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Issues: Whether the ex parte assessment order, as modified by rectification, required interference so that the petitioner could file a fresh reply and seek appropriate relief, including consideration of the remedy under Section 128A.
Analysis: The assessment was passed without a response from the petitioner to the show cause notice. The petitioner stated that the tax liability had been discharged and sought liberty to place a reply to the notice so that the matter could be decided on merits. The Court accepted that a further opportunity should be given and directed the petitioner to file a reply within 30 days, after which the respondent was to pass an appropriate order in accordance with law. Liberty was also reserved to work out the remedy under Section 128A if available.
Conclusion: The petitioner was granted an opportunity to contest the assessment afresh, and the matter was sent back for consideration on merits; the request for interference was therefore accepted to that extent.
Challenge to ex parte assessment order passed u/s 74 of the GST enactment, later suo motu rectified to treat it as passed under Section 73 - entire tax liability was discharged - HELD THAT:- Since the impugned assessment order, as modified by the rectification order, was passed ex parte, the petitioner can be allowed to submit a proper reply, enabling the respondent to pass a fresh order on merits.
Liberty is also granted to the petitioner to work out the appropriate remedy in case the benefit under Section 128A is available. The petitioner shall file a reply to the show cause notice in DRC-01 dated 19.09.2023 within a period of 30 days from the date of receipt of a copy of this order. Upon such compliance, the respondent shall pas an appropriate order on merits in accordance with law.
Petition disposed off.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether the dismissal of the appeal by the Appellate Authority as barred by limitation, without condoning the delay, was sustainable in view of the reasons furnished for delay and the procedure followed in granting personal hearing.
1.2 Whether the issuance of notices of personal hearing with only one day's notice amounted to violation of the principles of natural justice warranting intervention under Article 226.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Sustainability of dismissal of appeal as time-barred and power to condone delay
Interpretation and reasoning
2.1 The Court noted that an application for condonation of delay was filed before the Appellate Authority, specifically stating that the delay occurred because the advocate, to whom documents had been handed over, fell sick and could not prepare the appeal in time, and offering to produce medical documents at the time of personal hearing.
2.2 The Court recorded that, in terms of a prior decision, the Appellate Authority does not possess the power to condone delay beyond the statutory period, thereby explaining why the Appellate Authority declined to entertain the time-barred appeal.
2.3 However, exercising jurisdiction under Article 226, the Court examined the overall circumstances, including the reasons cited for delay and the manner in which the personal hearing was scheduled, and considered whether equity and fairness required intervention despite the absence of statutory power with the Appellate Authority to condone delay.
Conclusions
2.4 The Court held that, notwithstanding the lack of power with the Appellate Authority to condone delay, the Court itself, in exercise of writ jurisdiction, was justified in condoning the delay in filing the appeal, in view of the reasons placed on record and the attendant circumstances.
2.5 The delay in filing the appeal was condoned subject to the condition that costs of Rs. 20,000/- be deposited with the specified association within two weeks.
2.6 The impugned order dismissing the appeal on the ground of delay was set aside and the appeal was directed to be heard on merits.
Issue 2: Adequacy of notice for personal hearing and compliance with principles of natural justice
Interpretation and reasoning
3.1 The Court noted that a notice of personal hearing was issued on 20th August 2025 fixing the hearing on 21st August 2025, thereby affording only one day's notice to the petitioner.
3.2 It was further noted that another notice of personal hearing was issued on 2nd September 2025 fixing the hearing for 3rd September 2025, again with only one day's notice.
3.3 The Court treated the grant of only one day's notice for appearance in personal hearing as an "infraction of principles of natural justice", affecting the petitioner's effective opportunity to be heard.
Conclusions
3.4 The Court held that the issuance of personal hearing notices with merely one day's notice violated the principles of natural justice.
3.5 On this ground, coupled with the reasons given for delay, the Court found sufficient justification to intervene, condone the delay, and set aside the dismissal of the appeal.
3.6 The Court directed that the appeal shall proceed in accordance with law and that a proper hearing with at least one week's notice must be afforded to the petitioner.
