6 of the Service Tax Rules prescribes payment liability based on amounts actually received and the relevant records of receipt. The executive's duty in issuing an SCN includes examining available records and taking a view based on books of account and other admissible evidence.
Precedent treatment: Tribunal's decision in Sharma Fabricators & Erectors Pvt. Ltd. was applied. In that precedent the Tribunal held SCNs issued without examination of the assessee's books/records and relying on third-party/draft audit information to be unsustainable; the High Court affirmed that amount payable is that actually received and not merely an amount appearing in third-party records, endorsing the requirement of examining primary records.
Interpretation and reasoning: The Court notes the SCN herein was framed solely on the basis of third-party data from Form 26AS showing higher receipts in the Income-tax return than in ST-3 returns. No contemporaneous examination of the assessee's books, invoices, records or other supporting documentation was undertaken before framing charges. The Court reasoned that Form 26AS or Income-tax returns alone do not establish the nature of transactions or that receipts shown therein correspond to taxable services; the Revenue could and should have investigated the transactions reflected in Form 26AS to establish that they constituted consideration for taxable services before proceeding to charge service tax.
Ratio vs. Obiter: Ratio - An SCN based solely on Form 26AS/Income-tax returns without examination of the assessee's books and other records is unsustainable; proper assessment requires examination of primary records to establish taxable consideration. Obiter - Observations on the purpose of audit reports as prompts for executive examination and the limits of relying on draft audit/third-party data.
Conclusions: The SCN was invalid as it lacked foundational examination of the assessee's records; demands premised only on Form 26AS are not maintainable. The principle in Sharma Fabricators applies squarely and requires setting aside the SCN and consequent orders.
Issue 2 - Extended period of limitation in absence of suppression, fraud or willful misstatement
Legal framework: Extended limitation for tax demands is available only where statutory ingredients such as suppression of facts, fraud, or willful misstatement with intent to evade tax are established. Normal limitation rules apply otherwise.
Precedent treatment: The Court relied on the factual standards discussed in prior Tribunal and High Court authority (Sharma Fabricators and its High Court upholding) which emphasize that extended period cannot be invoked without demonstrating suppression/fraud/willful misstatement.
Interpretation and reasoning: The record contained no material indicating suppression, fraud or willful misstatement by the assessee. The assessee had not charged or collected service tax and had, according to submissions, ceased charging following a sectoral exemption notification; no deliberate concealment was proven. Absent such ingredients, reliance on extended limitation provisions was unwarranted.
Ratio vs. Obiter: Ratio - Extended limitation cannot be invoked where there is no evidence of suppression, fraud or willful misstatement. Obiter - Comments that Revenue must establish specific culpable conduct to justify extended limitation rather than infer it from third-party data.
Conclusions: The extended period of limitation was inapplicable; the demand could not be sustained on that ground.
Issue 3 - Burden of proof on Revenue; effect of assessee not charging/collecting service tax and post-notification practice; cum-tax valuation consideration
Legal framework: The Revenue bears the onus of proving non-payment or short payment of tax. Valuation principles require that assessable value and tax liability be established on admissible evidence. Administrative notifications can alter liability or reverse charge arrangements, and such changes may be relevant to whether service tax was chargeable in a given period.
Precedent treatment: Tribunal precedents require that demands be founded on records proving taxable receipt; reliance on third-party returns without corroboration does not shift burden to the assessee to disprove liability.
Interpretation and reasoning: The assessee's practice (not charging service tax and not collecting it) and the amendment/exemption in the insurance sector's notification were material facts that the Revenue did not properly examine. The appellate authority had recalculated demand applying cum-tax treatment and confirmed tax and penalties, but the Tribunal found that because the foundational SCN was unsustainable, those downstream computations could not remedy the initial deficiency. The Revenue failed to discharge its burden to prove the receipts were consideration for taxable services and that service tax was payable for the period in question.
Ratio vs. Obiter: Ratio - Where the assessee neither charged nor collected tax and where assessment proceedings are premised on third-party returns without independent proof of taxable receipts, the Revenue fails its burden and demands cannot be sustained. Obiter - Observations on interplay between sectoral notifications, reverse charge cessation and practical consequences on service providers' charging practices.
Conclusions: The demand (including recalculated cum-tax demand and penalties) could not stand because the Revenue did not prove liability; the SCN was unsustainable and the appeal had to be allowed with consequential relief.
Cross-references
Points under Issue 1 and Issue 3 are interlinked: the insufficiency of Form 26AS as sole basis (Issue 1) also meant that the Revenue did not discharge its burden of proof (Issue 3). Issue 2 (limitation) is linked to Issue 3 because absence of suppression/fraud (Issue 3 findings) negates invocation of extended limitation (Issue 2).
