TaxTMI Updates e-Newsletter
Nov 19,2021

Show cause-cum-demand notice - Interim relief against statutory show cause notice - Vires of section 16(2)(c) of the Central Goods and Services Tax Act, 2017 - Proceedings subject to outcome of writ petition

Show cause-cum-demand notice - Interim relief against statutory show cause notice - Special Director and anr. Vs. Mohd. Ghulam Ghouse and anr. - Whether interim relief should be granted to stay the show cause-cum-demand notice dated July 29, 2021. - HELD THAT: - The Court, having considered the petition and the authorities relied upon by the petitioners, declined to grant interim relief staying the impugned show cause-cum-demand notice. The Court recorded that prima facie there was no reason to interfere with the notice in view of the decision referenced in the judgment, and therefore did not exercise its discretionary power to restrain respondent no.1 from proceeding with the proceedings initiated by that notice. The petitioners were not summarily shut out, but were relegated to contest the notice before the assessing authority subject to the continued jurisdiction of the writ proceedings. [Paras 2]

Interim relief refused; no stay of the show cause-cum-demand notice.

Vires of section 16(2)(c) of the Central Goods and Services Tax Act, 2017 - Notice to Attorney General for the Union of India - Proceedings subject to outcome of writ petition - Adjudication of the constitutional challenge to the vires of section 16(2)(c) of the CGST Act and directions for further conduct of the writ petition. - HELD THAT: - The Court entertained the petitioners' challenge to the constitutional validity of section 16(2)(c) of the CGST Act and issued notice to the respondents to enable adjudication on the merits. Because the vires of the provision was specifically contended, the Court directed that the Attorney General for the Union of India be put on notice. The Court concurrently permitted respondent no.1 to continue the departmental proceedings arising from the impugned notice to their logical conclusion, subject to any final order in the writ petition, and allowed the petitioners to participate in those proceedings without prejudice to their rights under the writ petition. Thus the constitutional challenge was not finally decided but reserved for determination after notice and adjudication. [Paras 3]

Challenge to vires of section 16(2)(c) admitted for adjudication on notice; Attorney General to be noticed; departmental proceedings may continue but any orders shall be subject to the result of the writ petition.

Final Conclusion: Interim relief against the show cause-cum-demand notice dated July 29, 2021 was refused; the constitutional challenge to section 16(2)(c) of the CGST Act is directed to be heard on notice (with the Attorney General put on notice), while departmental proceedings may continue subject to the outcome of the writ petition.

Input Tax Credit - blocking of Input Tax Credit under Rule 86A of the CGST Rules - de-blocking of Input Tax Credit - infructuousness of proceedings - vires of Sections 16, 17, 49 and 49A of the CGST/APGST Act, 2017

Input Tax Credit - blocking of Input Tax Credit under Rule 86A of the CGST Rules - de-blocking of Input Tax Credit - infructuousness of proceedings - Whether the writ petition could be proceeded with after the Input Tax Credit blocked earlier was de blocked by the authorities. - HELD THAT: - The Court recorded the communication from the office of the Directorate General of GST Intelligence (Bhubaneswar Zonal Unit) that the petitioner's Input Tax Credit, which had been blocked, was de blocked with effect from 09.11.2021. In light of that factual position - namely, that the relief sought (de blocking of the credit) had been achieved - the Court found that the original cause of action for the writ petition no longer survived. The Court therefore declined to decide the substantive challenges to the validity of the provisions and rules invoked, leaving those questions open for adjudication in an appropriate case.

Writ petition disposed of as rendered infructuous in view of de blocking of the Input Tax Credit; substantive questions regarding vires left open.

Final Conclusion: The petition is disposed of as having been rendered infructuous because the blocked Input Tax Credit was de blocked on 09.11.2021; no decision was taken on the constitutional or statutory validity of the provisions invoked, which are left open for determination in an appropriate proceeding.

Fraudulent availing of input tax credit through fake invoices - anticipatory bail - reason to believe for arrest in a GST investigation - recording of statement under the CGST investigative provisions - custodial interrogation - penal consequences under the Central Goods and Services Tax Act, 2017 for offences involving tax credit fraud

Fraudulent availing of input tax credit through fake invoices - anticipatory bail - reason to believe for arrest in a GST investigation - recording of statement under the CGST investigative provisions - Whether anticipatory bail ought to be granted to the applicant apprehending arrest in an investigation under the CGST Act. - HELD THAT: - The Court examined the material placed on record and found sufficient evidence to satisfy the requisite reason to believe for arrest in a GST investigation. The applicant's statement was recorded under the CGST investigative provisions and he admitted procuring invoices from suppliers without supply of goods. Verification showed a number of suppliers to be non-existent, and the investigation discerned large input tax credit claimed from those suppliers, supporting the allegation of fraudulent availing of input tax credit through fake invoices. The respondents possess power to arrest where such reason to believe exists and custodial interrogation was held to be necessary for the ongoing probe. The Court also recorded that the decisions relied upon by the applicant were not applicable to the facts before it. Having applied these considerations, the Court concluded that no case was made out for grant of anticipatory bail. [Paras 6, 7]

Anticipatory bail application rejected; no relief granted.

Final Conclusion: On the material before it - including the recorded statement of the applicant and verification establishing non-existent suppliers - the High Court was satisfied that there existed a reason to believe for arrest in the GST investigation and dismissed the anticipatory bail application.

Anticipatory bail - custodial interrogation - ineligible Input Tax Credit (ITC) - search and seizure under CGST regime - sanction for prosecution under the CGST Act - compounding of offence under the CGST Act - retraction of statement - power of arrest under the CGST Act

Anticipatory bail - custodial interrogation - ineligible Input Tax Credit (ITC) - search and seizure under CGST regime - retraction of statement - Whether anticipatory bail under Section 438 Cr.P.C. should be granted to the applicant apprehending arrest in connection with investigation into alleged fraudulent availment and passing of ineligible ITC. - HELD THAT: - The Court examined the investigation material and oral submissions and found prima facie satisfaction of involvement of the applicant in the alleged scheme of fraudulent availment/passing of ITC. Information from CGST Jodhpur and Belgavi led to searches at the applicant's premises and seizure of documents; GSTR records and statements under Section 70 recorded admissions that invoices were taken without receipt of goods and payments were not made to certain suppliers. Investigation revealed multiple entities to be non-existent and substantial ITC availed through the impugned suppliers. An ex-employee's statement implicated the opening of firms on arranged documents. The applicant's contention of retraction was considered but the Court noted that statements recorded on specific dates were affirmed and that a complete retraction was not established. Having regard to the nature, scale and the material on record, including searches, seized documents, electronic returns, and recorded statements, the Court held custodial interrogation to be necessary and declined to extend pre-arrest protection. The Court therefore found that the applicant failed to make out a case for anticipatory bail. [Paras 10, 11, 12]

Anticipatory Bail Application rejected and the application disposed of.

Final Conclusion: On the material placed on record - including information received from other CGST formations, searches and seizures, GSTR records indicating ITC transactions, and recorded statements - the High Court refused anticipatory bail, holding that custodial interrogation is necessary and that the applicant has not made out a case for relief under Section 438 Cr.P.C.; interim protection was, however, extended for two weeks on the applicant's representation to approach the Supreme Court.

Anticipatory bail - Custodial interrogation - Summons to give evidence and produce documents - Use of dummy/fictitious firms and fake invoices - Duty to honour statutory summons - Reliance on documentary and testimonial evidence to refuse bail

Anticipatory bail - Custodial interrogation - Use of dummy/fictitious firms and fake invoices - Summons to give evidence and produce documents - Whether anticipatory bail should be granted to the applicants who are accused of involvement in schemes of fictitious firms and related tax frauds. - HELD THAT: - The Court examined the material on record including statements of alleged dummy proprietors, the Chartered Accountant, data linking the applicants' mobile numbers and e-mail IDs to multiple suspect registrations, admissions by the applicants about managing/operating several firms, and extensive banking transactions in accounts of the suspect firms. The Court found that these materials collectively establish sufficient evidence of the applicants' active role in the operation of a network of non-genuine firms and large-value transactions involving fake invoices. The Court observed that Section 70's power to summon requires the applicants to honour statutory summons and noted repeated non-cooperation with investigation. Having regard to the factual matrix and the need for custodial interrogation to further the investigation, the precedents relied upon by the applicants were held inapplicable. On this basis the Court concluded that the case falls outside the class of cases where anticipatory bail should be granted.

Anticipatory bail applications are rejected; custodial interrogation of the applicants is justified and summons were required to be honoured.

Final Conclusion: The High Court rejected the anticipatory bail applications after finding prima facie involvement of the applicants in operation of non-genuine firms and large-value suspicious transactions, observed their non-cooperation with statutory summons, and held custodial interrogation necessary for the investigation.

Change in circumstances - anticipatory bail - withdrawal of application - interim protection - separate allegations against the accused

Change in circumstances - anticipatory bail - withdrawal of application - separate allegations against the accused - Whether the fresh anticipatory bail application discloses any change in circumstances warranting entertainment after an earlier unconditional withdrawal. - HELD THAT: - The Court found that the materials relied upon by the applicant - namely the GST office letter addressed to a co-accused and the APMC chart said not to reflect the subject goods - do not constitute a change in circumstances in favour of the present applicant. The GST letter was addressed to the co-accused and expressly did not opine on supply of goods; it therefore has no bearing on the applicant who was not shown to be connected with that filing. The Court recorded that on the earlier occasion the applicant had withdrawn the anticipatory bail application unconditionally after the role of the applicant and the material against him had been fully considered; that withdrawal was a responsible statement made after full hearing. In these circumstances the application does not warrant re-examination and cannot be entertained as raising new circumstances. [Paras 3, 5, 6]

Application does not disclose any change in circumstances and is not entertained; anticipatory bail application rejected.

Final Conclusion: The second anticipatory bail application was rejected on the ground that the asserted developments do not amount to a change in circumstances affecting the applicant, and the earlier unconditional withdrawal following full consideration precludes re entertainment of the plea.

Pre-arrest bail - prima facie case of cheating - reliance on warehouse statements and delivery challans as corroborative evidence - relevance of GSTR/GST communications to criminal investigation - effect of inconsistent official communications on evidentiary value

Pre-arrest bail - prima facie case of cheating - reliance on warehouse statements and delivery challans as corroborative evidence - relevance of GSTR/GST communications to criminal investigation - effect of inconsistent official communications on evidentiary value - Application for pre-arrest bail rejected on the ground that a prima facie case of cheating is made out against the Applicant. - HELD THAT: - The Court revisited its earlier order refusing pre-arrest bail and examined the material collected during investigation. Statements of the warehouse keeper and drivers and documents reflecting transfer of 300 bags of cloves to the co-accused Sarfaraz, together with delivery challans produced by Sarfaraz, prima facie establish delivery of the goods to Sarfaraz at the instance of the Applicant. The GST departmental communications were considered: an earlier letter certified that the Applicant had availed Input Tax Credit against the invoices in question, while a subsequent communication opined that the Applicant had not availed ITC for the period March 2020 to October 2020. The anomaly in the departmental correspondence was not satisfactorily explained to the Court. The Court therefore did not accept the later communication as undermining the other corroborative evidence. Applying the standard appropriate to pre-arrest bail, the Court concluded that the material on record makes out a prima facie case of cheating by delivery of goods and subsequent refusal to pay, and that the changed circumstances asserted by the Applicant (non-availment of ITC as per later letter) did not negate the established prima facie evidence. Accordingly, the application for pre-arrest bail was not entitled to be granted. [Paras 6, 10, 11, 12]

Pre-arrest bail refused as the evidence collected prima facie establishes the offence of cheating.

Final Conclusion: The application for pre-arrest bail is dismissed: the court finds prima facie evidence (warehouse/driver statements and delivery challans, supported by GST-related records) that the goods were delivered at the Applicant's instance and that he thereafter denied payment; inconsistent GST communications did not sufficiently unsettle this prima facie case.

Deduction under Section 80IB for joint development of housing project - Active participation in development as condition for deduction - Application of precedent in similar joint development cases (Shravanee Construction) - Appellate interference standard on findings of fact

Deduction under Section 80IB for joint development of housing project - Active participation in development as condition for deduction - Application of precedent in similar joint development cases (Shravanee Construction) - Appellate interference standard on findings of fact - Whether the assessee was entitled to deduction in respect of her share of super built-up area under Section 80IB by virtue of her participation in the joint development project - HELD THAT: - The Tribunal found on the material on record that the assessee was not merely a landowner but an integral participant in development and construction activities, noting documentary indicia such as involvement in obtaining NOC and joint conduct of the project with a co-contributor. The Tribunal applied the ratio of the Karnataka High Court decision in Shravanee Construction and similar authorities which treat active involvement in a joint development arrangement as attracting the benefit of the deduction. The Revenue did not place any contrary binding decision or show that the factual findings were perverse; the High Court, on scrutiny of the record and the Tribunal's reasons, found no ground to disturb the finding of active participation and no substantial question of law calling for interference under Section 260A. Consequently the Tribunal's allowance of the claim was upheld as a factual conclusion supported by evidence and precedent.

Tribunal's conclusion that the assessee was entitled to deduction under Section 80IB was upheld and the Revenue's appeal dismissed.

Final Conclusion: The High Court dismissed the appeal, upholding the ITAT's factual finding that the assessee actively participated in the joint development and was therefore eligible for the deduction under Section 80IB; no substantial question of law meriting interference was found.

Entertainment of an alternative claim at the appellate stage - requirement of filing a revised return to amend claims for deductions - deduction under section 10A - deduction under section 10B

Entertainment of an alternative claim at the appellate stage - requirement of filing a revised return to amend claims for deductions - deduction under section 10A - deduction under section 10B - Whether the first appellate authority and the Tribunal were justified in allowing the assessee's alternative claim for deduction under section 10A though the claim was not made in the return and no revised return was filed - HELD THAT: - The Court examined the undisputed facts that the assessee originally claimed deduction under section 10B in the return for AY 2011-12, that the Assessing Officer disallowed the section 10B claim, and that, without filing a revised return, the assessee advanced an alternative claim under section 10A before the CIT(A), which the CIT(A) allowed and the Tribunal sustained. The court relied on the decision in Goetze (India) Ltd v. CIT to emphasise that amendment of claims for deduction before the assessing authority ordinarily requires the mechanism of a revised return; a party cannot, by modification at the assessment or appellate stages without filing a revised return, validly introduce a different claim for deduction which was not made in the original return. Applying that principle, the Court held that acceptance of the assessee's alternative claim under section 10A by the CIT(A), in the absence of a revised return, was legally untenable. Although the Tribunal and the CIT(A) considered factual compliance with section 10A conditions and invoked authorities and administrative guidance for granting legally available deductions, the High Court concluded that such consideration could not cure the procedural requirement of a revised return when a materially different deduction was not claimed originally in the return of income. [Paras 5, 6]

The acceptance and allowance of the alternative claim under section 10A by the CIT(A), confirmed by the Tribunal, without the assessee having filed a revised return, is illegal; the appeal is allowed in favour of the Revenue.

Final Conclusion: The High Court allowed the revenue's appeal, holding that the appellate allowance of an alternative deduction under section 10A without the assessee having filed a revised return is impermissible; the CIT(A)'s and Tribunal's orders sustaining that allowance were set aside.

Custodian of government funds - computability of income - interest on deposits not income where funds remain government property - substance over form - overriding title - MoU obligations and C&AG audit - burden on assessee to prove non-computability - Section 260A

Custodian of government funds - computability of income - interest on deposits not income where funds remain government property - MoU obligations and C&AG audit - burden on assessee to prove non-computability - overriding title - Whether interest earned on fixed deposits made out of funds transferred by DRDO and ISRO, and kept by the assessee under the MoUs, is taxable as the assessee's income for the relevant assessment years. - HELD THAT: - The Court examined the undisputed MoUs and related documents and held that the funds transferred by DRDO and ISRO were entrusted to the assessee for specific project implementation and were to be maintained in separate accounts subject to C&AG audit. The assessee acted as a custodian/implementing agent; the substantive ownership of the funds and the assets acquired under the MoUs remained with the Government Departments until any exercise of the contractual option to transfer. The tribunal and revenue were found to have proceeded on form (recognition of interest in the assessee's books and issuance of TDS certificates) without adequately addressing the substance of the arrangement. The Court rejected the applicability of the concept of an overriding title as inapposite on these facts because there was no deflection of income to avoid tax: the funds throughout belonged to DRDO/ISRO and the interest accrued therefore belonged to them. The Court noted authorities where similar arrangements were held not to render interest taxable in the hands of the entity holding government funds. Although the burden to prove non-computability lies heavily on the assessee, the Court found the assessee discharged that burden by reliance on the MoUs and attendant obligations, and concluded that the interest income for the Assessment Year 2009-10 (and, by parity of reasoning, the other two assessment years) was not computable as the assessee's income. The contrary findings recorded by the authorities were held to be perverse and illegal and were set aside. [Paras 9, 10]

Interest earned on deposits of funds transferred by DRDO and ISRO and held by the assessee under the MoUs is not taxable as the assessee's income for the stated assessment years; appeals allowed.

Final Conclusion: The High Court allowed the income-tax appeals under Section 260A, holding that interest earned on fixed deposits of funds transferred by DRDO and ISRO and held by the assessee as custodian under the MoUs did not constitute the assessee's computable income for Assessment Years 2009-10, 2010-11 and 2011-12; the impugned orders were set aside.