Dismissal of appeal on the ground of being barred by delay - reasons given for praying condonation of delay is that the documents were submitted by the Petitioner to the Counsel who, thereafter, fell ill and could not file the appeal - short payments and difference in Input Tax Credit (ITC) claimed in GSTR-3B and GSTR-2A as also difference in tax liability reported in GSTR-1 and GSTR-3B along with interest - HELD THAT:- In terms of the decision in M/s Addichem Speciality LLP Vs. Special Commissioner I, Department of Trade and Taxes and Anr. [2025 (2) TMI 366 - DELHI HIGH COURT], the Appellate Authority does not have the power to condone the delay, however, this Court is of the opinion that since there was an infraction of principles of natural justice due to one day’s notice which was given and considering the reasons for condonation, the Court is inclined to condone the delay subject to costs of Rs. 20,000/- being deposited with the Delhi High Court Bar Clerk Association within a period of two weeks - Subject to the said deposit, the appeal of the Petitioner shall be heard on merits.
The impugned order dismissing the appeal on the ground of delay stands set aside - petition disposed off.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether rejection of the appeal by the Appellate Authority on the ground of limitation was justified when the adjudication order was uploaded on the GST portal under the "View Additional Notices and Orders" tab and the petitioners claimed lack of knowledge of such order.
1.2 Whether, in the circumstances of portal-related notice difficulties and non-functionality of the Appellate Tribunal, the delay in filing the appeal should be condoned and the matter remanded to the Appellate Authority for decision on merits, and if so, on what terms.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Justification of rejection of appeal as time-barred in light of uploading of order under "View Additional Notices and Orders" tab
Interpretation and reasoning
2.1 The Court noted that at the relevant time, the GST portal had multiple tabs, including "View Notices and Orders" and "View Additional Notices and Orders". It held that a registered tax payer cannot reasonably be expected to access the "View Additional Notices and Orders" tab specifically for checking main orders or orders disposing of main proceedings.
2.2 The Court took note of prior decisions of Co-ordinate Benches which had encountered similar difficulties arising from orders and notices being uploaded under "Additional Notices and Orders", including the decision where, despite the assessee's participation in pre-show cause proceedings, delay in preferring appeal occurred because the adjudication order was unnoticed in that tab.
2.3 Referring to such precedent, the Court recognized that while an assessee's explanation of lack of knowledge due to the uploading pattern on the portal might not be entirely satisfactory, the portal's structure had objectively created a recurring practical difficulty for taxpayers in becoming aware of adjudication orders within the statutory limitation period.
Conclusion
2.4 The Court implicitly held that, in the given portal configuration and in the light of similar situations previously recognized by Co-ordinate Benches, the strict rejection of the appeal on limitation grounds by the Appellate Authority ought not to stand, and the petitioners should receive similar treatment as in the earlier decision where delay was condoned and appeal directed to be heard on merits.
Issue 2: Condonation of delay and remand to Appellate Authority in view of portal difficulties and non-functioning Tribunal
Legal framework (as discussed)
2.5 The Court referred to Section 107 of the WBGST Act, 2017/CGST Act, 2017, which provides for an appeal to the Appellate Authority against an adjudication order. It also noted that the Tribunal, which is the forum for further appeal against orders under Section 107, had not yet become functional, thereby foreclosing the ordinary statutory multi-tier remedy.
Interpretation and reasoning
2.6 The Court adopted the reasoning of a Co-ordinate Bench that, where the statutory multi-tier adjudicatory process exists but the Tribunal is not constituted, a litigant who is otherwise deprived of an effective statutory appeal remedy should not be unduly prejudiced by procedural lapses, particularly when the record is available on the common portal and the delay is linked to the portal's notice architecture.
2.7 The Court followed the approach in the earlier decision where, notwithstanding reservations about the sufficiency of the explanation for delay, the matter was remanded to the Appellate Authority for a decision on merits, with delay condoned subject to payment of costs to the Calcutta High Court Legal Services Committee and consequential demand being quashed.
2.8 Applying that rationale to the present facts, which the Court found to be similar in nature, it held that the petitioners should be "similarly treated" and afforded an opportunity to have their appeal decided on merits, with appropriate conditions imposed to balance equities and discourage negligence.
Conclusions
2.9 The Court remanded the matter to the Appellate Authority to take a fresh decision on merits, directing that the delay in filing the appeal be condoned subject to the petitioners paying a sum of Rs. 15,000/- to the Calcutta High Court Legal Services Committee within two weeks.