Validity of show cause notice based solely on thirdparty Form 26AS/ITR data - Burden of proof for short payment/nonpayment of service tax - Extended period of limitation - requirement of suppression, fraud or wilful misstatement - Cumtax valuation when service tax is not separately charged or collected
Validity of show cause notice based solely on thirdparty Form 26AS/ITR data - Examination of assessee's books and records as precondition for framing charge - The show cause notice issued solely on the basis of thirdparty information in Form 26AS/ITR data, without examination of the assessee's books or other records, is not sustainable. - HELD THAT: - The Tribunal held that the SCN was founded only on information received from the Income Tax Department (Form 26AS / ITR) and that no records of the assessee were examined to arrive at a prima facie view of short payment. Relying on the Tribunal's decision in Sharma Fabricators & Erectors (affirmed by the High Court), the court emphasised that charges must be framed on the basis of books of account and admissible evidence and not mere presumptions from thirdparty data. Absent examination of the assessee's records or other evidence establishing that the payments reflected in Form 26AS constituted taxable consideration, the Department could not sustain the demand. [Paras 12, 13, 15]
SCN dated 28.04.2021 is not sustainable and the impugned demand set aside.
Extended period of limitation - requirement of suppression, fraud or wilful misstatement - Extended period of limitation could not be invoked as there was no finding of suppression, fraud or wilful misstatement with intent to evade tax. - HELD THAT: - The Tribunal found no ingredients of suppression, fraud or wilful misstatement in the material on record. Since the Department relied solely on Form 26AS/ITR without corroborative evidence of deliberate concealment by the assessee, the statutory condition justifying invocation of the extended period was not satisfied and therefore could not be applied. [Paras 14]
Extended period of limitation was not available to the Revenue.
Burden of proof for short payment/nonpayment of service tax - Cumtax valuation when service tax is not separately charged or collected - Revenue failed to discharge its burden to prove short payment/nonpayment of service tax; where the assessee did not charge or collect service tax, the value needs to be treated with cumtax approach only after proper evidence. - HELD THAT: - The Tribunal noted that the assessee had not charged or collected service tax from the insurance companies and that Revenue did not examine the assessee's records to establish taxable receipts. The Commissioner (Appeals) had applied cumtax treatment in recomputing demand on statutory grounds and facts that the assessee had not separately collected tax; however, because the foundational charge was unsustainable for want of evidence, Revenue's obligation to prove nonpayment was unmet. The absence of proper inquiry into the nature of transactions and reliance solely on thirdparty returns undermined the demand. [Paras 5, 15, 16]
Revenue failed to prove nonpayment/short payment; recomputed demand cannot be sustained and appeal is allowed with consequential relief.
Final Conclusion: The Tribunal set aside the impugned order and quashed the SCNbased demand for Financial Year 201516, holding that notices founded solely on Form 26AS/ITR data without examination of the assessee's records are unsustainable, extended limitation was inapplicable for lack of suppression/fraud, and the Revenue failed to discharge its burden to prove short payment; the appeal is allowed with consequential relief.
ISSUES PRESENTED AND CONSIDERED
1. Whether services rendered by undertaking upgradation, rehabilitation, renewal, assembly/erection and commissioning of railway wagons constitute "original works" within the meaning of Rule 2A(Explanation 1)(a) of the Service Tax (Determination of Value) Rules, 2006 and thereby fall under the exemption in Sl. No. 14(a) of Notification No. 25/2012-ST (Mega Exemption Notification) for services to railways.
2. Whether the department validly invoked the extended period of limitation under the proviso to Section 73(1) of the Finance Act, 1994 for the period October 2013 to June 2017 on the ground of suppression of facts or otherwise.
3. Whether the classification/characterisation of the same activity as "manufacture" (central excise) in parallel proceedings and settlement under a legacy dispute resolution scheme bars or precludes levy of service tax on the same activity.
4. Whether interest and penalty under Section 78 of the Finance Act, 1994 are sustainable where the underlying service tax demand is held not sustainable; and whether late fee under Rule 7C/read with Section 70 is sustainable given delays in return filing.
ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Characterisation as "Original Works" and entitlement to exemption under Sl. No. 14(a) of Notification No. 25/2012-ST
Legal framework: Notification No. 25/2012-ST grants exemption for "services by way of construction, erection, commissioning, or installation of original works pertaining to railways." "Original works" is defined by reference to Rule 2A of the Service Tax (Determination of Value) Rules, 2006, whose Explanation 1(a) includes (i) all new constructions; (ii) all types of additions and alterations to abandoned or damaged structures on land required to make them workable; and (iii) erection, commissioning or installation of plant, machinery or equipment or structures.
Precedent treatment: The Tribunal noted an earlier decision of the Tribunal under identical facts reaching a similar conclusion (decision relied on by appellant). The order treats that prior Tribunal view as supportive and consistent with the present interpretation.
Interpretation and reasoning: The Tribunal analysed the contractual descriptions (upgradation, rehabilitation, complete renewal of end wall, side wall and flooring, renewal of roof and body repair) and found these activities were additions/alterations aimed at making existing wagons workable. Applying the text of Explanation 1(a)(ii), such works fall within "original works." The Court expressly accepted the appellant's submission that, if a contract falls within the statutory definition of "original work," exemption under Sl. No. 14(a) follows.