Pre-decisional hearing - principle audi alteram partem - special audit under Section 142(2A) of the Income Tax Act - provisional opinion / show cause notice - requirement of prior approval of Commissioner for special audit

Special audit under Section 142(2A) of the Income Tax Act - pre-decisional hearing - provisional opinion / show cause notice - requirement of prior approval of Commissioner for special audit - Validity of the order dated 16.12.2011 appointing a special audit under Section 142(2A) for Assessment Year 2009-10 and whether the procedure violated the assessee's right of pre-decisional hearing. - HELD THAT: - The Court examined whether the proceedings dated 09.12.2011 amounted to a pre-emptive final decision denying the assessee the audi alteram partem right as held in Sahara India. It found that the assessing officer, at the time of issuing the 09.12.2011 proceedings, had not obtained prior approval and had not appointed an auditor; the proceedings set out the nature and complexities of the accounts but did not by themselves operate as a final order. The assessee treated the 09.12.2011 proceedings as a show cause notice and furnished detailed objections on 15.12.2011. Only after considering those objections did the assessing officer form the opinion that a special audit was necessary, obtain the Commissioner's prior approval on 15.12.2011 and dispose of the objections by order dated 16.12.2011 (and later dispose of further objections on 26.12.2011). Having regard to these events, the Court held that an opportunity to be heard in substance was afforded before any final direction for special audit was issued; mere formation of a provisional opinion or recording of reasons in the initial proceedings does not necessarily amount to pre-determination if objections are obtained and considered thereafter. The Court distinguished Sahara India on its facts, observing that there the impugned orders were passed before appellants were given any meaningful opportunity, whereas in the present case the assessee submitted objections and those objections were considered prior to the final direction. The Court also noted the statutory scheme that an assessing officer must form an opinion (provisionally) and obtain prior approval of the Commissioner before directing a special audit, a requirement satisfied here by the post-objection approval dated 15.12.2011 and the subsequent orders disposing of objections. [Paras 19, 24, 27, 29]

The order dated 16.12.2011 directing a special audit under Section 142(2A) for Assessment Year 2009-10 is valid; the assessee was afforded a pre-decisional opportunity in substance and the subsequent approval and disposal of objections cure the procedural concern raised.

Final Conclusion: Writ petition dismissed. The High Court upheld the appointment of a special auditor under Section 142(2A) for AY 2009-10, finding that the assessee had been given an effective opportunity to be heard and that the assessing officer obtained the requisite prior approval before issuing the final direction.

Classification of lease rent as "business income" or "income from other sources" - intention to revive business as determinative of characterisation of assets and receipts - commercial exploitation of business assets versus mere letting out of property - allowability of compensatory element of penalty as business expenditure under section 37 - quality loss deduction attributable to manufacturer (lessee) and not to lessor - rectification under section 154 where omission is apparent from record

Classification of lease rent as "business income" or "income from other sources" - intention to revive business as determinative of characterisation of assets and receipts - commercial exploitation of business assets versus mere letting out of property - Whether lease rent received from Apollo Tyres Ltd. is assessable as business income or as income from other sources for the assessment years in question. - HELD THAT: - Applying the settled propositions that characterisation is a mixed question of law and fact and that the assessee's intention to resume business and active participation in exploitation of assets are relevant, the Court found that although the assessee's net worth had become positive by 31-03-2000, it continued year-to-year lease renewals without BIFR sanction, retrenched office staff, let out entire plant and machinery and did not undertake manufacturing or assume commercial risk. The long continuance of the lease, absence of steps to revive operations and passive receipt of rent establish that the assets ceased to be business assets and the receipts were exploitation of property rather than exploitation of a business. Consequently, the rental receipts for the stated assessment years are to be treated as income from other sources rather than business income. [Paras 13, 18]

Rental income from Apollo Tyres Ltd. for the assessment years 2004-05 to 2009-10 is to be assessed under the head "income from other sources."

Allowability of compensatory element of penalty as business expenditure under section 37 - Whether the amount of Rs. 52 lakhs paid pursuant to a stay order in relation to penalty under the Kerala General Sales Tax Act was deductible as an expenditure for AY 2004-05. - HELD THAT: - The Court applied the principle that where a payment characterised as penalty comprises compensatory and penal elements, only the compensatory part is allowable as an expenditure. The assessee failed to demonstrate any element of compensation in the payment; no working sheets or material showing compensatory component were produced despite opportunity. In the absence of evidence of a compensatory element, the payment cannot be allowed as an expenditure for the year under consideration. [Paras 19, 21]

The disallowance of the Rs. 52 lakhs paid in relation to the sales tax penalty is upheld; it is not deductible as expenditure for AY 2004-05.

Quality loss deduction attributable to manufacturer (lessee) and not to lessor - Whether the assessee is entitled to claim deduction for the quality loss paid to Apollo Tyres Ltd. for the assessment years under consideration. - HELD THAT: - Given the factual finding that the plant and machinery were wholly leased to Apollo Tyres Ltd., and that the assessee did not carry out manufacturing activity or assume manufacturing risk, any quality loss arising from production is attributable to the operating manufacturer (ATL) and not to the lessor. The contractual and factual matrix show the assessee was not an active participant in manufacture; accordingly the claim for quality loss cannot be entertained as expenditure by the assessee. [Paras 22, 30]

Claims for quality loss are not allowable to the assessee and the disallowances are confirmed.

Rectification under section 154 where omission is apparent from record - Whether the assessing officer was justified in issuing a rectification under section 154 to add back an omitted disallowance (stores and spares) in computation of total income for AY 2004-05. - HELD THAT: - Having held that the assessee did not carry on manufacturing activity for AY 2004-05, the expenditure claimed for stores and spares was rightly disallowed. The assessing officer's omission to add back that disallowance in the computation amounted to an error susceptible to rectification. The Tribunal rightly sustained the rectification order; there was no ground to interfere with the rectification in view of the factual conclusion on absence of manufacturing activity. [Paras 26]

The rectification under section 154 to add back the disallowed stores and spares expenditure is sustained.

Final Conclusion: All substantial questions of law in these appeals were decided against the assessee: rental receipts for AYs 2004-05 to 2009-10 are income from other sources, the Rs. 52 lakhs penalty payment is not deductible for AY 2004-05, quality loss claims are disallowed, and the rectification under section 154 to restore omitted disallowances is sustained; the appeals are dismissed.

Computation of book profit under Section 115JB - reduction for provision written back in computing book profit - Section 115JA/115JB as a self-contained/deeming code - applicability of Explanation to Section 115JB (clause (i)) - presumption that Assessing Officer considered applicable statutory provisions

Computation of book profit under Section 115JB - reduction for provision written back in computing book profit - applicability of Explanation to Section 115JB (clause (i)) - Reduction from net profit under clause (i) of the Explanation to Section 115JB of amounts written back on reversal of provisions for disputed excise duty was allowable for computing book profit in assessment year 2002-03. - HELD THAT: - The Court held that Section 115JB is a deeming, self-contained code for companies and the Explanation to sub-section (2) governs adjustments to the net profit in computing book profit. Where amounts previously provided and subsequently written back are within clause (i) of the Explanation, they are to be reduced from net profit in computing book profit, provided the conditions in the proviso are met. The Special Provisions (Section 115JA/115JB) override other computations and the denial of the write back solely because assessments for the earlier years were completed under normal provisions was not tenable. The Tribunal's direction to allow the full written back amount (instead of the lesser sum allowed by the AO) was upheld as it was consistent with the statutory scheme and the requirement that the AO compute income under both normal and special provisions. [Paras 7, 11, 12]

Claim for reduction of Rs. 3,29,27,056/- being provision written back was to be allowed in computing book profit for 2002-03; Tribunal's direction affirmed.

Section 115JA/115JB as a self-contained/deeming code - presumption that Assessing Officer considered applicable statutory provisions - Tribunal was justified in presuming that the Assessing Officer had considered the applicability of Section 115JA/115JB (including relevant Explanation clauses) in the earlier assessment years despite the assessment orders not explicitly recording workings under the special provisions. - HELD THAT: - The Court found that once returns were filed, the AO was under an obligation to compute income under both the normal provisions and the special provisions embodied in Section 115JA/115JB; an assessment framed under Section 143(3) cannot be read as depriving the assessee of adjustments available under the special code merely because the AO's order shows tax charged under normal rates. In the facts, there was no material to show that the provisions were not debited in the earlier years; the contemporaneous assessment orders carry the presumption that statutory obligations were observed. Accordingly, the Tribunal's inference that the AO had considered the relevant Explanation in the earlier years was not a perverse presumption but a permissible factual conclusion. [Paras 7, 11, 12]

Tribunal's presumption that the AO considered the special provisions in the earlier years is upheld and cannot be overturned as perverse; findings recorded in favour of the assessee.

Final Conclusion: The appeal is dismissed. The Tribunal's orders allowing the assessee to reduce the net profit by the full amount of the provision written back for computing book profit under Section 115JB are affirmed; contested grounds of the revenue are rejected.

Deductibility of employees' contribution to PF/ESI under section 43B and section 36(1)(va) - prospective operation of statutory amendment - clarificatory versus substantive amendment - due date for payment vis-a -vis due date of filing return under section 139(1)

Prospective operation of statutory amendment - clarificatory versus substantive amendment - Amendment by Finance Act, 2021 to section 36(1)(va) and section 43B is prospective and does not apply to the relevant assessment year. - HELD THAT: - The Tribunal examined whether the Finance Act, 2021 insertion/explanation operating with effect from 01.04.2021 is clarificatory and retrospective or substantive and prospective. Relying on the jurisdictional High Court view in Essae Teraoka and subsequent tribunal decisions, and applying principles from the Supreme Court on retrospectivity (including the rule that legislation is presumed prospective unless a contrary intent appears and that an amendment which alters the law as it previously stood cannot be treated as merely clarificatory), the Tribunal held that the 2021 amendment alters the pre-existing position and was expressly made effective from 01.04.2021 for AY 2021-22 onwards. Consequently, the amendment does not apply to assessment year 2018-2019. [Paras 8]

Amendment by Finance Act, 2021 is prospective in operation and does not apply to AY 2018-2019.

Deductibility of employees' contribution to PF/ESI under section 43B and section 36(1)(va) - due date for payment vis-a -vis due date of filing return under section 139(1) - Assessee's payment of employees' contribution to ESI made before the due date for filing return under section 139(1) is allowable as deduction for the relevant assessment year. - HELD THAT: - On the admitted facts that the employees' contribution was remitted before the due date for filing the return under section 139(1), and having regard to the Karnataka High Court decision in Essae Teraoka which construed the word 'contribution' and held entitlement to deduction where payment was made before the return due date, the Tribunal concluded that, in the absence of the 2021 amendment applying to the year in question, the assessee is entitled to the deduction. The Tribunal therefore directed the Assessing Officer to grant the deduction and delete the disallowance made under section 36(1)(va)/section 43B. [Paras 8]

Deduction to be allowed for employees' contribution paid before the due date of filing return; disallowance of Rs. 3,23,886 deleted.

Final Conclusion: Appeal allowed: the Tribunal held that the Finance Act, 2021 amendment to section 36(1)(va)/43B is prospective and does not apply to AY 2018-2019, and directed deletion of the disallowance since the employees' contribution was paid before the due date for filing the return.

Section 80-IC deduction - substantial expansion - initial assessment year - ten-year cap on deduction - statutory interpretation of taxing statute - condonation of delay

Condonation of delay - Application for condonation of delay in filing the appeal was allowed and the appeal admitted for hearing on merits. - HELD THAT: - The Tribunal examined the affidavit attributing delay to an inadvertent, bona fide mistake by the assessee's accountant who failed to obtain the assessee's signature on the filed grounds. Applying the settled principle that acceptance of explanation for condonation of delay should be the rule and refusal an exception, and relying on authoritative guidance preferring substantial justice over pedantic technicality, the Tribunal found the explanation satisfactory and condoned the delay, admitting the appeal for consideration on merits. [Paras 3]

Delay of 879 days in filing the appeal was condoned and the appeal admitted to be heard on merits.

Section 80-IC deduction - substantial expansion - initial assessment year - ten-year cap on deduction - statutory interpretation of taxing statute - Assessee entitled to claim 100% deduction under Section 80-IC for the assessment year in question by virtue of completing "substantial expansion" within the meaning of the section. - HELD THAT: - The Tribunal framed the sole substantive question as whether the assessee could claim 100% deduction under Section 80-IC for A.Y. 2012-13. The record admitted an increase in investment in plant and machinery equal to at least fifty per cent of existing book value, i.e., "substantial expansion" as defined by the provision. Applying the binding ratio of the Hon'ble Supreme Court in Pr. CIT v. Aarham Softronics, the Tribunal accepted that the statutory definition of "initial assessment year" in Section 80-IC(8)(v) treats completion of substantial expansion as triggering an initial assessment year and thereby entitles the unit to 100% deduction for five years commencing with that year, subject to the overall ten-year ceiling in Section 80-IC(6). The Tribunal concluded that where substantial expansion occurs within the relevant 10-year window, the assessee may again claim 100% deduction for the period permitted by the statute and precedent; that ratio applied squarely to the facts here. [Paras 10]

Impugned order restricting deduction to 25% set aside; assessee entitled to 100% deduction under Section 80-IC for the assessment year under appeal.

Final Conclusion: The Tribunal condoned the delay in filing the appeal and, on merits, allowed the appeal by holding that completion of a statutory "substantial expansion" entitles the assessee to claim 100% deduction under Section 80 IC for the assessment year in question, in line with the Supreme Court's decision in Pr. CIT v. Aarham Softronics, subject to the overall ten year limit.

Registration under section 12AA - Charitable purpose under section 2(15) - Genuineness and verification of objects - Assessment-stage scrutiny versus registration-stage inquiry - Corpus donation and its utilization for construction - Acceptance and explanation of cash deposits during demonetisation - Use of trust assets and allegation of personal benefit

Registration under section 12AA - Genuineness and verification of objects - Assessment-stage scrutiny versus registration-stage inquiry - Application for registration under section 12AA was to be allowed. - HELD THAT: - The Tribunal found that the registering authority erred in rejecting the application under section 12AA by undertaking inquiries that went beyond verifying the genuineness of the trust's objects and by examining matters more appropriate to assessment proceedings. The trust produced audited accounts, receipt and payment statements for three years, bank statements from inception, contractor's accounts for construction, and explanations for cash deposits during demonetisation. The Tribunal recorded that the registering authority did not point to any concrete evidence showing that the trust's objects were not being pursued or that receipts were unaccounted for. The court held that registration-stage scrutiny is confined to the genuineness of objects and their pursuit, while detailed application of income to charitable purposes is examinable at assessment under Sections 11-13. On the material placed before it, the Tribunal concluded that the registering authority's negative findings were unsupported and directed grant of registration. [Paras 8, 9, 10]

Registration under section 12AA granted and appeal allowed.

Charitable purpose under section 2(15) - Corpus donation and its utilization for construction - Acceptance and explanation of cash deposits during demonetisation - Use of trust assets and allegation of personal benefit - Activities of the trust qualify as charitable under section 2(15) and the objections relating to corpus, deposits, ambulance and car were not sustainable. - HELD THAT: - The Tribunal evaluated the material showing that the trust runs a dharmarath aushadhalaya, gaushala, bhandara, satsang and bhakti lectures and had commenced construction of a Satsang Bhavan financed by corpus donations. Ownership of land and existing buildings was shown to be with the trustee and made available for charitable use. The ambulance purchase was supported by a government grant and the trust's contribution, with income/expenditure reflected in receipt and payment accounts; the car's use was justified as required for charitable activities and its insurance and depreciation were duly recorded. The alleged mismatch between bank credits and receipts for FY 2016-17 was not substantiated by the registering authority. Participation in activities with another organisation was explained as collaborative functioning. On these facts the Tribunal held the activities fall within section 2(15) and the specific objections raised by the CIT(E) did not negate the charitable nature or genuineness of the trust's operations. [Paras 8, 9, 10]

Trust held to be carrying on charitable activities within section 2(15); objections over corpus, deposits and asset use rejected.

Final Conclusion: The Tribunal allowed the appeal, set aside the CIT(E)'s order refusing registration, and directed grant of registration under section 12AA, holding that the trust's activities are genuine and fall within the ambit of charitable purposes under section 2(15), and that disputed factual points relied upon by the registering authority did not warrant denial of registration.

Penalty under section 271(1)(c) - Claim made with proper disclosure not attract penalty - Concealment of income - Furnishing inaccurate particulars of income - Requirement of specificity in penalty notice under section 274

Penalty under section 271(1)(c) - Claim made with proper disclosure not attract penalty - Levy of penalty under section 271(1)(c) could not be sustained where the addition arose from a difference of opinion on allowable expenditure and the assessee had made the claim in its return and books of account. - HELD THAT: - The Tribunal applied settled principles that penalty under section 271(1)(c) is attracted only when there is concealment of income or furnishing of inaccurate particulars of income. Where a deduction or expenditure is claimed with disclosure and is then disallowed after scrutiny, mere non-acceptance by the Assessing Officer does not, by itself, constitute concealment or inaccurate particulars. The Tribunal relied on binding precedents including the decisions of the Delhi High Court and the Supreme Court which hold that an assessee is not barred from making a plausible claim and that penalty should not be a fetter on bona fide claims made during assessment proceedings. On the material before it, the disallowance resulted from examination of the books and difference of opinion; there was no finding of factual concealment or deliberate furnishing of inaccurate particulars. Accordingly, the levy of penalty was held unsustainable and was directed to be deleted. [Paras 7, 8, 9, 10, 11]

Penalty under section 271(1)(c) cannot be imposed where the addition is the result of a contested claim disclosed in the return and books, and no concealment or inaccurate particulars have been established.

Requirement of specificity in penalty notice under section 274 - Concealment of income - Furnishing inaccurate particulars of income - Notice under section 274 read with section 271(1)(c) vitiates assumption of jurisdiction if it does not specify which limb-concealment or furnishing inaccurate particulars-the penalty proceedings are initiated under. - HELD THAT: - The Tribunal examined authorities which hold that clause (c) of section 271(1) deals with two distinct offences and that initiation and imposition of penalty must be on the same specified ground so that the assessee can know and meet the charge. A defect in the notice under section 274 that fails to specify whether proceedings are for concealment of income or for furnishing inaccurate particulars renders the initiation and consequent imposition of penalty invalid for want of specificity and for breach of principles of natural justice. Applying these precedents to the facts, the Tribunal found the notice in the present case defective and concluded that the Assessing Officer had not validly assumed jurisdiction to levy penalty; accordingly the penalty was deleted. [Paras 12, 13, 14, 15]

The penalty order is vitiated because the notice under section 274 did not specify which limb of section 271(1)(c) it invoked; the defective notice defeats the validity of the penalty.