2.10 The Court directed that, upon proof of such payment being produced before the Appellate Authority within the stipulated time, the Appellate Authority shall proceed to hear the appeal on merits, and the order rejecting the appeal on limitation shall "have no effect".
Dismissal of petitioner's appeal on the ground that the same was filed belatedly - HELD THAT:- This Court has been informed that the GST portal at the relevant point of time contained several tabs, two of which were “View Notices and Orders” tab and “View Additional Notices and Orders” tab. In such a situation it would not be expected of a registered tax (person) payer to open and look into “View Additional Notices and Orders” tab for the purpose of checking main orders or orders passed disposing of main proceedings.
Such difficulty has been noticed by the Co-ordinate Benches of this Court in the case of Sukumar Kundu [2024 (7) TMI 533 - CALCUTTA HIGH COURT] and Mohammad Hasim Khan [2025 (7) TMI 1863 - CALCUTTA HIGH COURT]. In fact in Mohammad Hasim Khan (supra) the petitioner before the Court had responded to the show-cause notice and had failed the timeline prescribed by the statute for carrying a matter in appeal before the Appellate Authority as it had not noticed the adjudication order uploaded on the GST portal under the “View Additional Notices and Orders” tab. In such fact, this Court had condoned the delay occasioned by the petitioner in preferring the appeal before the Appellate Authority.
Taking cue from the aforesaid observations made by a Co-ordinate Bench of this Court in a fact situation similar to that in the case at hand, this Court is of the view, that the petitioners before this Court should also be similarly treated.
The matter is therefore remanded to the Appellate Authority for taking a fresh decision on merits by condoning the delay subject to the petitioners making payment of a sum of Rs. 15,000/- with the Calcutta High Court Legal Services Committee within two weeks from date. If the petitioners make such payment of the said sum within two weeks as aforesaid and produce receipt thereof before the Appellate Authority, the Appellate Authority shall proceed to hear the appeal on merits and the order dated July 24, 2025 impugned herein shall have no effect - Petition disposed off.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether refund of unutilised input tax credit of GST Compensation Cess paid on coal is admissible when the final products are zero-rated exports on payment of IGST but are not liable to Compensation Cess.
1.2 Whether, by virtue of sections 9 and 11 of the Goods and Services Tax (Compensation to States) Act, 2017, the provisions of the GST Act and IGST Act relating to input tax credit and refund apply mutatis mutandis to Compensation Cess.
1.3 Whether the departmental reliance on Circular No. 45/19/2018-GST and Circular No. 125/44/2019-GST to deny refund of unutilised Compensation Cess was legally sustainable.
1.4 Whether, in light of prior binding decisions, the issue stood concluded (no longer res integra) requiring the Court to follow the earlier view and grant relief.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1 & 2: Refund of unutilised Compensation Cess ITC on coal used in manufacture of zero-rated exports, and mutatis mutandis application of GST/IGST provisions to Cess
Legal framework (as discussed in the judgment)
2.1 The Court referred to and relied upon the reasoning in the earlier decisions where the following provisions were analysed:
2.1.1 Section 54(3) of the CGST Act, permitting a registered person to claim refund of any unutilised input tax credit at the end of any tax period in specified situations, including zero-rated supplies made without payment of tax.
2.1.2 Section 16 of the IGST Act defining and governing "zero rated supply", allowing availment of input tax credit for making zero-rated supplies, and providing for refund of unutilised input tax credit under section 54 of the CGST Act.
2.1.3 Section 11(2) of the GST (Compensation to States) Act, 2017 applying, mutatis mutandis, the provisions of the IGST Act (including those relating to input tax credit, assessment, non-levy, short-levy, interest, appeals, offences and penalties) to the levy and collection of Compensation Cess, subject to the proviso that input tax credit of Cess shall be utilised only towards payment of Cess on outward supplies.
2.1.4 The Court also adopted the earlier analysis that coal is leviable to Compensation Cess, whereas the finished goods exported by the assessee are not liable to such Cess, and that exports constitute zero-rated supplies on which IGST was paid (and refunded) but no Compensation Cess was payable at the time of export.
Interpretation and reasoning
2.2 Following its earlier decisions, the Court accepted the position that:
2.2.1 The assessee purchased coal on payment of Compensation Cess, used such coal in the manufacture of goods which were exported as zero-rated supplies; therefore, the assessee was entitled to input tax credit of the Cess paid on coal.