Ratio vs. Obiter: Ratio - where works involve additions/alterations to damaged or abandoned structures to make them workable (including upgradation/renewal/rehabilitation of wagons), they qualify as "original works" within Rule 2A(1)(a)(ii) and are exempt under Sl. No. 14(a). Observational/supporting comment - citing tribunal precedent as corroborative rather than as binding higher-court authority.
Conclusion: The services in question constitute "original works" and are exempt from service tax under Sl. No. 14(a) of Notification No. 25/2012-ST; the demand of service tax is therefore unsustainable on merits.
Issue 2 - Invoking extended period of limitation under proviso to Section 73(1)
Legal framework: Proviso to Section 73(1) permits extended period where there is suppression of facts or fraud; normal limitation applies otherwise. Periodic returns filed by assessee engage expectations of departmental knowledge.
Precedent treatment: The appellant relied on judicial authority (High Court) for the proposition that invocation of extended limitation is impermissible in pure statutory interpretation cases and where no suppression is established; the Tribunal considered these principles in assessing whether suppression existed.
Interpretation and reasoning: The Tribunal found the department was aware of the appellant's activities (periodical ST-3 returns filed; departmental enquiries and seizures in related central excise proceedings; settlement under legacy scheme). The activity itself had been the subject of prior departmental scrutiny and not concealed. On those facts, there was no established suppression of facts with intent to evade tax; thus, extended limitation could not be invoked. The Tribunal expressly treated departmental knowledge and consistent filing as indications negating suppression.
Ratio vs. Obiter: Ratio - extended period of limitation cannot be invoked where the activity was known to the department, returns were filed, and no suppression with intent to evade is proved; therefore demands raised solely by invoking extended limitation are unsustainable. Observational - comment that matters known to department and settled in another forum weigh against invoking extended limitation.
Conclusion: Invocation of the extended period was unjustified; the demand confirmed on that extended limitation basis is unsustainable on limitation grounds.
Issue 3 - Effect of parallel classification as "manufacture" and settlement under legacy dispute resolution on service tax liability
Legal framework: Tax liability depends on legal characterisation of activity as service or manufacture; mutually exclusive treatment may follow where an activity is properly classifiable as a process amounting to manufacture and excise duty is payable on goods produced.
Precedent treatment: The Tribunal relied on the fact of departmental treatment in related central excise proceedings and the SVLDRS settlement as an admitted recognition by the department of the activity's character in that forum.
Interpretation and reasoning: The Tribunal reasoned that where the department itself has considered the same activity as a manufacturing process resulting in excisable goods - and the assessee accepted settlement under the legacy scheme - the same activity cannot be recharacterised as a taxable service in subsequent proceedings. That departmental stance and the nature of the activity (assembly/erection/commissioning of wagons from fabricated parts) supported the conclusion that service tax levy on the same activity is impermissible.
Ratio vs. Obiter: Ratio - where identical activity has already been treated as manufacture by the department (and settled under an appropriate scheme), the department cannot sustain a service tax demand on the same activity; such double characterization is not permissible. Observational - reliance on settlement under legacy scheme as evidentiary of departmental position rather than as estoppel doctrine per se.
Conclusion: The prior departmental characterisation as manufacture and settlement under the legacy scheme reinforced the conclusion that service tax demand was not maintainable.
Issue 4 - Consequences for interest, penalty and late fee
Legal framework: Interest and penalty provisions apply where tax is legally payable and demand is sustainable; late fee under Rule 7C and Section 70 applies for delayed return filing.
Precedent treatment: The Tribunal followed the standard approach that if the principal demand is set aside, consequential interest and penalty may not survive; administrative late fees for delayed returns may still be levied.
Interpretation and reasoning: Because the principal service tax demand was set aside on substantive and limitation grounds, interest and penalty under Section 78 were held inapplicable. However, the Tribunal found factual delay in filing returns and thus upheld late fee under Rule 7C read with Section 70 as a separate, legally sustainable liability notwithstanding annulment of the main demand.
Ratio vs. Obiter: Ratio - where the main tax demand is unsustainable, associated interest and Section 78 penalties do not survive; late fee for delayed filing may be upheld independently. Observational - specific imposition quantum not discussed in detail; only legal sustainment affirmed.
Conclusion: Interest and penalty under Section 78 are set aside along with the principal demand; late fee under Rule 7C/Section 70 is upheld due to delay in filing returns.
Inter-point cross-references
1. The conclusion on limitation (Issue 2) reinforces and independently supports the setting aside of the demand found unsustainable on merits (Issue 1); both lines of reasoning were relied upon to annul the demand.
2. The departmental prior treatment as manufacture (Issue 3) is relied upon both to negate the service character (Issue 1) and to demonstrate absence of suppression (Issue 2).