Final Conclusion: The appeal is allowed: the penalty under section 271(1)(c) is deleted because (a) the disallowance arose from a disputed claim disclosed in the return and not from concealment or inaccurate particulars, and (b) the notice under section 274 was defective for not specifying the limb of section 271(1)(c) relied upon.

Section 263 revisionary jurisdiction - Erroneous and prejudicial to the interests of the revenue - Lack of inquiry versus inadequate inquiry - Validity and effect of Income Disclosure Scheme (IDS) acceptance - Prior approval under supervision/Section 153D by Joint Commissioner - Assessment under section 143(3) r.w.s. 153C - Non-speaking order and application of mind

Section 263 revisionary jurisdiction - Erroneous and prejudicial to the interests of the revenue - Lack of inquiry versus inadequate inquiry - Prior approval under supervision/Section 153D by Joint Commissioner - Assessment under section 143(3) r.w.s. 153C - Non-speaking order and application of mind - Whether the Principal Commissioner of Income Tax validly exercised revisionary jurisdiction under section 263 to annul the assessment for AY 2016-17 on the grounds that the assessment order was erroneous and prejudicial to the interests of the revenue. - HELD THAT: - The Tribunal examined whether the twin conditions for invoking section 263 - that the AO's order is both erroneous and prejudicial to the revenue - were satisfied. The PCIT's show cause and final order identified issues raised earlier in the AO's questionnaire but did not show there was no inquiry; rather the PCIT recorded that detailed inquiries had been called for. The AO had received and considered the assessee's written submissions, verified impounded materials, and framed the assessment under section 143(3) r.w.s. 153C after obtaining prior approval of the JCIT under section 153D. The Tribunal applied settled principles that section 263 cannot be used merely because the Commissioner disagrees with a permissible view taken by the AO, or because the AO's order is non speaking; the Commissioner must point to an order that is not in accordance with law or passed without any enquiry. The PCIT did not specify what further inquiries were required, did not hold the AO's view to be unsustainable in law, and did not revoke the IDS acceptance or direct refund of taxes. Given that the AO made inquiries, took a legally sustainable view, and obtained requisite supervisory approval, the Tribunal concluded that the PCIT was not justified in invoking section 263 and that the revision order was unsupportable. [Paras 32, 34, 35]

Revision order under section 263 quashed; assessment order for AY 2016-17 allowed to stand.

Validity and effect of Income Disclosure Scheme (IDS) acceptance - Erroneous and prejudicial to the interests of the revenue - Assessment under section 143(3) r.w.s. 153C - Whether acceptance of the assessee's disclosure under the Income Disclosure Scheme (IDS) precluded the PCIT from revising the assessment under section 263 and whether the IDS declaration affected the question of prejudice to revenue. - HELD THAT: - The Tribunal noted the assessee had made disclosures under IDS which were accepted by the PCIT (Form No.4) and taxes paid under the scheme were not revoked or refunded. The PCIT did not allege any misrepresentation in the IDS or revoke its acceptance. Where IDS acceptance stands and the assessee has paid tax under the scheme (in excess of what would likely be assessed), the PCIT has no basis to treat the assessment as prejudicial to revenue on that ground alone. The AO and supervisory authority had regard to the impounded material and the IDS declaration in framing the assessment; the PCIT did not demonstrate that the IDS acceptance was legally invalid or that revenue suffered consequent loss that would satisfy the second limb of section 263. [Paras 33]

IDS disclosure having been accepted and not revoked, it did not furnish a valid basis for revision under section 263; this supported quashing the revision order.

Final Conclusion: The Tribunal allowed the assessee's appeal, quashed the PCIT's revision order under section 263 for AY 2016-17, and upheld the assessment framed under section 143(3) r.w.s. 153C as not shown to be erroneous and prejudicial to the interests of the revenue.

Section 263 - revisionary jurisdiction - Section 14A - disallowance of expenditure in relation to exempt income - Disallowance under Section 14A where no exempt income is earned - CBDT Circular No. 5/2014 and Rule 8D - applicability to years with no exempt income

Section 263 - revisionary jurisdiction - Section 14A - disallowance of expenditure in relation to exempt income - Disallowance under Section 14A where no exempt income is earned - Validity of the Pr. CIT's exercise of powers under Section 263 to cancel the assessment and direct AO to examine disallowance under Section 14A when the assessee did not earn any exempt income in the relevant year. - HELD THAT: - The Tribunal examined the scope of Section 14A (inserted retrospectively) which provides that expenditure in relation to exempt income is not allowable. Several High Court decisions, including the Delhi High Court in M/s. Holcim India P. Ltd. and other High Court precedents, have held that Section 14A cannot be invoked for disallowance where no exempt income was earned in the relevant year. The Pr. CIT's order under Section 263 proceeded on the premise that investments existed which 'could result into yielding exempt income' and relied on the CBDT Circular No.5/2014 (and Rule 8D) to assert that disallowance may be made even if no exempt income was earned. The Tribunal noted that the Pr. CIT did not dispute that the assessee had not earned any exempt income for AY 2009-10. Applying the consistent judicial pronouncements that preclude invocation of Section 14A in the absence of exempt income, the Tribunal concluded that the Assessing Officer's order was not erroneous so as to be prejudicial to the interests of revenue and that the exercise of revisionary power under Section 263 was therefore not legally sustainable. [Paras 6, 9, 10, 11]

The Pr. CIT's order under Section 263 cancelling the assessment to the extent of directing disallowance under Section 14A is set aside; the assessment order is not held to be erroneous or prejudicial to revenue in the absence of any exempt income.

Final Conclusion: All appeals are allowed; the order passed by the Pr. Commissioner of Income-tax under Section 263 is quashed insofar as it directed re-examination for disallowance under Section 14A for AY 2009-10, the Tribunal holding that Section 14A cannot be invoked when no exempt income was earned.

Allowability of valuation loss on investments held as stock-in-trade - valuation of stock-in-trade at cost or market value, whichever is lower - deduction under Section 37 of the Income Tax Act - provision for unascertained liabilities - accounting treatment of bank investments under the Banking Regulation Act and RBI directions - real income principle and conservatism in accounting

Allowability of valuation loss on investments held as stock-in-trade - valuation of stock-in-trade at cost or market value, whichever is lower - deduction under Section 37 of the Income Tax Act - provision for unascertained liabilities - Whether the disallowance of the valuation loss of Rs. 4,02,87,000 on investments (held as stock-in-trade/AFS/HFT) was justified. - HELD THAT: - The Tribunal applied settled law that anticipated or reasonably ascertainable diminution in value of stock-in-trade is admissible as a deduction for computing business income, citing the principle of conservatism and the requirement to disclose real income. The judgment relied on established authority that a bank may value closing stock either at cost or market value, whichever is lower, for income-tax purposes notwithstanding the statutory form of the balance-sheet required under the Banking Regulation Act. The Assessing Officer's conclusion treating the fall in value as merely notional or as a provision for an unascertained liability was rejected because the revenue did not dispute admissibility of valuation loss per se in the revision order; rather the revision was premised on non-examination of classification and quantification. The CIT(A) upheld the AO's addition in a mechanical manner without addressing the assessee's legal submissions and the established accounting method consistently followed by the assessee. For these reasons the Tribunal held that the disallowance could not stand and directed deletion of the addition. [Paras 7, 8, 9]

The addition of Rs. 4,02,87,000 on account of valuation loss is deleted and the appeal is allowed.

Final Conclusion: The Tribunal allowed the appeal, holding that the fall in value of investments held as stock-in-trade (AFS/HFT) was an admissible deduction under the recognised accounting method (cost or market value whichever is lower) and directing the Assessing Officer to delete the disallowance of Rs. 4,02,87,000.

Opportunity of being heard - de novo assessment on remand - classification as Short Term Capital Gain - classification as Long Term Capital Gain - cost of acquisition and indexed cost of acquisition - set-off of long term capital loss - reopening of assessment

Opportunity of being heard - Whether the Commissioner of Income Tax (Appeals) afforded sufficient opportunity of hearing to the assessee - HELD THAT: - The Tribunal found that the CIT(A) had declined the assessee's request for adjournment and did not consider submissions filed on the e-portal, which gave rise to an insufficiency of opportunity despite the assessee's overall non-cooperative conduct. Although the assessee repeatedly failed to comply with directions before the AO and did not appear before the Tribunal, the Tribunal recognised procedural infirmities in the appellate proceedings that affected the quantification and adjudication of the tax consequences. In view of these procedural defects, the Tribunal directed that the matters be re-visited by the Assessing Officer after affording the assessee an opportunity to be heard during the de novo proceedings. [Paras 7, 8]

Findings of inadequate opportunity by the CIT(A) accepted; matter remanded to the AO for de novo adjudication after providing an opportunity of being heard.

Classification as Short Term Capital Gain - classification as Long Term Capital Gain - Whether the sale proceeds should have been assessed as Short Term Capital Gain or as Long Term Capital Gain - HELD THAT: - The CIT(A) had held that the sale proceeds ought to be assessed under the head 'Capital Gains' and treated the sum as Short Term Capital Gain. The Tribunal observed that there were infirmities in the manner and mode of quantification by the CIT(A), including classification, and that these required fresh consideration. Rather than deciding the classification on the record before it, the Tribunal directed the AO to re-adjudicate the characterisation of the gain in the de novo assessment and allow the assessee to substantiate his position with evidence. [Paras 3, 7, 8]

Classification issue not finally adjudicated by the Tribunal; remitted to the AO for fresh consideration in de novo proceedings.

Cost of acquisition and indexed cost of acquisition - Whether the cost of acquisition/indexed cost of acquisition of the property should be allowed while computing capital gains - HELD THAT: - The Tribunal noted that the CIT(A) did not properly compute capital gains and failed to allow deductions for cost of acquisition/indexed cost of acquisition. Given these defects in computation and the absence of opportunity to place supporting evidence on record, the Tribunal directed the AO to reassess the quantification of capital gains afresh, permitting the assessee to produce documents and claims relevant to cost and indexation during the de novo proceedings. [Paras 3, 7, 8]

Computation issue remitted to the AO for de novo consideration with liberty to the assessee to produce supporting material.

Set-off of long term capital loss - Whether the assessee's claim of long term capital loss arising from extinguishment of shares (M/s. Astral Glass Pvt. Ltd.) could be considered and set off against the gain on sale of property - HELD THAT: - The assessee contended that he had suffered a long term capital loss in Financial Year 2010-11 (A.Y. 2011-12) on extinguishment of shares and that such loss ought to be available for set-off against the capital gain on the property sale. The Tribunal, while deploring the assessee's lack of cooperation, accepted that this claim had not been considered due to procedural shortcomings and directed the AO to examine and verify the claim afresh in the de novo assessment, allowing the assessee to substantiate the asserted loss with documentary evidence. [Paras 7, 8]

Claim of long term capital loss not finally decided; remitted to the AO for verification and fresh adjudication in de novo proceedings.

Final Conclusion: The appeal is allowed for statistical purposes and the matter is remitted to the Assessing Officer for de novo adjudication: the AO is directed to afford the assessee an opportunity of being heard and to reconsider classification of the gain, computation (including cost/indexation), and the claim of set-off of long term capital loss, with the assessee being at liberty to produce supporting evidence.

Reopening of assessment - borrowed satisfaction and sufficiency of reasons - rectification/corrigendum of assessment order - apparent/typographical mistake and limitation - principles of natural justice - right to cross examine third party declarants - reliance on statements recorded during survey/search - evidentiary value and requirement of corroboration - remand for fresh proceedings where natural justice not complied with

Rectification/corrigendum of assessment order - apparent/typographical mistake and limitation - Validity of corrigendum issued after passing of assessment order and whether it was time barred or beyond the Assessing Officer's power. - HELD THAT: - The Tribunal examined the assessment order and the corrigendum and found that the Assessing Officer had omitted a portion of the concluding paragraph through a typographical error. The corrigendum merely completed that inadvertent omission and did not effect any material change to the conclusion of the assessment or computation of tax liability. The Tribunal distinguished the facts from cases where a corrigendum is used to alter jurisdictional or substantive conclusions after the assessment period. Where the correction is confined to rectifying an apparent mistake without changing the substantive outcome, it is permissible and not rendered invalid by the mere lapse of time to pass the assessment order. [Paras 12]

Corrigendum was a permissible rectification of an apparent/typographical error and is not invalid as time barred.

Reopening of assessment - borrowed satisfaction and sufficiency of reasons - reliance on statements recorded during survey/search - evidentiary value and requirement of corroboration - Validity of reopening the assessment under section 147 based on information and statements obtained during survey of the builder. - HELD THAT: - The Tribunal considered the reasons recorded by the Assessing Officer and the material supplied to the assessee. It found that the Assessing Officer communicated the reasons for reopening and that the assessee was given opportunity to participate in assessment proceedings. The Tribunal concluded that the Assessing Officer had material in the form of documents recovered during survey and statements of responsible officials of the builder which furnished a sufficient basis for forming a reason to believe. The Tribunal therefore held that the reopening was not vitiated as being based on mere borrowed satisfaction or lacking application of mind. [Paras 12]

Reopening of assessment was valid and sustained.

Principles of natural justice - right to cross examine third party declarants - reliance on statements recorded during survey/search - evidentiary value and requirement of corroboration - remand for fresh proceedings where natural justice not complied with - Sustainability of addition of alleged 'on money' where the Assessing Officer relied on third party statements found in survey records but did not afford the assessee a practical opportunity to cross examine those declarants. - HELD THAT: - The Tribunal accepted that statements and documents recovered during survey have evidentiary value; however it emphasised the requirement of observance of principles of natural justice before making an adverse addition based substantially on third party statements. The record showed repeated requests from the assessee for an opportunity to cross examine officials of the builder, and the Assessing Officer's insistence that the assessee bring those persons himself, which the assessee could not practically do. The Tribunal held that completing assessment and confirming the addition without providing a proper opportunity for cross examination was contrary to natural justice. In view of this defect, the Tribunal held the assessment to be bad in law insofar as the addition rests on such untested third party statements, and indicated that the Assessing Officer could issue a show cause notice to the third party witnesses and procure their attendance so that the assessee may be afforded cross examination in further proceedings. [Paras 12, 13]

Addition based on third party statements confirmed without affording proper opportunity to cross examine was set aside; matter remitted for further action consistent with natural justice.

Final Conclusion: The appeal was partly allowed: the Tribunal upheld the validity of the reopening and treated the corrigendum as a permissible rectification of an apparent error, but set aside the addition insofar as it was sustained without affording the assessee a proper opportunity to cross examine third party declarants and remitted the matter for further proceedings to comply with principles of natural justice.

Provisional release of seized goods under Section 110A of the Customs Act, 1962 - Guidelines issued by the Central Board of Excise & Customs for provisional release - Requirement of bond and bank guarantee/security deposit to cover duty, redemption fine and penalties - Distinction between seized goods which are prohibited/restricted and non-prohibited consignments - Adjudicating authority's discretion to grant provisional release subject to conditions

Provisional release of seized goods under Section 110A of the Customs Act, 1962 - Guidelines issued by the Central Board of Excise & Customs for provisional release - Requirement of bond and bank guarantee/security deposit to cover duty, redemption fine and penalties - Whether the seized imported consignment should be provisionally released pending adjudication and on what conditions - HELD THAT: - The Tribunal noted that the detained goods are neither prohibited nor restricted and therefore not subject to statutory permissions that prohibit provisional release. The CBEC Guidelines for provisional release under Section 110A were applied: provisional release may be granted upon request of the owner, subject to execution of a bond for full/estimated value and in addition a bank guarantee or security deposit to cover the entire duty/differential duty, redemption fine that may be levied in lieu of confiscation, and penalties likely at adjudication. The appellants offered to execute the bond for the full value as per adjudication. Applying the Guidelines and the statutory provision, the Tribunal directed that on execution of the bond backed by a bank guarantee sufficient to cover duty, redemption fine and penalties (taking into account the nature of goods and metrics suggested by CBEC), the Adjudicating Authority shall grant provisional release. The Tribunal accordingly directed the Principal Commissioner to consider the appellants' request for provisional release in accordance with these conditions. [Paras 7, 8, 9]

Provisional release to be granted by the Adjudicating Authority upon execution of a bond backed by a bank guarantee/security deposit adequate to cover duty, redemption fine and penalties; Principal Commissioner to consider the request accordingly.

Final Conclusion: The appeal is disposed of by directing the Adjudicating Authority/Principal Commissioner to consider and grant provisional release of the seized consignment if the owner executes the bond and bank guarantee/security deposit sufficient to cover duty, redemption fine and penalties in accordance with the CBEC Guidelines and Section 110A of the Customs Act, 1962.

Customs Valuation Rules - transaction value - proforma invoice not constituting transaction value - re-determination of assessable value - confiscation under Section 111(m) of the Customs Act, 1962 - penalty under Section 114A and Section 114AA - assessment finality

Re-determination of assessable value - transaction value - proforma invoice not constituting transaction value - Customs Valuation Rules - Validity of enhancing assessable value of imported goods on the basis of a seized proforma invoice and related re-determination of value - HELD THAT: - The Tribunal found that the bills of entry were assessed by the Proper Officer and those assessments were not challenged. A proforma invoice recovered during enquiry showed a higher price but was not issued in the name of the appellant. The price quoted in a proforma invoice was held not to be conclusive of the actual transaction value because prices are typically settled after negotiation and the Revenue produced no evidence of any extra payment by the appellant. In consequence, there were insufficient grounds to reject the declared transaction value and to re-determine assessable value on the basis of the recovered proforma invoice. The Tribunal relied on settled principle that a mere proforma invoice, without proof of additional remittance or an accepted transactional link, cannot constitute the transaction value for Customs valuation purposes. [Paras 6, 7, 8]

Enhancement of assessable value on the basis of the recovered proforma invoice is not sustainable and the proposed re-determination is set aside.