2.2.2 Though IGST was paid at the time of export and was refunded, no Compensation Cess was chargeable or paid on the exported finished goods, as they were exempt from levy of Compensation Cess.
2.2.3 By virtue of section 11(2) of the Cess Act read with section 16 of the IGST Act and section 54(3) of the CGST Act, refund of unutilised input tax credit of Cess on inputs used for zero-rated supplies is permissible, notwithstanding that the final products are not liable to Compensation Cess.
2.2.4 The proviso to section 11(2) of the Cess Act only restricts utilisation of Cess credit for payment of Cess on outward supplies; where no Cess is leviable on exports, such Cess credit cannot be utilised, and thus remains unutilised, thereby attracting the refund mechanism under section 54(3) of the CGST Act read with section 16 of the IGST Act and section 11(2) of the Cess Act.
2.2.5 The fact that the exports were made on payment of IGST does not, in the circumstances where no Cess is leviable on the output, bar refund of unutilised input tax credit of Cess paid on coal used in the manufacture of such exported goods.
Conclusions
2.3 The Court concluded that the petitioner is entitled to refund of unutilised input tax credit of Compensation Cess paid on coal used in manufacture of goods exported as zero-rated supplies, even though IGST was paid on export and no Compensation Cess was payable on the exported goods.
2.4 The Court directed that refund of the Cess amount claimed on unutilised tax credit be processed and sanctioned for all relevant periods covered by the petitions.
Issue 3: Validity of reliance on Circular No. 45/19/2018-GST and Circular No. 125/44/2019-GST to deny refund of Cess
Legal framework (as discussed in the judgment)
3.1 The Court, through incorporation of the reasoning in the earlier decision, considered:
3.1.1 Para 5 of Circular No. 45/19/2018-GST, which clarifies eligibility of refund of unutilised input tax credit of Compensation Cess paid on inputs (e.g. coal) where the final zero-rated product (e.g. aluminium) is not leviable to Compensation Cess, and states that:
- refund of unutilised credit including Compensation Cess is available when zero-rated supply is made under bond/LUT without payment of IGST;
- when zero-rated supply is made on payment of IGST, credit of Compensation Cess cannot be utilised for payment of IGST due to the proviso to section 11(2) of the Cess Act.
3.1.2 Para 42 of Circular No. 125/44/2019-GST, reiterating that input tax credit of Compensation Cess may be availed for making zero-rated supplies and refund of unutilised ITC, including Compensation Cess, is available where zero-rated final product is not leviable to Compensation Cess, with a similar statement on non-utilisation of Cess credit for payment of IGST.
Interpretation and reasoning
3.2 The Court, adopting its prior interpretation, held that:
3.2.1 The departmental authorities misinterpreted the above circulars by reading them to completely bar refund of unutilised Compensation Cess where zero-rated supplies were made on payment of IGST.
3.2.2 The circulars only clarify that Cess credit cannot be utilised for payment of IGST in view of the proviso to section 11(2) of the Cess Act; they do not negate the statutory entitlement to refund of unutilised input tax credit of Cess under section 54(3) of the CGST Act, section 16 of the IGST Act and section 11(2) of the Cess Act.
3.2.3 When exports are zero-rated supplies on which no Compensation Cess is leviable and hence no Cess is paid on the outward supply, the Cess credit on inputs remains unutilised. In such a situation, the statutory provisions, as applied mutatis mutandis, allow refund of such unutilised Cess credit, and the circulars cannot be interpreted to deny a refund that is otherwise permissible under the Acts.
Conclusions
3.3 The Court held that rejection of the petitioner's refund claims on the basis of Circular No. 45/19/2018-GST and Circular No. 125/44/2019-GST was unsustainable, as those circulars had been misinterpreted by the authorities.
3.4 The impugned refund rejection orders and appellate orders founded on such misinterpretation of the circulars were quashed and set aside.
Issue 4: Effect of prior binding decisions and status of the issue as res integra
Interpretation and reasoning
4.1 The Court noted that:
4.1.1 Learned counsel for the petitioner relied on the earlier decisions holding that refund of unutilised Compensation Cess paid on coal used in manufacture of exported goods is admissible in similar factual situations.
4.1.2 Counsel for the respondents expressly conceded that, in view of those earlier decisions, the issue was no longer res integra and appropriate orders may be passed.