Exemption from levy of Service Tax as provided under Serial No. 14 (a) of N/N. 25/2012-ST dated 20.06.2012 - services rendered in installation and commissioning of wagons amounting to original work - invocation of extended period of limitation - Interest and penalty - HELD THAT:- From the definition of “Original Works”, it is found that all types of additions and alterations to abandoned or damaged structures on land that are required to make them workable, fall within the ambit of 'original work’. On the basis of the above definition of “Original Works”, the work orders executed by the appellant are exmained and it is found that the activities undertaken by the appellant on the Railway wagons, to make them workable, come within the purview of ‘original works’ as defined under N/N. 25/2012-ST dated 20.06.2012. Thus, the activity undertaken by the appellant are exempted from payment of service tax - the services rendered by the appellant being 'Original Works' to Railways, are specifically exempted vide Service Tax Mega Exemption Notification No. 25/2012-S.T. dated 20.06.2012 - the demand of Service Tax along with interest confirmed in the impugned order is not sustainable and hence, set aside.
The Commissioner of Central Excise, Raipur had initiated an inquiry against the appellant and issued two different show cause-cum-demand notices, considering the same activity undertaken by them as amounting to ‘manufacture’ and demanded central excise duty on them. However, pending finalization of the dispute, the appellant had opted for settlement of disputes under the SVLDRS Scheme, 2019, which was accepted by the Department. Thus, it is evident that assembly/commissioning of railway wagon at site has been considered by the Department itself as a ‘manufacturing process' resulting into manufacture of wagon as an excisable goods - in view of the fact that the contract for assembly/erection/commission of railway wagons by assembly of fabricated/pre-fabricated parts, had been considered as a ‘manufacturing process’ of excisable goods by the Department, it is opined that levy of Service Tax on the same activity is not permissible under the law.
Invocation of extended period of limitation to demand Service Tax - HELD THAT:- Since it is a fact borne on record that the same activity as in the present case has been considered by the Department as a ‘process amounting to manufacture’, the submission advanced by the appellant in this regard agreed upon that the same cannot be construed as a service activity for demanding Service Tax on the same. Thus, it is clear that the entire activity undertaken by the appellant was known to the department and they have not suppressed any information from the Department. Consequently, there are no justification for invocation of the extended period of limitation for raising the demand of Service Tax against the appellant.
Interest and penalty - HELD THAT:- As the demand of Service Tax against the appellant itself is not sustainable, the question of demanding interest or imposing penalty under section 78 of the Finance Act, 1994 does not arise - it is found that even though the appellant has filed returns, there has been delay on their part in filing the said returns. Accordingly, the levy of Late Fee under Rule 7C of the Service Tax Rules, 1994 read with Section 70 of the Finance Act, 1994 upheld.
The demand of Service Tax, along with interest, confirmed against the appellant in the impugned order set aside - penalty imposed on the appellant under Section 78 of the Finance Act, 1994 is set aside - the levy of Late Fee under Rule 7C of the Service Tax Rules, 1994 read with Section 70 of the Finance Act, 1994 uphold.
Appeal disposed off.
Issues: Whether the appellant's lubricating oils and greases manufactured under sub-heading 3403.00 were entitled to exemption under Notification No. 120/84-C.E. dated 11.05.1984, and whether the consequential duty demand and penalty could be sustained.
Analysis: The exemption notification was held to be framed in its own language, without reference to any tariff heading or sub-heading, and to require only that the goods be blended or compounded lubricating oils and greases obtained by straight blending of mineral oils or by blending or compounding of mineral oils with other ingredients. The earlier remand direction had required the factual question of eligibility to be answered on the basis of evidence. The appellant produced chartered engineer's certificate and supporting certificates and records to show that the goods satisfied the description in the notification and were ordinarily used as lubricants. The lower authorities' approach of denying exemption only because the goods were classified under heading 34.03 was held to be inconsistent with the earlier Tribunal ruling and unsupported by the record. The evidence adduced by the appellant was accepted, and the Revenue did not rebut it.
Conclusion: The appellant was held entitled to the exemption under Notification No. 120/84-C.E. dated 11.05.1984, and the consequential duty demand and equal penalty were not sustainable.
Ratio Decidendi: Where an exemption notification contains its own description of eligible goods, entitlement must be decided on the notification's plain terms and the evidence showing that the goods satisfy that description, and not merely by the tariff classification assigned to the goods.
Eligibility for exemption under N/N. 120/84-CE dated May 11, 1984 as claimed in the classification list dated June 11, 1990 - lubricating oils and greases manufactured by the appellant falling under sub-heading 3403.00 - HELD THAT:- From the N/N. 120/84-C.E. dated 11.05.1984, it is found that the said Notification does not mention any heading or sub-heading and does not stipulate that the goods in respect of which exemption is granted should contain any particular quantity by weight of petroleum oils or oils obtained from bituminous minerals. Exemption is granted in respect of "lubricating oils and greases obtained by straight blending of mineral oils or by blending or compounding of mineral oils with any other ingredients". It is observed that the Tribunal order dated September 2, 2004 also categorically stated that the benefit of exemption would not dependent on the classification of the goods and the eligibility for the exemption was to be resolved by reaching a finding as to whether the appellant's goods satisfied the definition contained in the said Notification and whether the goods were ordinarily used as lubricants.
The appellant had not produced any evidence to show that the goods were obtained by blending or compounding of mineral oils with other ingredients. The lower authorities have completely overlooked the Chartered Engineer's certificate. It is also observed that the lower authorities did not dispute the evidence adduced by the appellant to show that the goods in question were lubricating oils and greases ordinarily known and used as lubricants and no evidence has been brought on record by the Revenue to counter the said certificates/evidence produced by the appellant. Consequently, the appellant is eligible for the benefit of the N/N. 120/84-C.E. dated 11.05.1984.