Confiscation under Section 111(m) of the Customs Act, 1962 - penalty under Section 114A and Section 114AA - assessment finality - Sustainability of confiscation, redemption fine and penalties consequential to the alleged undervaluation - HELD THAT: - Confiscation and penalties were consequential upon the alleged undervaluation and the enhanced assessable value. As the Tribunal found the basis for enhancement to be legally and factually unsupportable (no transactional link or evidence of extra payment), the consequential measures-confiscation (and redemption fine in lieu), and penalties under Section 114A (on the firm) and Section 114AA (on the proprietor)-could not be sustained. The Tribunal observed that goods had been cleared for home consumption pursuant to assessment and, in absence of valid grounds for value enhancement, the imposition of redemption fine and the penalties were set aside. [Paras 6, 7, 8, 9]

Confiscation, redemption fine and the penalties imposed are not sustainable and are vacated; appeal allowed with consequential relief as per law.

Final Conclusion: The appeal is allowed: the re-determination of assessable value based on the recovered proforma invoice is set aside for lack of proof of transaction value or extra payment, and consequential confiscation, redemption fine and penalties under the Customs Act are quashed; consequential relief, if any, is to follow as per law.

Power of the proper officer to issue a notice under Section 28(4) - reassessment of an export Shipping Bill - scope and limits of a show cause notice - finalisation of assessment beyond the SCN - confiscation under Section 113 - penalties under Section 114, Section 114AA and Section 114A - provisional release and redemption fine - DRI officers not being 'the proper officer' for demands under Section 28(4)

Scope and limits of a show cause notice - finalisation of assessment beyond the SCN - reassessment of an export Shipping Bill - Demand of duty confirmed in the impugned order on the current Shipping Bill was sustainable. - HELD THAT: - The Tribunal held that the learned Commissioner's finalisation of the current Shipping Bill by re classifying the goods went beyond matters proposed in the SCN. An adjudicating order cannot introduce a novel basis of final assessment which was not put to the party in the SCN; the impugned finalisation therefore exceeded the scope of the notice and could not be sustained. Consequential measures founded on that finalisation - including confiscation and penalties - likewise could not be upheld. [Paras 19, 21]

Demand on the current Shipping Bill, and confiscation and penalties based thereon, are not sustainable and are set aside.

DRI officers not being 'the proper officer' for demands under Section 28(4) - power of the proper officer to issue a notice under Section 28(4) - reassessment of an export Shipping Bill - Demand of duty on past Shipping Bills confirmed under Section 28(4) based on the SCN issued by DRI was sustainable. - HELD THAT: - Applying the precedent that the power to reopen and reassess under Section 28 is vested in 'the proper officer' who performed the original assessment (and not in DRI officers), the Tribunal found the SCN issued by the ADG, DRI under Section 28 to be without authority. Consequently, the demand of duty in the impugned order insofar as it was founded on that DRI issued Section 28 notice could not be sustained. [Paras 20, 21]

Demand of duty on the past Shipping Bills under Section 28(4) based on DRI's SCN is not sustainable and is set aside.

Confiscation under Section 113 - penalties under Section 114, Section 114AA and Section 114A - provisional release and redemption fine - Confiscation and penalties imposed in respect of the current Shipping Bill were sustainable. - HELD THAT: - The Tribunal held that confiscation and penalties premised on the finalised assessment of the current Shipping Bill cannot stand because the finalisation itself was beyond the SCN. Where the foundational reassessment fails, associated confiscation orders and penalties that rely upon that reassessment must also fail. Regarding provisional release, the order awarding redemption fine founded on the impugned finalisation similarly could not be sustained. [Paras 19, 21]

Confiscation, redemption fine and penalties relating to the current Shipping Bill are set aside.

DRI officers not being 'the proper officer' for demands under Section 28(4) - penalties under Section 114, Section 114AA and Section 114A - confiscation under Section 113 - Penalties imposed in the impugned order with respect to past Shipping Bills based on the DRI issued SCN were sustainable. - HELD THAT: - Although DRI could issue notices under Section 124 (confiscation proceedings), the penalties imposed in the impugned order were grounded on confiscation findings that in turn rested on reassessments under Section 28 arising from the DRI SCN. Since the Section 28 reassessments were held invalid because DRI officers are not 'the proper officer', the penalties that derive from those reassessments and purported confiscation cannot be sustained. [Paras 20, 21]

Penalties in respect of past Shipping Bills founded on the DRI SCN and consequent reassessment are set aside.

Final Conclusion: The impugned adjudication order is set aside in toto: the confirmed demand, confiscation and penalties insofar as they exceed the scope of the SCN or rest on reassessments under Section 28(4) issued by DRI are unsustainable. The appeals are allowed with consequential relief, if any, to the appellants.

Redemption of confiscated goods - invocation of bank guarantee for recovery of redemption fine - provisional release of seized goods - permission / No Objection Certificate to sell redeemed goods

Redemption of confiscated goods - invocation of bank guarantee for recovery of redemption fine - permission / No Objection Certificate to sell redeemed goods - provisional release of seized goods - Grant of interim relief in the form of redemption of the seized aircraft and direction to issue permission/No Objection Certificate to sell the aircraft upon redemption, pending final adjudication of the appeal. - HELD THAT: - The aircraft had earlier been seized, provisionally released on bank guarantee, and subsequently confiscated with an option of redemption on payment of the redemption fine. The appellant expressed willingness to redeem the aircraft on the terms of the impugned order either by payment or by invocation of the existing bank guarantee. There is no appeal by the Department challenging the part of the impugned order permitting redemption. Allowing redemption pending final hearing adequately protects the Revenue's interest because the recovery of the redemption fine can be effected by invocation of the bank guarantee or cash payment as ordered. Once redeemed, the aircraft will become the property of the appellant and the Revenue's interest will continue to be secured by the redemption mechanism. For these reasons, the Tribunal directed redemption on the same terms and ordered the Deputy Commissioner to issue a permission/No Objection Certificate to enable sale after redemption. The Tribunal expressly clarified that this direction is interim in nature and does not decide the merits of the underlying dispute.

The aircraft may be redeemed by payment of the redemption fine or by invocation of the bank guarantee and, upon redemption, the Deputy Commissioner shall issue a permission/No Objection Certificate to permit the appellant to sell the aircraft; order interim in nature and without prejudice to final merits.

Final Conclusion: The miscellaneous application is allowed: the appellant may redeem the aircraft by payment or invocation of the bank guarantee and the Deputy Commissioner is directed to issue the permission/No Objection Certificate to enable sale upon redemption; the direction is interim and without prejudice to the final adjudication, which is listed for hearing in January 2022.

Anti-dumping duty - designated authority's recommendation - judicial review of executive non-acceptance of recommendation - remittance for fresh decision - statutory timeframe for decision under rule 18 and its inapplicability on remand

Anti-dumping duty - designated authority's recommendation - judicial review of executive non-acceptance of recommendation - remittance for fresh decision - Validity of the Central Government's decision not to accept the designated authority's recommendation to impose anti-dumping duty and consequential relief. - HELD THAT: - The Tribunal examined the Central Government's action in not accepting the designated authority's final findings dated 23.11.2020 recommending imposition of anti-dumping duty on the subject goods. The Government's position, as reflected in its comments, was that it did not accept the designated authority's recommendation and issued a rescinding notification dated 30.12.2020. In line with the Tribunal's earlier reasoning in Jubilant Ingrevia Limited, where a similar Office Memorandum declining to impose duty despite a recommendation by the designated authority was set aside, the present decision of the Central Government not to impose anti-dumping duty could not be sustained. The Tribunal therefore set aside the decision and remitted the matter to the Central Government to take a fresh decision on the designated authority's recommendation. The Tribunal further noted that the three-month decision period under rule 18 does not apply where the matter is being remitted for fresh consideration, and directed that the rescinding notification shall abide the fresh decision to be taken by the Central Government. [Paras 6, 8]

The Central Government's decision not to accept the designated authority's recommendation is set aside and the matter is remitted to the Central Government for fresh decision; the rescinding notification shall abide the fresh decision.

Final Conclusion: Appeal allowed to the extent that the Central Government's decision declining to impose anti-dumping duty despite the designated authority's recommendation is set aside and the matter is remitted to the Central Government for fresh consideration; the rescinding notification shall await the outcome of that reconsideration.

Imposition of anti-dumping duty - Recommendation of the Designated Authority - Central Government's refusal to accept recommendation - Judicial review and remand for fresh consideration - Sunset review of anti-dumping measures

Recommendation of the Designated Authority - Central Government's refusal to accept recommendation - Imposition of anti-dumping duty - Validity of the Central Government's decision not to impose anti-dumping duty despite a recommendation by the Designated Authority - HELD THAT: - The Tribunal found that the Central Government's decision not to accept the Designated Authority's recommendation for imposition of anti-dumping duty could not be sustained. The Tribunal relied on its earlier reasoning in Jubilant Ingrevia Limited, where a similar Office Memorandum declining to impose duty despite a recommendation was set aside and the matter remitted for fresh consideration. Applying that precedent, the Tribunal set aside the decision of the Central Government which declined to impose anti-dumping duty notwithstanding the Designated Authority's final findings dated 31.08.2020 recommending duty, and directed that the Central Government take a fresh decision on the recommendation. [Paras 8]

The Central Government's decision not to impose anti-dumping duty is set aside.

Judicial review and remand for fresh consideration - Recommendation of the Designated Authority - Remand of the matter to the Central Government for fresh decision on the Designated Authority's recommendation - HELD THAT: - The Tribunal remitted the matter to the Central Government to reconsider the Designated Authority's recommendation for imposition of anti-dumping duty. The remand follows the Tribunal's precedent that where the Government declines to accept a recommendation without adequate justification, the appropriate remedy is to set aside that decision and require the Government to take a fresh decision. The notification dated 11.11.2020 rescinding the earlier notification shall remain subject to the decision to be taken by the Central Government on remand. [Paras 8]

Matter remitted to the Central Government to take a fresh decision on the Designated Authority's recommendation; the notification dated 11.11.2020 shall abide by that future decision.

Final Conclusion: The appeal is allowed to the extent that the Central Government's decision declining to impose anti dumping duty despite the Designated Authority's recommendation is set aside and the matter is remitted to the Central Government for fresh consideration; the rescission notification of 11.11.2020 will be subject to the decision to be taken on remand.

Declaration accompanying goods deemed to be an entry - liability for wrong declaration under Section 111 and penalty under Section 112 - burden of proof on the Department to establish knowledge or wilful mis-declaration - mere handling in the course of professional engagement not proof of knowledge - prohibition on import of Indian currency by courier and sender's responsibility

Declaration accompanying goods deemed to be an entry - burden of proof on the Department to establish knowledge or wilful mis-declaration - mere handling in the course of professional engagement not proof of knowledge - Whether the appellant-bank can be held liable for confiscation and penalty for a wrong declaration on the airway bill where the declaration was made by the sender and the bank was merely the recipient/consignee. - HELD THAT: - The Tribunal held that Section 82 (then in force) treats a label or declaration accompanying post parcels as the entry, and does not require the importer/recipient to make that declaration; therefore the responsibility for a wrong declaration lies on the person who made it unless the Department proves otherwise. On the facts there is no evidence that the appellant-bank made the declaration or had prior knowledge that the airway bill mis-described demonetised currency as documents. The initial burden to show the bank's knowledge or wilful participation rested on the Department and was not discharged. A mere professional or handling role by the bank does not, without specific findings, establish wilful or knowing mis-declaration; such an inference requires independent and specific findings which are absent. The impugned order's findings to the contrary are thus contrary to law and fact. The Tribunal relied on consistent precedents that omissions of a courier/handler to cross-check particulars do not automatically attract penalty under Section 112. [Paras 7, 9, 10, 11, 12]

Findings that the appellant wilfully or knowingly made a wrong declaration are not supported by evidence; the penalty and related findings are set aside and the appeal is allowed.

Final Conclusion: The Tribunal allowed the appeal, set aside the confirmation of penalty and related findings against the appellant-bank, holding that the Department failed to establish that the bank made or knowingly participated in the wrong declaration on the airway bill.

Quashing of FIR under Section 482 Cr.P.C. - scope of judicial interference at investigation stage - prima facie cognizable offence - disputed facts and unimpeachable documents - territorial jurisdiction of police under Section 182 Cr.P.C. - concurrent civil proceedings before NCLT and criminal prosecution - misuse of process of law

Quashing of FIR under Section 482 Cr.P.C. - scope of judicial interference at investigation stage - prima facie cognizable offence - Whether the FIR could be quashed at the stage of investigation by exercise of inherent jurisdiction under Section 482 Cr.P.C. - HELD THAT: - The Court applied settled principles that quashing is an extraordinary remedy to be exercised sparingly and that at the investigation stage the High Court ordinarily should not substitute itself for the police or examine the merits of the allegations. Having regard to precedents cited, the Court held that where the averments in the FIR, if accepted at face value, disclose ingredients of cognizable offences and where disputed factual questions (including allegations of forgery and conspiracy) require investigation, the High Court should not quash the FIR. The petitioners relied on documents but the complainant disputed those documents as forged; in such circumstances the documents cannot be treated as unimpeachable to justify quashing. The petitions were thus held not maintainable at this stage and interference would prematurely thwart investigation.

Petitions for quashing dismissed; investigation to proceed.

Disputed facts and unimpeachable documents - Whether the documents relied upon by the petitioners were of unimpeachable character so as to justify quashing of the FIR without investigation. - HELD THAT: - The Court noted that petitioners placed reliance on several documents but the complainant had specifically alleged that those documents were forged and fabricated and had identified a list of documents alleged to be forged. Where the genuineness of documents is disputed and forms part of the controversy, the Court should not resolve such factual disputes in proceedings under Section 482 Cr.P.C.; rather the police must investigate prima facie allegations including forgery and fabricated communications before any conclusion on criminality can be reached.

Documents not treated as unimpeachable; quashing not warranted on their basis.

Territorial jurisdiction of police under Section 182 Cr.P.C. - Whether Khanna Police had territorial jurisdiction to register and investigate the FIR. - HELD THAT: - The Court observed that criminal jurisdiction for offences like cheating is governed by principles distinct from civil venue rules and that Section 182 Cr.P.C. permits inquiry or trial in locations where property was delivered to the person deceived or received by the accused. The complainant alleged that payments and account operations occurred in Punjab (Khanna/Mohali) and that amounts were deposited in bank accounts there; accordingly, mere fact that companies had registered offices in New Delhi did not oust Khanna Police of jurisdiction. The Court rejected the petitioners' contention that the FIR was improperly registered at Khanna on territorial grounds.

Khanna Police lawfully competent to register and investigate the FIR.

Concurrent civil proceedings before NCLT and criminal prosecution - Whether pendency of company petitions before the NCLT, New Delhi, or availability of civil remedies barred criminal proceedings or justified quashing of the FIR. - HELD THAT: - The Court distinguished the separate spheres of civil and criminal remedies and relied on authority that availability of civil remedies does not preclude initiation or continuation of criminal proceedings where the allegations disclose cognizable offences. The petitions before NCLT concerned corporate reliefs and questions of directors and corporate governance; they did not preclude a police investigation into alleged criminal conspiracy, cheating and forgery. The existence of NCLT proceedings and status quo orders therefore did not make the criminal FIR liable to be quashed at this stage.

Pendency of NCLT proceedings does not bar investigation or quashing of the FIR at this stage.

Misuse of process of law - Whether the FIR was a mala fide counter-blast or otherwise an abuse of process warranting quashing. - HELD THAT: - The Court examined allegations of mala fide or counter-blast and found material in the FIR and the status report alleging dishonest concealment, forged documents, backdating and freezing of bank accounts as parts of an alleged conspiracy. Given these allegations and the need to investigate multiple disputed factual strands, the Court held that it could not conclude on the face of the record that the FIR was a misuse of process. The presence of other FIRs against the petitioners in NCR was noted as relevant to the state case about repeated conduct, but the determinative point was that factual issues required investigation.

No prima facie finding of mala fide abuse of process sufficient to quash the FIR.

Scope of judicial interference at investigation stage - Whether petitions filed immediately after FIR registration and absence of cooperation with investigation (no joining investigation and no bail applications) affected maintainability of quashing petitions. - HELD THAT: - The Court observed that the petitions were filed at a nascent stage of investigation; the petitioners had not joined the inquiry despite notices, nor had they applied for anticipatory or regular bail. The Coordinate Bench had granted interim protection from coercive action, but that did not substitute for participation in investigation. In light of established law restricting quashing at investigation stage and the non-cooperation of petitioners, the Court found the petitions premature and not maintainable.

Petitions dismissed as premature; investigation to continue.

Final Conclusion: The High Court dismissed all four petitions seeking quashing of FIR No.171/2019 and directed that the investigation proceed, holding that on the face of the FIR cognizable offences were disclosed, disputed questions of fact (including alleged forgery and conspiracy) required investigation, territorial jurisdiction of Khanna Police was proper on the complaints' averments and pendency of NCLT or civil remedies did not warrant quashing at this stage.