The benefit of the N/N. 120/84-C.E. has been allowed in respect of the impugned product viz. lubricating oils and greases, manufactured by other manufacturers. Hence, there are no reason to deny the benefit of the said Notification to the case of the appellant, as the products manufactured are the same.
The appellant is entitled to the benefit of N/N. 120/84-C.E. dated 11.05.1984, as claimed - there are no merit in the impugned Order-in-Appeal dated 29.07.2024 denying the benefit of N/N. 120/84-C.E. to the appellant.
The impugned orders are set aside - appeal allowed.
Issues: (i) whether CENVAT credit on service tax paid for mining services used in extraction of bauxite from the assessee's captive mines was admissible as an input service; and (ii) whether rule 3(1)(xi)(ii) of the CENVAT Credit Rules, 2004 and Notification No. 214/86-Central Excise dated 25.03.1986 barred such credit.
Issue (i): whether CENVAT credit on service tax paid for mining services used in extraction of bauxite from the assessee's captive mines was admissible as an input service.
Analysis: The definition of input service in rule 2(l) of the CENVAT Credit Rules, 2004 was wide and covered services used directly or indirectly in or in relation to manufacture, as well as services relating to business. The bauxite extracted from the assessee's mines was sent for conversion into alumina and the converted alumina was used in manufacture of aluminium. On these facts, extraction of bauxite had a real nexus with manufacture of the final product and was incidental or ancillary to manufacture. The expanded interpretation of input service applied.
Conclusion: The credit on mining services was admissible and the issue was decided in favour of the assessee.
Issue (ii): whether rule 3(1)(xi)(ii) of the CENVAT Credit Rules, 2004 and Notification No. 214/86-Central Excise dated 25.03.1986 barred such credit.
Analysis: Rule 3(1)(xi)(ii) was treated as an enabling provision for cases where inputs or input services are used by a job worker in manufacture of intermediate products and the job worker avails the exemption under the notification. It did not restrict the main entitlement to credit where the input service was actually received and used by the principal manufacturer. The exemption notification was optional, and non-availment of it by the job worker did not defeat otherwise available credit.
Conclusion: Rule 3(1)(xi)(ii) did not apply to deny the credit, and this issue was also decided in favour of the assessee.
Final Conclusion: The demand was unsustainable because the mining service qualified as an input service on the facts and the procedural objection based on the job-work exemption mechanism did not dislodge the credit entitlement.
Ratio Decidendi: Where a service is used by the manufacturer in a direct or indirect nexus with manufacture, including an activity incidental or ancillary to the manufacturing process, it qualifies as an input service; an enabling job-work provision cannot be used to deny otherwise admissible credit unless its conditions are truly attracted.
CENVAT Credit - mining services - input service or not - the service are “in or in relation to manufacture” of the final product aluminium or not - benefit of N/N. 214/86 dated 25.03.1986.
Whether BALCO was justified in availing CENVAT credit of the service tax paid on mining services? - HELD THAT:- A bare perusal of the definition of “input service” shows that it would mean any service used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and includes services used in relation to activities relating to business or capital goods.
In this connection, it would be appropriate to refer to the decision of the Bombay High Court in Coca Cola [2009 (8) TMI 50 - BOMBAY HIGH COURT], wherein the definition of “input service” under rule 2(l) of the 2004 Credit Rules, as stood prior to its amendment made on 01.04.2011, came up for interpretation. The issue was as to whether the appellant, a manufacturer of non-alcoholic beverage bases, was eligible to avail credit of the service tax paid on advertising services, sales promotion, market research and the like service availed by the appellant. The High Court held that the expression “means and includes” is exhaustive and that the expression “business” is an integrated/continued activity and is not confined or restricted to mere manufacture of the product and, therefore, activities in relation to business can cover all activities that are related to the functioning of a business.
There is no error in the findings recorded by the Principal Commissioner in the order impugned in this appeal. Only a bald allegation has been made in the show cause notice that there is no nexus between the extraction of bauxite from the mines owned by BALCO and the manufacture of the final product i.e. aluminium - there is a nexus as bauxite that is mined is converted into alumina which is then used by BALCO for manufacture of the final products i.e. aluminium. It is necessary to give an expanded definition of “input service” in terms of the judgment of the Bombay High Court in Coco Cola.
Whether rule 3(1)(xi)(ii) of the 2004 Credit Rules would be applicable in the facts of the present case? - HELD THAT:- A perusal of rule 3(1)(xi)(ii) shows that it is applicable in situations where a job worker has opted to avail the benefit from payment of excise duty under the Exemption Notification, in which case the principal manufacturer can avail CENVAT credit of duty paid on input used by a job worker. It provides a special dispensation to the principal manufacturer to avail CENVAT credit of duty paid on input used by the job worker since the job worker would not be availing the CENVAT credit. It is not in dispute that Vedanta, as a job worker, had not opted for claiming excise duty exemption and had paid excise duty. The Exemption Notification is optional which may or may not be claimed by the job worker. Merely because the job worker had not opted to avail the exemption benefit under the Exemption Notification, CENVAT credit, which is otherwise available to BALCO, cannot be denied.