Genuineness of inter-corporate loans - related party - rights issue to raise additional capital - status quo - pro rata participation of shareholders in rights issue - restriction on voting rights of shares issued by way of rights

Genuineness of inter-corporate loans - related party - The loans advanced to the first Respondent Company by M/s. Image Dealcom Private Limited and M/s. Rarefab Textiles Private Limited are genuine and do not, on the material before the Tribunal, fall within the statutory concept of related party transactions. - HELD THAT: - The Tribunal examined ledger entries, RTGS receipts, TDS certificates and auditor statements which showed receipt of funds in FY 2013-14 and FY 2015-16 and outstanding ledger balances. The appellants' assertions of relatedness and of suspicious borrowing were not substantiated by tenable material; the alleged inter se relationships between lenders and other corporate entities did not establish that the loans fell within the definition of a "related party" under the Act or within the ambit of transactions contemplated by Section 188. On the totality of documentary evidence (ledgers, balance sheets, TDS certificates and auditor notes) the NCLT's conclusion that the borrowings were genuine is sustained. [Paras 5, 6, 8]

Finding that the inter-corporate borrowings are genuine and not proved to be related party transactions is upheld.

Status quo - rights issue to raise additional capital - pro rata participation of shareholders in rights issue - In the presence of status-quo directions restraining sale or encumbrance of immovable properties, NCLT was justified in permitting the company to raise additional capital by a pro rata rights issue to discharge creditor claims. - HELD THAT: - The Tribunal noted existing status-quo orders by the City Civil Court and the Company Law Board which prevented the company from selling immovable assets to meet debts. Having held the loans to be genuine and having regard to letters from lenders demanding repayment and the risk of coercive recovery action, the NCLT's limited relaxation of prior orders to allow a rights issue for the narrow purpose of raising funds to discharge creditors was appropriate. The Tribunal relied on documentary evidence of indebtedness and the principle that where a need for funds is shown and the rights issue is offered to all shareholders pro rata, interference is not warranted. The Tribunal declined to adjudicate pending ancillary applications (auditor appointment, asset verification) because the impugned order dealt solely with the rights-issue relief and imposed safeguards. [Paras 10, 11, 12]

Direction permitting the company to undertake a pro rata rights issue to raise funds for repayment of the inter-corporate loans is upheld.

Restriction on voting rights of shares issued by way of rights - The NCLT's imposition that persons acquiring shares pursuant to the rights issue shall not exercise additional voting rights until further order or disposal of the main petition is appropriate and is sustained. - HELD THAT: - While permitting the rights issue, the NCLT expressly limited the relief by providing that additional voting rights arising from the rights shares would be inoperative until further orders or disposal of the main petition. This limited and conditional relaxation balanced the company's need to raise funds with protection of existing shareholders' interests; the Tribunal found no illegality in this safeguard and upheld the measure. [Paras 12]

The conditional restriction on voting rights of shares issued under the rights issue is maintained.

Final Conclusion: The NCLT order permitting a pro rata rights issue for the limited purpose of raising funds to discharge genuine inter-corporate loans, subject to a restriction on voting rights of the rights shares until further order or disposal of the main petition, is affirmed; the appeal is dismissed.

Section 32A of the Insolvency and Bankruptcy Code, 2016 - extinguishment of criminal liability of the corporate debtor - change in management or control requirement for immunity - discharge of corporate debtor from prosecution - effect of pending appeals on finality of a Section 31 order - effect of appellate refusal to grant interim stay

Section 32A of the Insolvency and Bankruptcy Code, 2016 - change in management or control requirement for immunity - extinguishment of criminal liability of the corporate debtor - Whether DHFL was entitled to discharge from criminal prosecution under Section 32A on the ground that the statutory conditions for immunity were satisfied. - HELD THAT: - The Court found that the statutory conditions for immunity under Section 32A(1) were fulfilled: a resolution plan was approved by the Adjudicating Authority, the approved plan resulted in a change in the management of the corporate debtor, and that change was not in favour of persons related to the corporate debtor. Subsequent events placed on record (reverse merger, appointment of six additional directors) demonstrated that the new management had been installed, and the intervenor did not dispute these facts. The Court held that these factual developments achieved the 'clean break' contemplated by the provision and therefore the immunities under Section 32A could not be denied to the corporate debtor. The learned Special Judge's contrary conclusion permitting continued prosecution of the corporate debtor was set aside. [Paras 19, 20, 25]

DHFL stands discharged from CBI Special Case No. 830 of 2021 under Section 32A of the IBC.

Effect of pending appeals on finality of a Section 31 order - effect of appellate refusal to grant interim stay - Whether the successful resolution applicant could invoke Section 32A while appeals against the Section 31 order were pending before the NCLAT. - HELD THAT: - The Court held that mere filing of appeals does not automatically stay the operation of the Section 31 order; an interim stay must be granted by the appellate forum to suspend the operative effect. In the present case, appeals were filed but the NCLAT declined to grant interim relief and refused to stay the approval order. Having regard to that refusal and established precedents that an appeal without an order staying the subject order does not render the order ineffective, the Court concluded that the Section 32A application was not premature or unmaintainable. [Paras 21, 23]

Invocation of Section 32A was not premature despite pending appeals, because NCLAT refused interim stay of the Section 31 order.

Discharge of corporate debtor from prosecution - extinguishment of criminal liability of the corporate debtor - Whether it was permissible to continue prosecution of the corporate debtor through its erstwhile directors (accused nos. 2 and 3) after the conditions of Section 32A were satisfied. - HELD THAT: - The Court accepted petitioners' submission that, once the corporate debtor satisfies the conditions for immunity under Section 32A, prosecution of the corporate debtor through its erstwhile directors cannot be permitted. The Judge found no justification to allow continued prosecution via accused nos. 2 and 3, particularly as those directors had been ousted from the board earlier and no longer exercised control. The impugned order permitting such prosecution was therefore held to be erroneous and was quashed. [Paras 24, 25]

The impugned order permitting prosecution of the corporate debtor through erstwhile directors is quashed and the corporate debtor is discharged.

Final Conclusion: The writ petitions are allowed: the order dated 20th August 2021 is quashed; DHFL is discharged from CBI Special Case No. 830 of 2021 under Section 32A of the IBC as the statutory conditions for immunity were satisfied and the application under Section 32A was not premature in view of NCLAT's refusal to grant interim stay; the intervention application is disposed of and the request to stay the judgment is rejected.

Return of original documents seized in investigation - Certified copies to stand as primary evidence - Liquidator's duty to effect time bound liquidation and to facilitate sale of assets - Balancing investigatory needs and insolvency stakeholders' rights

Return of original documents seized in investigation - Liquidator's duty to effect time bound liquidation and to facilitate sale of assets - Balancing investigatory needs and insolvency stakeholders' rights - Certified copies to stand as primary evidence - Whether the Special CBI Court was justified in declining to return original title documents to the liquidator and, if not, on what conditions the originals should be released. - HELD THAT: - The Court accepted that the liquidator, under the liquidation regulations, must complete the liquidation in a time bound manner and that bidders/prospective purchasers ordinarily require original title documents for due diligence and to proceed with purchases; withholding originals held by the investigative agency and in judicial custody may frustrate the liquidation process and cause loss to stakeholders. The CBI's apprehension that return of originals might impair its ability to lead primary evidence in the criminal trial was acknowledged. To reconcile these competing interests, the Court directed that the originals listed in Exhibit G be handed over to the petitioner subject to the CBI first placing and certifying true copies of those documents on the record of the criminal trial; those certified copies were directed to be treated as primary evidence for all purposes in the subject trial. This arrangement was held to safeguard the prosecution's evidentiary position while enabling the liquidator to carry out the sale process without prejudice to investigatory or trial rights.

The order refusing return of originals was set aside; the Special CBI Court shall hand over the original documents listed in Exhibit G to the liquidator after the CBI places certified true copies of those documents on the trial record, and those certified copies shall form part of the chargesheet and be treated as primary evidence.

Final Conclusion: Writ petition allowed: the High Court set aside the Special CBI Court's order and directed release of the original title documents to the liquidator, subject to the CBI placing certified true copies on the record which shall be treated as primary evidence, thereby balancing the liquidator's obligation to effect timely liquidation with protection of the prosecution's evidentiary interests.

Existence of a pre-existing dispute - requirement under Section 8(2) to disclose existence of a dispute in reply to demand notice - operational creditor's entitlement to initiate corporate insolvency resolution process under Section 9 - adjudicating authority's power to admit or reject application under Section 9(5) - Mobilox principle on pre-existing dispute (dispute must exist prior to receipt of demand notice) - acknowledgement of debt and memorandum of understanding as evidence of liability

Existence of a pre-existing dispute - requirement under Section 8(2) to disclose existence of a dispute in reply to demand notice - Mobilox principle on pre-existing dispute (dispute must exist prior to receipt of demand notice) - acknowledgement of debt and memorandum of understanding as evidence of liability - Whether a pre-existing dispute existed between the parties prior to receipt of the Section 8 demand notice, thereby justifying rejection of the Section 9 application. - HELD THAT: - The Adjudicating Authority based rejection on internal email dated 04.05.2018 and an email dated 30.07.2018, treating those communications as evidencing a pre-existing dispute. The Bench examined the chronology and contents of the correspondence and the minutes of meeting/MoU dated 27.07.2018. The MoU expressly records the Corporate Debtor's acknowledgment of the outstanding amount and an undertaking to pay in three instalments, with the final instalment due by end of January 2019. The formal reply to the demand notice dated 04.02.2019, as required under Section 8(2), did not assert existence of any dispute but reiterated willingness and a revised payment schedule. The email of 30.07.2018 (which was the communication actually sent to the supplier) recorded that parameters for supplies were met and only noted isolated observation of wooden particles in one batch, requesting explanation and remedial care for subsequent supplies; it did not raise a substantive conflict of claims as contemplated by the statute. Applying the Mobilox principle that any dispute relied upon must be pre-existing and apparent on the record prior to receipt of the demand notice, the Bench held that no real, substantial dispute was shown in the reply to the Section 8 notice, nor was there any record of dispute in an information utility. The Court emphasised that the adjudicating authority is to look at the substance of the reply and not enter into adjudication, but that the substance here did not disclose a bona fide dispute. Repeated acknowledgments of debt (MoU and subsequent emails) further undermined the contention of a pre-existing dispute. As the statutory condition in Section 9(5)(i)(d) - absence of notice of dispute - was satisfied, the Adjudicating Authority erred in rejecting the Section 9 application. [Paras 21, 25, 27, 28]

No pre-existing dispute existed when the Section 8 demand notice was issued; the Adjudicating Authority's rejection of the Section 9 application was set aside and the Section 9 application was admitted, with CIRP to be proceeded with and orders under Section 13 to be passed within two weeks.

Final Conclusion: The Appellate Tribunal held that the Corporate Debtor had not shown a pre-existing dispute in its reply to the Section 8 notice and that contemporaneous records (MoU and replies) amounted to acknowledgment of debt; the Adjudicating Authority's order rejecting the Section 9 application was set aside and the application admitted, with the Corporate Insolvency Resolution Process to commence and consequential directions to the Adjudicating Authority.

Pre-existing dispute - quality of goods dispute - service of demand notice - operational creditor's claim under Section 9 of the IBC - delivery of demand notice of an unpaid and undisputed debt - triggering the corporate insolvency resolution process - prohibition on using IBC as a recovery mechanism

Pre-existing dispute - quality of goods dispute - operational creditor's claim under Section 9 of the IBC - Existence of a pre existing dispute regarding the quality of goods and its effect on the maintainability of the Section 9 petition. - HELD THAT: - The Tribunal found on the record that the Corporate Debtor had raised objections as to the quality of the goods supplied and that the Operational Creditor itself agreed to lift back defective material and issued credit notes for material recovered. Those facts demonstrate a pre existing dispute which, in the Tribunal's view, disentitles the Operational Creditor from invoking the insolvency process under Section 9. The reasoning follows the principle that IBC cannot be used as a substitute for ordinary recovery where a real dispute exists; the Adjudicating Authority's finding of a pre existing dispute was therefore upheld as a bar to admission of the petition. [Paras 6, 7, 9, 10]

The existence of a pre existing dispute as to quality was established and bars the Section 9 petition; the Adjudicating Authority's conclusion on this point is affirmed.

Service of demand notice - delivery of demand notice of an unpaid and undisputed debt - triggering the corporate insolvency resolution process - Whether the demand notice under Section 8 was proved to have been validly delivered to the Corporate Debtor. - HELD THAT: - The Tribunal observed discrepancies between the consignment number in the track report and the postal receipt and noted that the Postal Receipt was not filed before the Tribunal, creating a 'grey area' about valid service. Given this uncertainty, the Adjudicating Authority's finding that service/delivery of the demand notice was not satisfactorily established was held to be justified. In view of the unsettled question of delivery and the concomitant pre existing dispute, the conditions necessary to trigger the corporate insolvency resolution process were not satisfied. [Paras 6, 7, 9]

Delivery/service of the demand notice was not satisfactorily proved; the Adjudicating Authority's finding on non establishment of valid service is upheld.

Final Conclusion: The Tribunal affirmed the Adjudicating Authority's dismissal of the Section 9 petition on grounds of a pre existing dispute regarding quality and on inadequate proof of service of the demand notice; the appeal is dismissed with no order as to costs.

Condonation of delay - sufficiency of cause - submission of claim in liquidation - liquidator's decision to reject claim - Regulation 16(1) of Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 - appeal against decision of liquidator under Section 42 of the Insolvency and Bankruptcy Code, 2016

Condonation of delay - sufficiency of cause - submission of claim in liquidation - liquidator's decision to reject claim - Regulation 16(1) of Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 - appeal against decision of liquidator under Section 42 of the Insolvency and Bankruptcy Code, 2016 - Validity of rejection of the appellant's belated claim and whether the Adjudicating Authority erred in refusing to condone 52 days' delay in submitting claim in the liquidation process - HELD THAT: - The Tribunal upheld the Adjudicating Authority's finding that the reasons given for the delay were not tenable. The appellant submitted its claim on 04.03.2021 though the public announcement fixed the last date as 11.01.2021; the liquidator rejected the claim on 17.03.2021 on that ground. The Adjudicating Authority examined the appellant's averments that it became aware of liquidation only in March 2021 and that the State would lose dues, but concluded those grounds did not constitute sufficient cause since the appellant had an independent right and duty to take timely action to recover tax dues and could not rely on others to initiate proceedings. The Tribunal observed that sufficiency of cause is a fact-sensitive enquiry and, applying that standard to the material before it, found no infirmity in the Adjudicating Authority's conclusion that the reasons for delay were untenable and that the liquidator had followed extant law, including the requirement in Regulation 16(1) that claims be submitted on or before the last date in the public announcement. Consequently, no interference with the dismissal of the application seeking condonation was warranted. [Paras 4, 11, 12, 16, 17]

Appeal dismissed; the rejection of the belated claim and refusal to condone 52 days' delay affirmed and the Adjudicating Authority's order left undisturbed.

Final Conclusion: The appellate tribunal dismissed the appeal, holding that the Adjudicating Authority rightly refused to condone the 52 day delay in filing the claim in liquidation proceedings and properly upheld the liquidator's rejection of the belated claim; no interference was warranted.

Maintainability of Section 7 applications by allottees in real estate projects - minimum threshold and joint filing requirement for home buyers under amended Section 7 - third proviso to Section 7 - modification of pending applications and deemed withdrawal - clubbing of pending Section 7 proceedings by the Adjudicating Authority - permissibility of filing affidavits to seek clubbing of petitions

Clubbing of pending Section 7 proceedings by the Adjudicating Authority - third proviso to Section 7 - modification of pending applications and deemed withdrawal - Impugned order clubbing pending Section 7 applications was legally infirm and cannot be sustained without compliance with the amendment and Supreme Court directions; matter remitted for de novo consideration on maintainability and clubbing. - HELD THAT: - The Tribunal examined the Adjudicating Authority's direction to club pending applications and the interplay of the amendment (including the third proviso to Section 7) as construed in the Supreme Court's decision in Manish Kumar. The Tribunal found that the Adjudicating Authority did not direct the concerned allottees to amend their applications to conform to the threshold requirements before ordering clubbing. In consequence, the impugned order suffers from legal infirmity. To secure the ends of justice and in light of the Supreme Court's directions, the Tribunal set aside the impugned order and remitted the matter to the Adjudicating Authority for fresh consideration and passing of de novo orders on the issue of maintainability and clubbing, after affording both parties opportunity to raise factual and legal pleas. [Paras 5, 19, 21]

Impugned order set aside; matter remitted to the Adjudicating Authority for de novo adjudication on maintainability and clubbing in accordance with law and the Supreme Court judgment, after giving parties an opportunity to be heard.

Minimum threshold and joint filing requirement for home buyers under amended Section 7 - permissibility of filing affidavits to seek clubbing of petitions - Filing of mere affidavits seeking clubbing of petitions (in lieu of modification of applications as required by the amendment) is impermissible; compliance with provisos and rules for joint filing must be considered by the Adjudicating Authority afresh. - HELD THAT: - The Tribunal noted that the two allottees had filed affidavits for clubbing rather than the modifications contemplated by the amended Section 7. The Tribunal observed that the Amendment and the Adjudicating Authority Rules envisage joint filing and modification to meet the threshold; mere affidavits for clubbing are not a substitute for the statutory process. Accordingly, the question of whether applications satisfy the threshold or have been validly modified must be examined afresh by the Adjudicating Authority in accordance with law. [Paras 20]

Affidavit based requests for clubbing are impermissible; the Adjudicating Authority must examine compliance with the amended Section 7 and related rules on remand.

Final Conclusion: The appeal is allowed; the impugned order dated 18.06.2021 is set aside and the matter is remitted to the Adjudicating Authority to decide de novo the maintainability and clubbing of the pending Section 7 applications in accordance with the Amendment and the Supreme Court judgment, after giving both parties appropriate opportunity to be heard.

Operational debt - Default for triggering CIRP - Pre-existing dispute - Dispute resolution clause and arbitration - TDS as admission of debt - Admission of Section 9 petition - Moratorium - Appointment of Interim Resolution Professional

Operational debt - Default for triggering CIRP - TDS as admission of debt - Admission of Section 9 petition - The Corporate Debtor was in default of an operational debt exceeding the statutory threshold and the Section 9 petition is admissible. - HELD THAT: - The Tribunal examined the invoices submitted by the Operational Creditor for the period April 2016 to March 2017 and noted that the Corporate Debtor had deducted and deposited TDS on three invoices, which the Bench treated as evidence that the services were availed and the corresponding invoices admitted. Relying on the admitted portion of debt (exceeding the minimum amount required under the Code) and precedent that a claim need only be a 'right to payment' even if disputed, the Bench held that the default threshold for initiation of CIRP under Section 9 was satisfied and the petition could not be rejected on the ground that part of the claim was disputed. The Tribunal therefore admitted the petition under Section 9. [Paras 21, 22, 23, 24]

Petition under Section 9 admitted on finding of default and admitted debt exceeding the statutory minimum.

Pre-existing dispute - Dispute resolution clause and arbitration - Operational debt - Allegations of a pre-existing dispute and reliance on the arbitration clause did not bar admission of the petition. - HELD THAT: - The Corporate Debtor pleaded pre-existing disputes arising from alleged misconduct of an employee and reliance on the arbitration clause in the amended agreement. The Bench evaluated those contentions and found them to be unsupported by documents or timing: the alleged diversion of business post-dated the invoices and the Kiosks were shown to have been in use up to 31.03.2017. The Tribunal observed that mere allegations, without documentary proof or a cogent link to the specific operational debt claimed, are hypothetical and do not constitute a pre-existing dispute under the Code. The presence of an arbitration clause did not preclude admission where the pleaded dispute was not shown to be prima facie genuine and connected to the claimed operational debt. [Paras 17, 18, 19, 20]

Pre-existing dispute and arbitration clause held insufficient to defeat the Section 9 petition; dispute not established prima facie.

Appointment of Interim Resolution Professional - Moratorium - Admission of Section 9 petition - Interim Resolution Professional appointed and moratorium declared consequent to admission of the petition. - HELD THAT: - Upon admission of the Section 9 petition the Bench accepted the proposed Insolvency Resolution Professional's consent in Form No.2 and, noting no disciplinary proceedings, appointed him as Interim Resolution Professional. The Tribunal directed that the moratorium under the Code come into effect from the date of the order, prohibiting institution of suits or proceedings and restraining liquidation of assets, while permitting continued supply of essential goods or services as provided by the Code. The IRP was directed to undertake the statutory duties and report progress within the stipulated time. [Paras 25, 26, 28]

Mr. Dhanshyam Kantilal Patel appointed as IRP; moratorium imposed and CIRP commenced from the date of the order.

Final Conclusion: The Section 9 petition was admitted: the Tribunal found a default in respect of operational debt (partly evidenced by TDS payment) exceeding the statutory threshold, rejected the Corporate Debtor's contention of a pre-existing dispute and arbitration bar as unsubstantiated, appointed the proposed Interim Resolution Professional and declared the moratorium with commencement of CIRP.

Corporate insolvency resolution process - default under the Code - financial creditor - 10% threshold for joint allottees in a real estate project - admission of application under Section 7 - moratorium under Section 14 - appointment of interim resolution professional

Admission of application under Section 7 - default under the Code - Whether the Section 7 application against the corporate debtor should be admitted on the ground of default - HELD THAT: - The Tribunal examined the MoUs, the lease deed dated 30.09.2019 and related correspondence and concluded that the applicants had placed sufficient evidence to satisfy the adjudicating authority that a default had occurred for the purposes of Section 7. The Tribunal noted the lease deed showed a rent commencement date deferred by six months from lease commencement, which, in view of Clause 17 of the MoUs, was prejudicial to the financial creditors and indicated a discharge of obligations upon leasing. While the corporate debtor disputed payment history, the Adjudicating Authority is required to be satisfied by documents or evidence produced by the financial creditor that a default has occurred and need not go beyond such material at the admission stage. The Tribunal relied on the principle that the adjudicating authority's role at admission is limited to satisfaction as to the existence of default and completeness of the application and therefore admitted the application. [Paras 27, 28, 30, 32]

The Section 7 application was admitted on the ground that the Tribunal was satisfied that a default, within the meaning of the Code, had occurred.

10% threshold for joint allottees in a real estate project - financial creditor - Whether the applicants satisfy the statutory threshold to file a joint application under Section 7 - HELD THAT: - The Tribunal noted that 40 financial creditors together held 70 office spaces out of the total 353 units in the project and accepted the applicants' contention that they constituted the requisite percentage under the amendment (10% of allottees) for joint filing by allottees in the same real estate project. On that basis the Tribunal found the threshold for a joint application by financial creditors was met. [Paras 2, 28]

The applicants met the prescribed joint-filing threshold and were competent to present the Section 7 petition.

Appointment of interim resolution professional - moratorium under Section 14 - Relief to be granted consequent to admission: appointment of IRP, imposition of moratorium and interim directions - HELD THAT: - On admission the Tribunal appointed the proposed resolution professional, noting his consent and disclosures, and directed the consequences that flow from admission under the Code. The moratorium under Section 14(1) was declared in accordance with the Code. The Tribunal also directed the applicants to deposit a specified amount with the interim resolution professional to meet initial expenses, subject to adjustment by the Committee of Creditors, and gave administrative directions for communication of the order to relevant authorities and for provision of documents to the IRP. [Paras 29, 30, 31, 32]

The proposed IRP was appointed, the moratorium was imposed, the applicants were directed to deposit the specified amount with the IRP, and consequential administrative directions were issued.

Final Conclusion: The Tribunal admitted the joint Section 7 application, satisfied that the applicants met the 10% allottees threshold and that a default had been shown for admission purposes; the proposed interim resolution professional was appointed, moratorium under the Code was declared, a specified deposit was directed to be made to the IRP, and consequential procedural directions were issued.

Liquidation under Section 33(1)(a) of the I&B Code, 2016 - Appointment of Liquidator - Moratorium cessation on liquidation - Powers and duties of Liquidator under Sections 35 to 50 and 52 to 54 of the I&B Code, 2016 - Sale as going concern and sale of assets under Regulation 32 and Regulation 32A of the IBBI (Liquidation Process) Regulations, 2016 - Funding of liquidation costs by the sole member of the Committee of Creditors and Liquidator's fees under Regulation 39D and Regulation 4(1) of the IBBI Regulations

Liquidation under Section 33(1)(a) of the I&B Code, 2016 - Order for liquidation of the Corporate Debtor was passed after no resolution plan was received within the statutory time and the CoC resolved for liquidation. - HELD THAT: - The Adjudicating Authority recorded that no resolution plan was received under Sub Section (6) of Section 30 of the I&B Code, 2016 and, having regard to the matters placed before it by the Interim Resolution Professional and the Committee of Creditors (including that the Corporate Debtor was not operating for over three years and there were no fixed assets), considered it proper to allow the application under Section 33. The Authority exercised the powers under Clause (b) of Sub Section (1) of Section 33 and ordered liquidation in the manner prescribed in Chapter III of Part II of the I&B Code, 2016. [Paras 5]

Application for liquidation was allowed and the Corporate Debtor was ordered to be liquidated.

Appointment of Liquidator - Mr. C.S. Bhaskar B. was appointed as Liquidator on the CoC's resolution and his consent and authorisation were recorded. - HELD THAT: - The Adjudicating Authority accepted the Committee of Creditors' unanimous resolution to appoint the Interim Resolution Professional as Liquidator. The Authority recorded that the proposed Liquidator had filed his consent to act and valid Authorisation for Assignment, and accordingly appointed him to administer the liquidation process. [Paras 5]

Mr. C.S. Bhaskar B. was appointed as the Liquidator.

Moratorium cessation on liquidation - The moratorium under Section 14 ceases to have effect from the date of the liquidation order. - HELD THAT: - Upon ordering liquidation the Adjudicating Authority declared that the moratorium which had been in place during CIRP would cease to operate from the date of the liquidation order, consistent with the statutory scheme that liquidation follows the CIRP and alters the status of restraints imposed during CIRP. [Paras 5]

The moratorium under Section 14 shall cease to have effect from the liquidation order date.

Powers and duties of Liquidator under Sections 35 to 50 and 52 to 54 of the I&B Code, 2016 - All powers of directors and KMP cease and vest in the Liquidator, who shall exercise powers and duties enumerated in the specified provisions and relevant regulations. - HELD THAT: - The Authority directed that the powers of the board, key managerial personnel and partners would cease and vest in the Liquidator. It specified that the Liquidator shall exercise the powers and duties as set out in Sections 35-50 and 52-54 of the I&B Code, 2016 together with the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, and directed personnel of the Corporate Debtor to extend assistance to the Liquidator. [Paras 5]

Powers of management ceased and were vested in the Liquidator, who shall exercise statutory duties under the I&B Code and applicable regulations.

Sale as going concern and sale of assets under Regulation 32 and Regulation 32A of the IBBI (Liquidation Process) Regulations, 2016 - The Liquidator was directed to endeavour to sell the Corporate Debtor or its business as a going concern first, and if unable within 90 days from liquidation commencement date, to proceed to sale of assets under Regulation 32. - HELD THAT: - The Adjudicating Authority, while appointing the Liquidator, recorded the requirement to keep in view Regulation 32A and to first attempt sale as a going concern. It provided a 90 day period from the liquidation commencement date to effect such sale, after which the Liquidator may proceed to sell assets under the enumerated clauses of Regulation 32 of the Liquidation Process Regulations. [Paras 5]

Liquidator to attempt sale as a going concern; failing that within 90 days, to sell assets under Regulation 32.

Funding of liquidation costs by the sole member of the Committee of Creditors and Liquidator's fees under Regulation 39D and Regulation 4(1) of the IBBI Regulations - The CoC resolved that the entire liquidation cost will be funded by the sole CoC member and the Liquidator's fee entitlement was recorded to be in accordance with CoC decision and applicable regulations. - HELD THAT: - The Authority recorded the CoC's resolution that the sole financial creditor would fund the liquidation costs as per the second CoC meeting, and endorsed that the Liquidator shall be entitled to charge fees in accordance with the CoC's decision under Regulation 39D and Regulation 4(1) of the Liquidation Process Regulations. The order required conformity with the regulatory provisions governing liquidation fees and cost funding. [Paras 5]

Liquidation costs to be funded by the sole CoC member and Liquidator's fees to be as per the CoC decision and applicable IBBI regulations.

Final Conclusion: The Tribunal allowed the application under Section 33, ordered liquidation of M/s Velugu Engineering and Enterprises Pvt. Ltd., appointed Mr. C.S. Bhaskar B. as Liquidator with attendant vesting of management powers and directions on moratorium, sale as a going concern, funding of liquidation costs by the sole creditor and entitlement of fees in accordance with applicable IBBI regulations; IA No. 238/2021 disposed of.

Financial Debt - Commercial effect of a borrowing - Interest-bearing security deposit - Maintainability of a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 - Section 5(8)(f) of the Insolvency and Bankruptcy Code, 2016

Financial Debt - Interest-bearing security deposit - Commercial effect of a borrowing - Section 5(8)(f) of the Insolvency and Bankruptcy Code, 2016 - Whether the interest-bearing refundable deposit accepted by the Corporate Debtor constitutes a "financial debt" for the purpose of maintainability of a Section 7 petition under the IBC, 2016. - HELD THAT: - The Tribunal examined the origin and terms of the transaction under the Agreement dated 25.03.2019 and the definition of "financial debt" in Section 5(8) of the Code. The deposit was accepted by the Corporate Debtor as a security deposit which carried interest, thereby reflecting consideration for the time value of money. Clause (f) of Section 5(8) includes "any amount raised under any other transaction ... having the commercial effect of a borrowing." Read together, an interest-bearing refundable deposit that operates as money accepted against consideration for the time value of money has the commercial effect of a borrowing and falls within the statutory definition of "financial debt." Applying these principles to the recorded facts, the Tribunal concluded that the amount released pursuant to the Agreement is a financial debt within Section 5(8)(f), rendering the Section 7 petition maintainable. [Paras 12, 13, 14, 15]

The interest-bearing refundable deposit is a "financial debt" within the meaning of Section 5(8)(f) of the IBC, 2016; the Section 7 petition is maintainable and notice to the Corporate Debtor is directed.

Final Conclusion: The Tribunal held that the interest-bearing security deposit accepted by the Corporate Debtor qualifies as a financial debt under Section 5(8)(f) of the IBC, 2016, and accordingly the Section 7 petition is maintainable; the petitioner was directed to serve notice and the matter listed for further proceedings, without expressing any opinion on merits.

Liquidation under section 33(2) of the Insolvency and Bankruptcy Code, 2016 - appointment of liquidator under section 34(1) of the Insolvency and Bankruptcy Code, 2016 - initiation of liquidation process under Chapter III and IBBI (Liquidation Process) Regulations, 2016 - cessation of powers of board and vesting in liquidator - prohibition on institution of suits after commencement of liquidation subject to section 52 - liquidation order as notice of discharge to employees under section 33(7) - filing of liquidation order with Registrar of Companies

Liquidation under section 33(2) of the Insolvency and Bankruptcy Code, 2016 - Corporate Debtor ordered to be liquidated pursuant to CoC resolution. - HELD THAT: - The Adjudicating Authority recorded that the Committee of Creditors resolved by 100% of voting share to liquidate the Corporate Debtor and that, in terms of section 33(2) of the Code, the Authority is required to pass an order for liquidation where the RP intimates such a CoC decision made by not less than sixty-six percent of the voting share. The Bench applied section 33(2) read with sub section (1) to the facts and concluded that liquidation must be ordered. [Paras 11, 12]

Application allowed and the Corporate Debtor is ordered to be liquidated in terms of section 33(2) read with section 33(1) of the Code.

Appointment of liquidator under section 34(1) of the Insolvency and Bankruptcy Code, 2016 - valid Authorisation for Assignment issued by the Insolvency Professional Agency - Resolution Professional appointed as Liquidator and has given consent; AFA on record. - HELD THAT: - The RP, Mr. Shyamal Kumar Bhattacharjee, consented to act as Liquidator and an Authorisation for Assignment issued by the Insolvency Professional Agency valid till the stated date was placed on record in compliance with regulation 7A. The Bench, satisfied with the RP's consent and the AFA, appointed him as Liquidator under section 34(1). [Paras 9, 12]

Mr. Shyamal Kumar Bhattacharjee is appointed as Liquidator under section 34(1) of the Code.

Initiation of liquidation process under Chapter III and IBBI (Liquidation Process) Regulations, 2016 - Liquidator to commence the statutory liquidation process under Chapter III and relevant IBBI Regulations. - HELD THAT: - The order directs the Liquidator to initiate the liquidation process in accordance with the statutory scheme set out in Chapter III of the Code and the Insolvency & Bankruptcy Board of India (Liquidation Process) Regulations, 2016, thereby requiring adherence to the prescribed procedures for realization and distribution. [Paras 12]

Liquidator to initiate and conduct the liquidation process as envisaged under Chapter III and the IBBI (Liquidation Process) Regulations, 2016.

Public notice of liquidation - Public notice to be issued in specified newspapers declaring that the Corporate Debtor is in liquidation. - HELD THAT: - The Bench ordered publication of a public notice in the same newspapers where prior advertisements were made, directing that the Corporate Debtor be publicly notified as being in liquidation to inform stakeholders and invite claims as required by the liquidation regime. [Paras 12]

Public Notice to be issued in Financial Express (English) and Sukhobar (Bengali) Kolkata editions stating that the Corporate Debtor is in liquidation.

Cessation of powers of board and vesting in liquidator - All powers of the Board of Directors and key managerial personnel cease and vest in the Liquidator. - HELD THAT: - Pursuant to section 34(2) of the Code, the order records that the managerial powers of the company's board and key managerial personnel shall cease to exist and such powers shall henceforth vest in the Liquidator for purposes of managing the liquidation process. [Paras 12]

Powers of the Board of Directors and key managerial personnel cease and vest in the Liquidator.

Prohibition on institution of suits after commencement of liquidation subject to section 52 - No suit or legal proceeding to be instituted by or against the Corporate Debtor after initiation of liquidation, subject to statutory exceptions; liquidator may initiate proceedings with prior approval. - HELD THAT: - The Bench applied section 33(5) read with its proviso and, subject to section 52, barred initiation of suits or other legal proceedings by or against the Corporate Debtor after commencement of liquidation. The order preserves the liquidator's liberty to institute proceedings on behalf of the Corporate Debtor with prior approval of the Adjudicating Authority. [Paras 12]

Post-initiation of liquidation, no suits shall be instituted by or against the Corporate Debtor except as permitted and with prior approval as provided in the Code.

Liquidation order as notice of discharge to employees under section 33(7) - Liquidation order deemed notice of discharge to officers, employees and workmen, subject to continuance of any business by the Liquidator. - HELD THAT: - In accordance with section 33(7), the Bench recorded that the liquidation order would operate as a notice of discharge to the Corporate Debtor's officers, employees and workmen, except insofar as the Liquidator continues the business during the liquidation process. [Paras 12]

Liquidation order deemed to be notice of discharge to officers, employees and workmen, with the stated exception.

Filing of liquidation order with Registrar of Companies - Liquidator required to file a copy of the liquidation order with the Registrar of Companies within whose jurisdiction the Corporate Debtor is registered. - HELD THAT: - The Bench directed compliance with section 33(1)(b)(iii) by directing the Liquidator to file a copy of the liquidation order with the Registrar of Companies, and additionally directed the Registry to forward a copy to that Registrar, ensuring statutory publication and recordation of the liquidation order. [Paras 12]

Liquidator to file a copy of the liquidation order with the Registrar of Companies, West Bengal, Kolkata; Registry to forward a copy as directed.