There is, therefore, no error in the findings recorded by the Principal Commissioner that rule 3(1)(xi)(ii) of the 2004 Credit Rules would have no application to the facts.
It would not be necessary to examine the contention advanced by BALCO that the extended period of limitation could not have been invoked in the facts and circumstances of the case.
There is no error in the impugned order which may call for any interference in this appeal - Appeal dismissed.
ISSUES PRESENTED AND CONSIDERED
1. Whether Article 22(1) of the Constitution and Section 47 of BNSS 2023 (formerly Section 50 CrPC) require that grounds of arrest be furnished in writing in every case, including offences under the general penal code.
2. Whether non-communication in writing of grounds of arrest at or immediately after arrest vitiates the arrest in all circumstances, or whether exceptions exist where oral communication followed by subsequent written supply suffices.
3. If exceptions exist, what is the permissible timeframe and manner for supplying written grounds of arrest so as to satisfy Article 22(1) and the statutory mandate; and what is the remedial consequence of non-compliance.
4. Ancillary questions considered: (a) whether the grounds must be in a language understood by the arrestee; (b) the role of informing relatives/friends under Section 48 BNSS 2023 (formerly Section 50A CrPC) and the magistrate's duty to satisfy compliance; and (c) the effects of an unconstitutional arrest on subsequent remand/orders and filing of charge-sheet.
ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Constitutional and statutory requirement to furnish grounds of arrest in writing in every case
Legal framework: Article 22(1) guarantees that an arrested person shall be informed "as soon as may be" of the grounds for arrest and shall have the right to consult a legal practitioner. Section 47 BNSS 2023 (formerly s.50 CrPC) imposes a duty on the arresting person to "forthwith communicate" full particulars of the offence or other grounds for arrest. Section 48 BNSS 2023 (formerly s.50A CrPC) requires informing a nominated relative/friend and the magistrate to satisfy compliance.
Precedent treatment: Earlier Supreme Court decisions (including the judgment in Pankaj Bansal and the subsequent Prabir Purkayastha) held that, to serve the purpose of Article 22(1), grounds of arrest should be furnished in writing as a matter of course and without exception; other precedents (notably Vihaan Kumar) recognised practical difficulties and did not read a rigid statutory mandate for written communication in every situation.
Interpretation and reasoning: The Court reasoned that the constitutional mandate is mandatory and not statute-specific: its object is to enable the arrested person to understand allegations, consult counsel, oppose remand and seek bail. Written communication in a language understood by the arrestee best serves that object by eliminating disputes about compliance, facilitating counsel's preparation, and preserving dignity and liberty. The Court harmonised earlier authorities by reaffirming the general rule in favour of written communication while acknowledging operational realities.
Ratio vs. Obiter: Ratio - the constitutional duty to inform grounds of arrest is mandatory in all offences and must, as a general rule, be communicated in writing in a language the arrestee understands. Obiter - observations describing the stigmatic and psychological impacts of arrest and policy remarks about police practices beyond immediate legal prescriptions.
Conclusions: The grounds of arrest must be communicated in writing to the arrested person in each and every case and in a language understood by him/her, to effectuate Article 22(1) and Section 47 BNSS 2023, subject to the nuanced temporal exceptions addressed below.
Issue 2 - Whether non-communication in writing at the time of arrest always vitiates the arrest; permissible exceptions
Legal framework: Article 22(1)'s phrase "as soon as may be" permits temporal flexibility; Section 47 BNSS 2023 requires "forthwith" communication. No express statutory timetable or mandatory mode is prescribed in the statute.
Precedent treatment: Pankaj Bansal and Prabir Purkayastha emphasised written communication generally and treated non-compliance as vitiating arrest; Vihaan Kumar emphasised practical difficulty and observed written communication may not be possible in every situation.
Interpretation and reasoning: The Court reconciled authorities by distinguishing routine/documentary arrests from exigent, flagrante delicto situations. Where the arresting agency already possesses documentary material or the circumstances permit, written grounds must be furnished on arrest. Where immediacy of arrest is compelled by the nature of the offence (e.g., offences committed in the presence of police, imminent risk of absconding or further harm), oral communication at arrest is permissible provided a written copy is supplied subsequently within a defined reasonable interval. The Court balanced constitutional safeguards with legitimate operational exigencies of law enforcement.
Ratio vs. Obiter: Ratio - non-supply of written grounds at arrest does not ipso facto vitiate arrest if (i) oral grounds are provided at arrest due to exigency and (ii) written grounds are furnished within the prescribed reasonable timeframe; Obiter - illustrative examples of exigent scenarios and policy comments about police efficiency.
Conclusions: Non-communication in writing at the moment of arrest will not automatically vitiate the arrest where exigent circumstances necessitate immediate action and oral communication is given; but written grounds must follow within the temporal limits set by the Court (see Issue 3). In non-exigent situations the written grounds must be furnished upon arrest.