Final Conclusion: The application by the Resolution Professional is allowed; the Corporate Debtor is ordered to be liquidated, the RP is appointed as Liquidator and directed to initiate the liquidation process in accordance with the Code and IBBI regulations with attendant directions regarding public notice, cessation of board powers, restriction on suits, employee discharge notice and filing with the Registrar of Companies.

Regulation 35A compliance - condonation of delay and exclusion of lockdown period - intimation to the Insolvency and Bankruptcy Board of India under Regulation 35A(2) - fraudulent transaction under section 66 of the Code - forensic/transaction audit and reliance on auditors' reports

Regulation 35A compliance - condonation of delay and exclusion of lockdown period - intimation to the Insolvency and Bankruptcy Board of India under Regulation 35A(2) - Whether the Resolution Professional complied with the timelines and procedural requirements of Regulation 35A for forming opinion, making determination and filing the application, and whether any delay was condoned in the absence of a specific prayer. - HELD THAT: - The Tribunal examined the timeline prescribed by Regulation 35A for forming an opinion (within 75 days), making a determination (within 115 days) and filing the application (within 135 days) from commencement of CIRP. In the present case the RP formed the opinion on 08.07.2020, made the determination on 17.08.2020 and filed the application on or after 16.09.2020, which did not meet the prescribed timeline. Although the RP pleaded exclusion of eighty-eight days on account of lockdowns, no specific prayer for condonation of delay was made in the application. The order relied on by the RP excluding lockdown days related to computation of the 180 days CIRP period and did not explicitly address the present application. Further, the RP failed to intimate the determination to the Insolvency and Bankruptcy Board of India as required under Regulation 35A(2). In the absence of satisfaction of these procedural requisites, the requirements under Regulation 35A were not fulfilled. [Paras 41, 43, 44, 45]

The timelines and procedural requirements of Regulation 35A were not satisfied; no condonation was sought for the delay and the RP failed to comply with intimation obligations under Regulation 35A(2).

Fraudulent transaction under section 66 of the Code - forensic/transaction audit and reliance on auditors' reports - Whether the transactions alleged by the RP amounted to fraudulent transactions attracting liability under section 66 of the Code. - HELD THAT: - The Tribunal considered the seven heads of allegations (adjustment entries, non-existent sundry debtors, inflation of fixed assets at Haldia, transactions with overseas subsidiary, MSTC-related shortfall, inventory write-offs and reduction in unsecured debt) and the respondents' specific replies. It noted that two independent auditors appointed by financial creditors had cleared the transactions when the Trust & Retention Account was operational and that there was no case that any benefit in the form of additional facilities had been obtained by the corporate debtor or its KMPs from the financial creditors. On the question of impairment at Haldia, the Tribunal observed the auditors' clearance and found that the allegation of intent to defraud creditors was not established. For other allegations, the Tribunal recorded satisfaction with the explanations offered by the respondents and observed that many of the RP's contentions appeared to arise from lack of information, possibly due to non cooperation for which a separate application had been filed. The Tribunal also noted the respondents' failure to furnish explanations to the forensic auditor when given opportunity, but found that on merits the allegations under section 66 could not be sustained. [Paras 46, 47, 48, 49, 50]

The allegations of fraudulent transactions under section 66 are not established on the record; the respondents' explanations and prior audits do not support granting the reliefs sought.

Final Conclusion: The application under Regulation 35A and sections relied upon is dismissed: the RP did not comply with the procedural timelines and intimation requirement under Regulation 35A, and on merits the allegations of fraudulent transactions under section 66 are not sustained; IA (IB) No. 878/KB/2020 stands dismissed.

Initiation of Corporate Insolvency Resolution Process - admission of Section 7 petition - proof of debt and default - limitation for filing insolvency petition - appointment of Interim Resolution Professional - moratorium under Section 14 - public announcement of CIRP - vesting of management in IRP/RP - prohibition on institution or continuation of suits and proceedings - deposit towards initial CIRP cost

Admission of Section 7 petition - proof of debt and default - limitation for filing insolvency petition - The company petition under Section 7 is admissible and liable to be admitted. - HELD THAT: - The Bench found that the Financial Creditor furnished documents in support of the existence of debt and default which remained unchallenged because the Corporate Debtor failed to file any reply despite repeated opportunities and was eventually set ex parte. The Tribunal recorded that the claim was within limitation and that the petitioner had suggested a proposed Interim Resolution Professional with his consent in Form 2. On these findings the petition satisfied the requirements for admission under Section 7 and was therefore admitted. [Paras 5, 6]

Company Petition under Section 7 admitted and initiation of CIRP ordered against the Corporate Debtor.

Appointment of Interim Resolution Professional - deposit towards initial CIRP cost - moratorium under Section 14 - public announcement of CIRP - vesting of management in IRP/RP - prohibition on institution or continuation of suits and proceedings - Interim measures consequent to admission were ordered, including appointment of an IRP, moratorium and ancillary directions. - HELD THAT: - Upon admission the Tribunal appointed the proposed Interim Resolution Professional (whose consent was on record) to carry out functions under the Code. The Bench directed the Financial Creditor to deposit an initial amount towards CIRP costs and issued moratorium directions prohibiting institution or continuation of suits or enforcement actions against the Corporate Debtor and protecting supply of essential goods/services during the moratorium. The Tribunal also directed immediate public announcement of the CIRP, vesting of management in the IRP/RP and communication of the order to the Registrar of Companies for updating master data. [Paras 6]

Interim Resolution Professional appointed; moratorium and related directions issued; public announcement and procedural steps directed.

Final Conclusion: The Tribunal admitted the Section 7 petition filed by the Financial Creditor, appointed an Interim Resolution Professional (whose consent was on record), directed deposit of initial CIRP costs, imposed the statutory moratorium and ancillary directions (including public announcement and vesting of management in the IRP), and ordered communication of the order to the Registrar of Companies.

Violation of principles of natural justice - Record of personal hearing in virtual hearings - Compliance with video conferencing guidelines for hearings - Refund of service tax under Section 104 of the Finance Act, 1994

Violation of principles of natural justice - Record of personal hearing in virtual hearings - Compliance with video conferencing guidelines for hearings - Validity of the appellate order in light of non-compliance with prescribed procedure for maintaining and communicating the record of personal hearing conducted through video conferencing - HELD THAT: - The Court found that the appellate authority did not comply with the procedure framed by the Board for virtual hearings, which required preparation and email-transmission of a record of personal hearing in PDF form and an opportunity for verification/modification within a stipulated period. Those instructions, issued to ensure compliance with the principles of natural justice during video-conference hearings and founded on the Supreme Court's guidelines, were not followed. Non-compliance with this mandated procedure rendered the appellate order vitiated for breach of natural justice. The Court relied on its earlier decision in W.P.(C) No.23270 of 2020 directing re-hearing where similar non-compliance occurred, and held that the defect could not be remedied without fresh adjudication after observing the prescribed steps for virtual personal hearings.

Impugned appellate order quashed; matter remitted to the Appellate Authority to pass fresh orders after complying with the video-conferencing hearing procedure and after affording hearing to the petitioner.

Final Conclusion: Writ petition allowed; the appellate order set aside for breach of natural justice arising from failure to follow the prescribed procedure for record and communication of virtual personal hearings, and the matter is remitted for fresh decision in accordance with those guidelines within three months.

Composite contract - construction of complex - service tax refund - retrospective amendment of Rule 2A of Service Tax (Determination of Value) Rules, 2006 - valuation mechanism - bifurcation of composite contract - interest on refund

Composite contract - construction of complex - bifurcation of composite contract - retrospective amendment of Rule 2A of Service Tax (Determination of Value) Rules, 2006 - service tax refund - interest on refund - Entitlement to refund of service tax collected by builder on purchase of an under construction unit forming part of a composite contract defined as construction of complex under Section 65(105)(zzzh). - HELD THAT: - The Tribunal applied the ratio of the Hon'ble High Court in Suresh Kumar Bansal (03.06.2016) holding that service tax cannot be levied on composite contracts for construction of complex where there is no statutory mandate to disaggregate the contract into service and goods/land components. A plain reading of the definition of construction of complex under Section 65(105)(zzzh) does not require bifurcation of the composite contract for valuation. The Tribunal also relied on the principle in Commissioner of Central Excise & Customs v. Larsen & Toubro Ltd. that composite contracts cannot be disintegrated for service tax valuation in absence of statutory direction. Consequently, the retrospective insertion in Rule 2A of the Service Tax (Determination of Value) Rules, 2006 does not justify continuing levy of service tax on the services defined under Section 65(105)(zzzh) in the facts of this case. Applying these legal principles, the Tribunal concluded that the amount of service tax paid through the builder is refundable and that interest at 6% is payable from date of deposit until refund. [Paras 11, 12, 13]

Refund of the service tax paid through the builder is allowed with interest at 6% and the impugned order is set aside.

Final Conclusion: The appeal is allowed; Revenue is directed to refund the service tax paid through the builder with interest at 6% and in accordance with the directions in the order.

Declared service - agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act - consideration - service tax valuation - forfeiture of earnest money - liquidated damages - ground rent / compensation for non-delivery

Declared service - agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act - consideration - forfeiture of earnest money - liquidated damages - ground rent / compensation for non-delivery - Retention/forfeiture of earnest money, recovery of liquidated damages and ground rent are not taxable as 'declared service' under section 66E(e) of the Finance Act for the period 2014 to 2015. - HELD THAT: - Section 66E(e) creates a declared service of "agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act" and section 65B(44)/67 require that a taxable service be provided "for consideration" and valued as such. The amounts in question (forfeited EMD, liquidated damages, ground rent for extension) were not paid to the appellant in lieu of any activity or service rendered by the appellant but were contractual financial consequences to secure performance or compensate for non-performance. The Explanation to section 67 confines "consideration" to amounts payable for a taxable service. The Tribunal found no factual or legal basis to treat retention of these contractual sums as payment for tolerating or agreeing to refrain from an act; rather, they operate as minimum compensation or deterrent against breach. The Tribunal also relied on earlier decisions of the same forum on identical question and held that Commissioner (Appeals) did not justify treating the impugned amounts as consideration for a declared service. Consequently, the order imposing service tax, interest and penalty on these amounts was unsustainable. [Paras 9, 10, 11, 12]

The impugned order is set aside and the appeal is allowed.

Final Conclusion: For the tax period 2014 to 2015, amounts retained by the assessee by way of forfeited earnest money, liquidated damages and ground rent/compensation for non-delivery do not constitute a declared service under section 66E(e); the order imposing service tax thereon is set aside and the appeal is allowed.

Adjustment of tax demand against unutilised cenvat credit - entitlement to transfer cenvat credit to electronic credit ledger under Section 140 - no bar under Section 140 read with Section 142 for adjustment of liability from unutilised cenvat credit not carried forward via TRAN 1 - procedure for carrying forward unutilised cenvat credit (Rule 117 of CGST Rules, 2017) - disallowance of cenvat credit for lack of supporting documents

Adjustment of tax demand against unutilised cenvat credit - entitlement to transfer cenvat credit to electronic credit ledger under Section 140 - no bar under Section 140 read with Section 142 for adjustment of liability from unutilised cenvat credit not carried forward via TRAN 1 - procedure for carrying forward unutilised cenvat credit (Rule 117 of CGST Rules, 2017) - Adjustment of the service tax demand by permitting utilisation of unutilised cenvat credit lying as on 30.06.2017 which was not carried forward to the GST regime. - HELD THAT: - The Tribunal found that Section 140(1) of the CGST Act provides the mechanism to take carried forward CENVAT credit into the electronic credit ledger but does not create an absolute disability preventing an assessee from adjusting an outstanding tax demand against unutilised cenvat credit which was not migrated by filing Form TRAN 1. The adjudicating and appellate authorities erred in holding that non filing of TRAN 1 or the existence of transfer procedures under Rule 117 wholly precluded adjustment of the demand. Having considered Section 140 read with Section 142, the Tribunal held there is no statutory bar against allowing adjustment of the demand from the cenvat balance lying as on 30.06.2017, and that the Commissioner (Appeals) committed a mistake of law in disallowing such adjustment. The Tribunal therefore set aside the Commissioner (Appeals) order and directed the Adjudicating Authority to grant adjustment of the unutilised amount against the demand, subject to consequential legal entitlement. The order otherwise left intact the adjudication on disallowance for lack of supporting documents and other quantified aspects decided by the Adjudicating Authority. [Paras 5, 6, 11]

Appeal allowed; impugned order set aside and Adjudicating Authority directed to permit adjustment of the unutilised cenvat credit as on 30.06.2017 against the demand.

Final Conclusion: The Tribunal allowed the appeal, holding that Section 140 read with Section 142 does not prohibit adjustment of an assessed service tax demand from unutilised cenvat credit lying as on 30.06.2017 which was not carried forward to GST, and directed the Adjudicating Authority to grant such adjustment with consequential benefits in accordance with law.

Output service - CENVAT credit entitlement on export of services - recipient liable to pay service tax under Notification No. 30/2012 ST - refund of unutilized CENVAT credit under Rule 5 of CENVAT Credit Rules, 2004 - exclusion of export of services from 'exempted services' and disallowance under Rule 6(7) of CENVAT Credit Rules, 2004 - registration not a prerequisite for claiming CENVAT credit/refund

Output service - recipient liable to pay service tax under Notification No. 30/2012 ST - CENVAT credit entitlement on export of services - refund of unutilized CENVAT credit under Rule 5 of CENVAT Credit Rules, 2004 - exclusion of export of services from 'exempted services' and disallowance under Rule 6(7) of CENVAT Credit Rules, 2004 - Whether legal services exported by the appellant firm qualify as "output service" and whether unutilized CENVAT credit attributable to such exports is refundable under Rule 5 of the CENVAT Credit Rules, 2004. - HELD THAT: - The Tribunal held that the definition of "output service" in Rule 2(p) of the CENVAT Credit Rules, 2004 applies to any service provided by a provider located in the taxable territory except where specifically excluded. The exclusion for services where the whole of service tax is liable to be paid by the recipient applies only to legal services provided to a business entity located in the taxable territory as specified in Notification No. 30/2012 ST; it does not extend to legal services exported to recipients outside the taxable territory. Consequently, export of legal services falls within the scope of "output service." Once established as output services, and after reversal of credit proportionate to domestic taxable services, the remaining unutilized credit attributable to exports is eligible for refund under Rule 5 read with the relevant refund notification. Further, Rule 6 disallowances for exempted services do not apply to exported services because sub rule (7) excludes exports from those disallowance provisions. The Tribunal relied on the policy that taxes should not be exported and noted consistent judicial authority in support of refunding input credit consumed in exported services. The impugned orders rejecting or recalling refunds on the ground that exported legal services were not output services were therefore unsustainable. [Paras 6, 7]

Exported legal services constitute "output service" and the appellants are entitled to refund of unutilized CENVAT credit attributable to such exports in terms of Rule 5 and the applicable notification; Rule 6(7) excludes exports from disallowance under Rule 6.

Registration not a prerequisite for claiming CENVAT credit/refund - CENVAT credit entitlement on export of services - Whether the appellants' eligibility for CENVAT credit/refund is vitiated by alleged non registration or by the fact that legal services are not taxed at the provider's end under the reverse charge mechanism in certain domestic cases. - HELD THAT: - The Tribunal observed that the question of mandatory registration is not material to the core issue of entitlement to refund of unutilized input credit attributable to exports. The appellants had shown reasons for registration, had filed returns, and the Department had not earlier objected to the availment of credit. More fundamentally, the fact that certain domestic supplies of legal services attract reverse charge (tax payable by recipient under Notification No. 30/2012 ST) does not extinguish the appellants' right to input credit or refund in respect of exported services, which are treated as output services. Therefore denial of refund on grounds of non payment of tax by the provider or non registration was not tenable. [Paras 7]

The appellants' entitlement to refund is not negated by the reverse charge mechanism or by issues of registration; denial of refund on those grounds was incorrect.

Final Conclusion: All five appeals are allowed; the orders under challenge denying or recalling refunds of unutilized CENVAT credit attributable to export of legal services were set aside and the appellants are entitled to consequential relief in accordance with law.

CENVAT Credit Rules - Rule 4(5)(a) - obligation to return inputs after job work - liability for duty on waste and scrap generated during job work rests on the job worker (manufacturer of waste) - reversal of CENVAT credit versus imposition of excise duty on principal - process loss during drawing and insulation - permissible manufacturing loss not tantamount to clandestine removal - CENVAT Credit Rules do not create or alter excise duty liability governed by Central Excise Rules

CENVAT Credit Rules - Rule 4(5)(a) - obligation to return inputs after job work - liability for duty on waste and scrap generated during job work rests on the job worker (manufacturer of waste) - reversal of CENVAT credit versus imposition of excise duty on principal - Demand of excise duty, interest and penalty on estimated scrap/wastage (approx. 2%) arising at job worker's premises cannot be sustained against the principal manufacturer who sent inputs and availed Cenvat credit. - HELD THAT: - The Tribunal held that the loss on account of waste and scrap in the job work (about 2%) was not shown to be unreasonable nor was clandestine removal alleged. Under the statutory scheme the liability to pay excise duty on goods produced or manufactured is governed by the Central Excise Rules (Rules 4 and 8) and not by the CENVAT Credit Rules; the latter deal with allowance or reversal of credit and do not create a new duty liability. Rule 4(5)(a) of the CENVAT Credit Rules does not impose a binding obligation that any process loss must be compensated by reversal of credit in a manner that fastens duty liability on the principal; conditions imposed must conform to Rules 4 and 8 of the Central Excise Rules. Where waste and scrap are generated at the job worker's premises, the job worker is the manufacturer of that waste and scrap and any demand for duty should be directed at the job worker. The Tribunal's earlier consistent decisions and the appellant's Commissioner (Appeals) order setting aside identical demands support the conclusion that the demand against the principal is unsustainable on these facts. [Paras 4]

Appeal allowed; impugned order demanding duty, interest and penalty on the estimated scrap/wastage set aside.

Final Conclusion: The Tribunal allowed the appeal, holding that the demand of excise duty, interest and penalty on scrap/waste generated during job work could not be sustained against the principal who sent inputs and availed CENVAT credit; any duty liability for such waste should be addressed to the job worker, and the impugned order is set aside.

Violation of principles of natural justice - entitlement to exemption under area based exemption Notification No. 50/2003-CE - burden of proof for commencement of commercial production - reliance on Panchnama and physical verification - strict construction of exemption notifications in favour of Revenue

Violation of principles of natural justice - Whether the original adjudicating authority violated principles of natural justice by not granting personal hearing to the appellant. - HELD THAT: - The show cause notice invited the appellant to submit a reply and to indicate whether it wished to be heard in person. The original authority recorded that the appellant neither submitted a defence reply nor sought a personal hearing despite a further letter dated 12.8.2011 asking for a reply and whether a hearing was required. The Tribunal found that the appellant chose not to avail the opportunity afforded and cannot complain of a breach of natural justice on that ground. [Paras 12, 13]

No violation of principles of natural justice; the appellant had opportunity to reply and to seek personal hearing but did not do so.

Entitlement to exemption under area based exemption Notification No. 50/2003-CE - burden of proof for commencement of commercial production - reliance on Panchnama and physical verification - strict construction of exemption notifications in favour of Revenue - Whether the appellant was entitled to benefit of Notification No. 50/2003-CE in respect of alleged commercial production before 31.03.2010. - HELD THAT: - On physical verification conducted on 08.04.2010 the officers found that the factory construction was at a basic stage and only a few hand presses and a grinder bench were present, making it implausible that commercial production had commenced by 31.03.2010. Documents produced by the appellant before the Commissioner (Appeals) were licences, registrations, applications and declarations which did not constitute contemporaneous evidence of actual commercial manufacture. The appellant did not challenge the Panchnama before the original authority by cross-examining witnesses or seeking its exclusion. Exemption notifications must be construed strictly against the claimant and, in case of doubt, in favour of the Revenue. Applying these principles, the Tribunal found the facts favour Revenue and held that the appellant was not entitled to Notification No. 50/2003-CE. [Paras 4, 14, 15, 16]

Appellant not entitled to benefit of Notification No. 50/2003-CE; impugned order upholding denial of that exemption is affirmed.

Final Conclusion: The appeal is dismissed; the Commissioner (Appeals)'s order denying benefit of Notification No. 50/2003-CE is upheld, and the Commissioner (Appeals)'s grant of benefit under Notification No. 8/2003 to the appellant has attained finality.

Interest on refund of pre-deposit - deposit made during investigation - interest from date of deposit till date of refund - rate of interest at 12% per annum - claim made under protest

Interest on refund of pre-deposit - deposit made during investigation - rate of interest at 12% per annum - interest from date of deposit till date of refund - entitlement to interest on amounts deposited under protest during investigation and the rate and period for such interest - HELD THAT: - The Tribunal examined the claim for interest on amounts deposited by the appellant during the course of investigation under protest. Relying on the Tribunal's prior consideration in Parle Agro and the principle in Sandvik Asia Ltd. as applied by the Division Bench, the Tribunal held that interest is payable on such pre-deposits from the date of deposit until the date of refund. The Tribunal directed that interest be allowed at 12% per annum and ordered the Adjudicating Authority to grant the interest within two months of receipt of this order. The impugned orders rejecting interest were set aside and the appeal allowed to that extent. [Paras 13, 14]

Interest at 12% p.a. is payable on the amounts deposited during investigation from the date of deposit till the date of refund; impugned order set aside and matter remitted for grant of interest within two months.

Final Conclusion: The appeal is allowed insofar as interest is concerned; the Adjudicating Authority is directed to grant interest at 12% per annum from the date of deposit until the date of refund and to comply within two months.

Service of adjudication order by certified copy - substituted service and modes of service - condonation of delay in filing appeal - limitation for filing appeal and exclusion of time spent in obtaining certified copy - power of Commissioner (Appeals) to condone delay - remand for fresh decision on merits

Service of adjudication order by certified copy - condonation of delay in filing appeal - limitation for filing appeal and exclusion of time spent in obtaining certified copy - Whether the appeal before Commissioner (Appeals) was time barred having regard to the date of service of the adjudication order and whether delay should be condoned. - HELD THAT: - The Tribunal found that factual events - handing over of a photocopy on 14.05.2018, the application for certified copy dated 22.05.2018, issue of certified copy on 11.07.2018 and its service by post on 17.07.2018 - were undisputed. The Commissioner (Appeals) erred in treating the order as served on 14.05.2018 and in refusing to exclude the period spent in obtaining the certified copy. An assessee cannot file an appeal before the Commissioner (Appeals) without the certified copy; consequently the period from the request for certified copy until its receipt is to be excluded for limitation reckoning. Applying that principle, the Tribunal held the date of service for limitation purposes to be 17.07.2018 and that the appeal filed on 15.10.2018 fell within the condonable period. The delay was therefore condoned and the impugned order rejecting the appeal as time barred was set aside. [Paras 12]

Delay in filing the appeal was condoned; date of service for limitation purposes held to be 17.07.2018; impugned order rejecting appeal as time barred set aside.

Remand for fresh decision on merits - right to be heard before adjudicating authority - Whether the matter should be remanded to the original adjudicating authority for consideration on merits. - HELD THAT: - Having condoned the delay and set aside the order rejecting the appeal on limitation grounds, the Tribunal directed that the appeal be allowed by way of remand to the Original Adjudicating Authority for decision on merits. The appellant was directed to appear with a copy of the Tribunal's order and written submissions in reply to the show cause notice and to seek an opportunity of hearing, thereby ensuring adjudication on merits with an opportunity to be heard. [Paras 12]

File remanded to the Original Adjudicating Authority for decision on merits and for granting the appellant an opportunity of hearing.

Final Conclusion: Appellate rejection on ground of time bar was set aside: the certified copy served on 17.07.2018 is the operative date for limitation, delay was condoned and the matter remitted to the Original Adjudicating Authority for adjudication on merits with opportunity of hearing.

Time is of the essence - liquidated damages - waiver of liquidated damages - measure of damages - actual loss versus pre estimated damages - challenge under Section 34 on public policy and patent illegality - scope of judicial interference under Section 34 and Section 37 of the Arbitration and Conciliation Act

Time is of the essence - measure of damages - actual loss versus pre estimated damages - Whether the Arbitral Tribunal was correct in holding that time was not the essence of the contract and, consequent thereto, in awarding damages on the basis of actual loss instead of enforcing the contractual liquidated damages. - HELD THAT: - The Court held that the conclusion of the Arbitral Tribunal that time was not the essence of the contract was a reasonable and plausible interpretation of the contractual terms and surrounding circumstances. The existence of express clauses allowing extensions and the conduct of the parties (extensions granted by the purchaser) supported the view that the parties did not intend strict forfeiture upon delay. Given that finding, the Tribunal's application of the principle in the second paragraph of Section 55 of the Contract Act - awarding compensation for proven loss where time is not of the essence - was a permissible interpretation. The Court further explained that where the contract and the parties' conduct disclose an intention that dilutes the effect of a time essence clause, the remedy of actual damages can legitimately be adopted instead of immediate application of pre estimated liquidated damages. The Court rejected the contention that the presence of a liquidated damages clause necessarily precluded assessment of actual loss in the circumstances of this case. [Paras 27, 28, 31, 35]

Award of the Arbitral Tribunal that time was not the essence and that damages be assessed on actual loss rather than by enforcement of the liquidated damages clause is sustained.

Liquidated damages - waiver of liquidated damages - Whether ONGC's prior waivers of liquidated damages prevented re imposition of liquidated damages for subsequent extensions. - HELD THAT: - The Court upheld the Arbitral Tribunal's reasoning that ONGC had waived liquidated damages on earlier extensions, and that such waiver bore upon the contractual matrix and the parties' reasonable expectations. Absent clear contractual language permitting re imposition of liquidated damages after such waivers, the Tribunal's approach - that the purchaser could not unilaterally reimpose pre estimated damages for periods where it had previously waived them - was a plausible construction and not perverse. The Court emphasised that party autonomy and clarity of contractual terms are essential; reimposition of stipulated damages requires clear intention in the contract. [Paras 31, 33, 35]

The Arbitral Tribunal rightly concluded that prior waivers of liquidated damages precluded their re imposition in the facts of this contract.

Challenge under Section 34 on public policy and patent illegality - scope of judicial interference under Section 34 and Section 37 of the Arbitration and Conciliation Act - Whether the High Court and District Court correctly set aside or interfered with the arbitral award under the limited grounds available in Section 34 (as interpreted) and whether the award exhibited patent illegality or violated public policy. - HELD THAT: - The Court reviewed the jurisprudence on Section 34, including the limited ambit of 'public policy' as expanded to include 'patent illegality' in Saw Pipes and subsequent decisions. Applying the standards reiterated in Dyna Technologies and Western Geco, the Court held that interference with an arbitral award is permissible only where the award is perverse, patently illegal going to the root of the matter, or contrary to fundamental policy/justice/morality. Having found the Tribunal's interpretation to be a plausible view on contract and facts, the Supreme Court concluded that the High Court and District Court had strayed beyond the permissible scope of interference under Sections 34 and 37 by upsetting a tenable arbitral conclusion. The award did not demonstrate the kind of perversity or patent illegality that warrants setting aside. [Paras 23, 24, 25, 35]

High Court's and District Court's interference with the arbitral award is set aside; the award does not suffer from patent illegality or public policy infirmity warranting its reversal.

Liquidated damages - measure of damages - actual loss versus pre estimated damages - Whether the Arbitral Tribunal's exclusion of losses incurred during periods where liquidated damages were expressly waived was correct. - HELD THAT: - The Arbitral Tribunal excluded claimed losses for periods where ONGC had expressly waived liquidated damages and accepted extended delivery without levy of LD. The Supreme Court accepted this approach as consistent with the Tribunal's finding on waiver and with a reasonable reading of the contract: if the purchaser had waived LD for certain extensions, losses purportedly incurred in those periods could not be reclaimed by reclassifying them as actual loss. That exclusion followed from the Tribunal's consistent application of its primary findings regarding waiver and time not being the essence. [Paras 15, 33, 35]

Tribunal's exclusion of losses for periods where liquidated damages were waived is sustained.

Final Conclusion: The arbitral award was held to be a plausible construction of the contract and not tainted by patent illegality or public policy infirmity; the High Court's and District Court's interferences are set aside and the Arbitral Tribunal's award is upheld. Parties shall bear their own costs.

Release, sale and restoration of attached property - Attachment under Section 83 of the Cr.P.C. - Claims and objections under Section 84 of the Cr.P.C. - Limitation period of two years under Section 85(3) of the Cr.P.C. - Sufficient cause to entertain belated application under Section 85(3) - Court's discretion to decide application on merits despite delay

Limitation period of two years under Section 85(3) of the Cr.P.C. - Sufficient cause to entertain belated application under Section 85(3) - Release, sale and restoration of attached property - Right to seek release and restoration of property under Section 85 of the Cr.P.C. is not extinguished merely because the application is filed after two years from the date of attachment where sufficient cause is shown. - HELD THAT: - Section 85(3) prescribes that a person may, within two years from attachment, appear and prove entitlement to delivery of attached property. The Court held that the two year period in subsection (3) cannot be read literally so as to bar belated applications in all circumstances; the statutory scheme (including Sections 83-85) and the object of attachment - to compel appearance rather than to punish - permit the Court to entertain an application filed after two years if the applicant satisfactorily proves that he was prevented by sufficient cause from approaching the Court within the prescribed period. The High Court applied this principle to the facts: the petitioners were prevented from moving under Section 85 earlier because the same property was the subject of prior attachment and pending civil proceedings (and consent decree in October 2019), a circumstance amounting to sufficient cause which the Magistrate failed to consider. Consequently the Magistrate's rejection on the ground of delay without examining sufficient cause was held to be unsustainable and the matter was remitted for fresh decision on merits. [Paras 15, 16, 17, 18]

Impugned order rejecting the Section 85 applications for being time barred is quashed; the Metropolitan Magistrate is directed to decide the petitioners' Section 85 applications on merits, considering whether sufficient cause prevented filing within two years, within twelve weeks.

Final Conclusion: The impugned order dated 21st November, 2019 is quashed and set aside. The petitions are allowed; the learned Metropolitan Magistrate is directed to decide the petitioners' applications under Section 85 of the Cr.P.C. on merits (including consideration of sufficient cause for delay) within twelve weeks.

Conviction under Section 8/18 of the NDPS Act - Reduction of substantive sentence in appellate jurisdiction - Imprisonment in default of payment of fine is a penalty and not a sentence - Consideration of first-time offender and antecedents in sentencing - Maintaining fine while moderating default imprisonment

Conviction under Section 8/18 of the NDPS Act - The conviction of the appellants for the offence under Section 8/18 NDPS Act was confirmed. - HELD THAT: - The High Court, noting the limited scope of the appeal and the submissions made, did not re-open the merits of the trial. Having regarded the evidence and the trial court's findings as recorded, the Court upheld the conviction entered by the Special Judge, NDPS Act Cases, Jodhpur.

Conviction under Section 8/18 NDPS Act confirmed.

Reduction of substantive sentence in appellate jurisdiction - Consideration of first-time offender and antecedents in sentencing - The substantive sentence of 15 years' rigorous imprisonment imposed by the trial court was reduced to 10 years' rigorous imprisonment. - HELD THAT: - Applying the principle in Shahfjad Khan Mahebub Khan Pathan (and the reasoning in Balwinder Singh) that where appellants are first-time offenders and given the circumstances of the case the appellate court may moderate excessive sentences, the High Court observed the appellants to be first-time offenders who have already undergone substantial custodial period. In exercise of appellate powers and for just sentencing, the Court reduced the substantive sentence to the statutory minimum of 10 years for the offence in question.

Substantive sentence reduced from 15 years RI to 10 years RI.

Imprisonment in default of payment of fine is a penalty and not a sentence - Maintaining fine while moderating default imprisonment - The fine imposed was maintained but the default imprisonment in lieu of fine was reduced from two years' RI to one year RI. - HELD THAT: - Relying on established principle that imprisonment in default of payment of fine is a penal consequence distinct from the substantive sentence and must be imposed having regard to the nature of the offence and the accused's pecuniary circumstances, the Court held that the trial court's default sentence was excessive in the facts of the case. Therefore, while upholding the direction to pay the fine, the Court moderated the default imprisonment to one year RI as proportionate and just in view of the appellants' position and the overall sentencing adjustment.

Fine of Rs. 1,50,000/- maintained; default sentence reduced from two years RI to one year RI.

Reduction of substantive sentence in appellate jurisdiction - Having regard to the period already undergone, the appellants were directed to be released forthwith if not required in any other case. - HELD THAT: - The Court recorded that the appellants had already undergone 11 years and 4 months of rigorous imprisonment. In consequence of the reduction of the substantive sentence to 10 years and the moderated default sentence, the Court ordered that the appellants be released immediately if they are not detained in connection with any other matter.

Appellants to be released forthwith if not required in any other case.

Final Conclusion: Appeal partly allowed: conviction under Section 8/18 NDPS Act confirmed; substantive sentence reduced from 15 years RI to 10 years RI; fine of Rs. 1,50,000/- maintained but default imprisonment reduced from two years RI to one year RI; appellants to be released forthwith if not wanted in any other case; trial court record to be returned.

Anticipatory bail - absconding accused and non-cooperation with investigation - charge-sheet filed - non-bailable warrant - proclamation under Section 82 Cr.P.C. - quashing of charge-sheet under inherent powers of the High Court (Section 482 Cr.P.C.)

Anticipatory bail - charge-sheet filed - absconding accused and non-cooperation with investigation - non-bailable warrant - proclamation under Section 82 Cr.P.C. - Whether anticipatory bail can be granted to the petitioner in view of filing of charge-sheet and the petitioner being absconding and not cooperating with the investigation - HELD THAT: - The Court observed that the petitioner is charged for serious offences and that the charge-sheet was filed on 20.11.2018. Despite an earlier direction, the petitioner did not surrender and apply for regular bail, following which non-bailable warrant and proceedings under Section 82 Cr.P.C. were initiated. The learned trial Court had also noted that even the first FIR had an unnamed person. Having regard to the fact that the petitioner is continuously absconding, not available at home and not cooperating with the investigating agency, the Court found a prima facie case against the petitioner and held that this is not a fit case for grant of anticipatory bail. The Court emphasised that it will not come to the rescue of an accused who is absconding and obstructing the investigation. [Paras 3]

Anticipatory bail refused; the petition dismissed.

Quashing of charge-sheet under inherent powers of the High Court (Section 482 Cr.P.C.) - anticipatory bail - Validity of the High Court's direction in its quashing order that the petitioner may appear and surrender within 30 days and that no coercive steps be taken for that period - HELD THAT: - The Court noted that the High Court, while dismissing the petition under Section 482 Cr.P.C., directed that if the petitioner surrendered and applied for bail within 30 days, his bail prayer would be considered and for 30 days no coercive steps would be taken - a direction characterised by the Court as not permissible. The petitioner availed of that order but failed to surrender; subsequently the authorities issued non-bailable warrant and initiated Section 82 Cr.P.C. proceedings. The Supreme Court recorded that the High Court's directional stay in such quashing proceedings was not proper and, in any event, the petitioner did not act on it. [Paras 3]

The High Court's direction of a 30-day provisional protection in its quashing order was noted as not permissible; the petitioner's failure to surrender negated any benefit from that direction.

Final Conclusion: The Special Leave Petition is dismissed; the High Court's order refusing anticipatory bail is upheld on the grounds that the charge-sheet has been filed and the petitioner is absconding and not cooperating with investigation, and the provisional protection earlier indicated by the High Court was not permissible and in any event was not acted upon by the petitioner.