Issue 3 - Permissible timeframe, manner and remedial consequence of non-compliance
Legal framework: Derived from Article 22(1), Section 47 and Section 48 BNSS 2023 together with remand provisions (Section 187 BNSS 2023 formerly s.167 CrPC) and judicial duty to scrutinise remand applications.
Interpretation and reasoning: To make the right meaningful, the Court prescribes that where written grounds could not be supplied immediately due to exigency, a written copy must be provided within a reasonable time and in any event not later than two hours prior to production before the magistrate for remand proceedings. The two-hour minimum is founded on ensuring counsel has adequate time to review and prepare to oppose remand and to preserve the practical ability to exercise rights. Remand papers must contain the grounds and, if there is delay, a note explaining the cause for the magistrate's information.
Precedent treatment: This calibrated temporal rule reconciles Pankaj Bansal/Prabir Purkayastha (emphasis on written grounds) with Vihaan Kumar (recognition of practical exceptions) by setting a concrete deadline consistent with Article 22(1)'s "as soon as may be".
Ratio vs. Obiter: Ratio - written grounds must be supplied in the language understood by the arrestee and, if not delivered at arrest for valid reasons, must be supplied not later than two hours before remand hearing; failure to comply renders the arrest and subsequent remand illegal; Obiter - guidance about magistrate's expeditious disposal of applications after release and procedural entries at the police station.
Conclusions: Written grounds must be supplied before remand within the two-hour pre-production threshold where immediate written supply was impractical; non-adherence to this schedule vitiates arrest and remand and entitles the arrested person to be released. Following release, custody/remand may be sought again only after written grounds are supplied and the magistrate adjudicates any fresh remand application expeditiously.
Issue 4 - Language, informing relatives/friends, magistrate's duties, and effect of unconstitutional arrest on subsequent proceedings
Legal framework and precedent: Harikisan and subsequent authorities require communication in a language and script the detenue/arrestee understands; Section 48 BNSS 2023 mandates informing a nominated relative/friend and keeping a station record; magistrate must satisfy himself about compliance.
Interpretation and reasoning: The Court emphasized that communication in a language not understood by the arrestee defeats Article 22(1)'s purpose. Section 48's duty to inform relatives/friends and the magistrate's supervisory role are complementary safeguards to ensure prompt access to legal assistance. An arrest rendered unconstitutional by non-compliance cannot be validated retroactively by filing of a charge-sheet or subsequent cognizance; continued custody based on void arrest/remand is rendered unlawful.
Ratio vs. Obiter: Ratio - grounds must be in language understood by the arrestee; arrest rendered unconstitutional by breach of Article 22(1)/s.47 cannot be cured by subsequent procedural acts such as charge-sheet or cognizance; magistrate has duty to ensure statutory requirements are fulfilled; Obiter - observations on stigma, mental health and social impact of arrest.
Conclusions: Grounds must be in an understandable language; arresting officers must inform nominated persons and record compliance; magistrates must verify compliance; and an unconstitutional arrest/remand is not validated by later prosecutorial steps.
Supplementary/Concurred Position
A judge supplemented the opinion to reiterate that the written communication requirement extends equally to informing nominated relatives/friends so as to operationalize early legal assistance; the supplement underscored the purpose of Section 48 BNSS 2023 in empowering third parties to secure prompt legal relief for the arrested person.
Net Holding / Practical Directions
i) Grounds of arrest must be communicated in writing in each and every case and in a language understood by the arrestee as the general rule.
ii) In true exigencies where immediate arrest is necessary, oral communication is permissible at arrest but a written copy must be supplied within a reasonable time and in any event not later than two hours before production for remand; remand papers must record grounds and explain any delay.
iii) Failure to comply with the above will render the arrest and subsequent remand illegal, entitling the arrested person to release; remedial applications for custody/remand may be heard afresh post-supply of written grounds.
Appellants were not informed of grounds of their arrest in writing - Violation of the Appellants’ right under Article 22(1) of the Constitution of India and Section 50 of the Code of Criminal Procedure, 1973 (CrPC 1973) now Section 47 of Bharatiya Nagarik Suraksha Sanhita, 2023 - HELD THAT:- The genesis of informing the grounds of arrest to a person flows from the Constitutional safeguard provided in Article 21 of the Constitution of India, which reads “No person shall be deprived of his life or personal liberty except according to procedure established by law”. The expression ‘personal liberty’ has been given a wide meaning through various judicial pronouncements. One of which is that personal liberty includes procedural safeguards from the abuse of power by the State agencies and scrutiny of the actions of the State.
In Pankaj Bansal [2023 (10) TMI 175 - SUPREME COURT], this Court while dealing with the issue of furnishing grounds of arrest under Section 19(1) of PMLA has underscored that Article 22(1) of the Constitution mandates that no arrested person shall be detained without being informed of the grounds of such arrest at the earliest opportunity. The manner in which such grounds are to be communicated must be efficacious and substantive which must fulfil the essential objective and mandate of the constitutional provisions. It was further held that there exists no plausible justification as to why a written copy of the grounds of arrest ought not be provided to the arrestee as a standard procedural requirement without any exception.
The mandate contained in Article 22(1) of the Constitution of India is unambiguous and clear in nature, it provides that the arrested person must be informed of the grounds of arrest as soon as they can be. It further provides that the arrested person has the right to defend himself by consulting a legal practitioner of his choice. This constitutional mandate has been effectuated by the legislature in Section 50 of CrPC 1973 (now Section 47 of BNSS 2023) which provides that an arrested person shall be forthwith communicated with the grounds of his arrest - The objective enshrined in Article 22(1) of the Constitution of India for furnishing grounds of arrest stems from the fundamental principle of providing opportunity to a person to allow him to defend himself from the accusations that are levelled against him leading to his arrest. The salutary purpose of informing the grounds of arrest is to enable the person to understand the basis of his arrest and engage legal counsel to challenge his arrest, remand or seek bail and/or avail of any other remedy as may be available to him/her under law.
Section 167 of CrPC 1973 (now Section 187 of BNSS 2023) while dealing with remand provides for a positive mandate on the police officer to forward the accused to the magistrate before expiry of such period as fixed under Section 57 CrPC 1973 (now Section 58 of BNSS 2023) when investigation cannot be completed in twenty-four hours. It further mandates that the magistrate to not authorize the detention of accused unless he is physically produced before him. The purpose of this provision mandating the production of accused before magistrate for exercise of the power of remanding him to custody under this section is with the dual purpose - The magistrate is not acting as a post office simply putting a stamp of approval to the remand papers as presented before him.
The legal position which emerges is that the constitutional mandate provided in Article 22(1) of the Constitution of India is not a mere procedural formality but a constitutional safeguard in the form of fundamental rights. The intent and purpose of the constitutional mandate is to prepare the arrested person to defend himself. If the provisions of Article 22(1) are read in a restrictive manner, its intended purpose of securing personal liberty would not be achieved rather curtailed and put to disuse. The mode of communicating the grounds of arrest must be such that it effectively serves the intended purpose as envisioned under the Constitution of India which is to enable the arrested person to get legal counsel, oppose the remand and effectively defend himself by exercising his rights and safeguards as provided in law. The grounds of arrest must be provided to the arrestee in such a manner that sufficient knowledge of facts constituting grounds is imparted and communicated to the arrested person effectively in a language which he/she understands - This Court is of the opinion that to achieve the intended objective of the constitutional mandate of Article 22(1) of the Constitution of India, the grounds of arrest must be informed to the arrested person in each and every case without exception and the mode of the communication of such grounds must be in writing in the language he understands.
When grounds of arrest are not furnished either prior to arrest or immediately after the arrest, would it vitiate the arrest for non-compliance of the provisions of Section 50 of CrPC 1973 (now Section 47 of BNSS 2023) irrespective of certain exigencies where furnishing such grounds would not be possible forthwith? - HELD THAT:- It is by now settled that if the grounds of arrest are not furnished to the arrestee in writing, this non-compliance will result in breach of the constitutional and statutory safeguards hence rendering the arrest and remand illegal and the person will be entitled to be set at liberty. The statute is silent with regard to the mode, nature or the time and stage at which the grounds of arrest has to be communicated. Article 22 says ‘as soon as may be’ which would obviously not mean prior to arrest but can be on arrest or thereafter. The indication is as early as it can be conveyed. There may be situations wherein it may not be practically possible to supply such grounds of arrest to the arrested person at the time of his arrest or immediately.
In cases where the police are already in possession of documentary material furnishing a cogent basis for the arrest, the written grounds of arrest must be furnished to the arrestee on his arrest. However, in exceptional circumstances such as offences against body or property committed in flagrante delicto, where informing the grounds of arrest in writing on arrest is rendered impractical, it shall be sufficient for the police officer or other person making the arrest to orally convey the same to the person at the time of arrest. Later, a written copy of grounds of arrest must be supplied to the arrested person within a reasonable time and in no event later than two hours prior to production of the arrestee before the magistrate for remand proceedings. The remand papers shall contain the grounds of arrest and in case there is delay in supply thereof, a note indicating a cause for it be included for the information of the magistrate.
The non supply of grounds of arrest in writing to the arrestee prior to or immediately after arrest would not vitiate such arrest on the grounds of non-compliance with the provisions of Section 50 of the CrPC 1973 (now Section 47 of BNSS 2023) provided the said grounds are supplied in writing within a reasonable time and in any case two hours prior to the production of the arrestee before the magistrate for remand proceedings.
The constitutional mandate of informing the arrestee the grounds of arrest is mandatory in all offences under all statutes including offences under IPC 1860 (now BNS 2023) - The grounds of arrest must be communicated in writing to the arrestee in the language he/she understands - In case(s) where, the arresting officer/person is unable to communicate the grounds of arrest in writing on or soon after arrest, it be so done orally. The said grounds be communicated in writing within a reasonable time and in any case at least two hours prior to production of the arrestee for remand proceedings before the magistrate.
Appeal disposed off.
TaxTMI 