4.1.3 The Court referred to and followed its prior reasoning and directions, including the specific holding that the respondents had rejected refund claims "in a wrong manner by misinterpreting" the circulars, and that petitioners in such cases "can claim" refund of Compensation Cess on coal used for manufacturing goods exported as zero-rated supplies.
4.1.4 The Court also recorded that the factual matrix in the present petitions was "absolutely identical" and the law "squarely applicable" to the present case.
Conclusions
4.2 The Court treated the controversy as concluded by its earlier judgments and applied the same legal position to the present petitions.
4.3 All petitions were allowed; the respondents were directed to process the refund applications and sanction the refund of the Compensation Cess amount claimed on unutilised input tax credit, and all impugned orders were quashed and set aside, with no order as to costs.
Refund of unutilised input tax credit of GST Compensation Cess paid on coal - zero-rated supplies made with payment of Integrated Goods and Service Tax - according to petitioner the Cess is not leviable on the finished goods - HELD THAT:- The issue on hand is no more res integra pursuant to the decision of this Court in case of Atul Ltd.(supra), wherein following the decision in case of Patson Papers [2025 (5) TMI 1343 - GUJARAT HIGH COURT], the writ petitions were disposed of with a direction to the respondent to process refund application of the petition to sanction the refund of the CESS amount claimed on unutilised tax credit observing 'when the petitioner has paid the IGST under Section 16(3) of the IGST Act on the zero rated supply and refund is claimed by the payment of such IGST, the petitioner admittedly would not be able to utilize input tax credit of cess as cess is not payable on the zero rated supply. Therefore, proviso to Section 11(2) of the Act would not be applicable in the facts of the case and the petitioner would be entitled to refund of the unutilized input tax credit on cess paid on purchase of coal utilized for the purpose of manufacture of goods which are exported.'
The respondent is directed to process refund application of the petitioner to sanction the refund of the CESS amount claimed on unutilized tax credit. The impugned orders in all the writ petitions passed by the respondents are quashed and set aside.
Petition allowed.
ISSUES PRESENTED AND CONSIDERED
1. Whether the activity of furnishing fitted assets and related infrastructure (HVAC, DG sets, sprinkler systems, electrical installations, etc.) on hire to tenants constitutes leasing/renting of goods or provision of "support services" under SAC 998599.
2. Whether the assets supplied on hire retain the character of movable "goods" or, after installation as integrated systems, become part of immovable property (thereby ceasing to be "goods" for GST classification).
3. Whether the supply of multiple installed assets for a single price constitutes a composite supply or a mixed supply, and the consequent method for determining applicable GST rate.
4. The applicable GST rate and notification entry for the supply: whether entry for "transfer of right to use goods" (serial 17(iii)), the residual leasing entry (serial 17(viii)), or "other support services" (SAC 998599) governs taxation.
ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Nature of supply: leasing/renting versus support services
Legal framework: Supply definitions (Section 7), leasing/renting concepts (commercial understanding; legal possession remains with lessor), headings in Notification No.11/2017 (Heading 9973 - leasing/rental services) and SAC 998599 (support services).
Precedent treatment: Prior Advance Ruling (Sun Knowledge) treated the supply as leasing/rental under serial 17(viii) @18% (i.e., residual leasing entry). Applicant urged classification as "support services" (SAC 998599) relying on erstwhile service-tax definitions and an analogy to a GST circular on data hosting services.
Interpretation and reasoning: The agreements show the applicant (lessor) retains legal possession of assets, installs and maintains integrated infrastructure for common areas and sub-leased spaces, charges a single hire consideration per sq. ft., procures insurance and manages maintenance. The Tribunal observes that these arrangements embody classic leasing/renting features: legal ownership with provision of right to use, recurrent hire charges, and centralized provision/operation of systems for tenant benefit.
Ratio vs. Obiter: Ratio - the services qualify as leasing/renting under Heading 9973. Obiter - analogy to data hosting circular and reliance on erstwhile service-tax "support services" definition is considered but not determinative.
Conclusion: The supply qualifies as leasing or renting services (leasing/rental services without operator) under Heading 9973 rather than as SAC 998599 "support services."
Issue 2 - Whether installed assets are "goods" or form part of immovable property
Legal framework: Definitions of immovable property (General Clauses Act, Transfer of Property Act), tests applied by courts (nature/degree of annexation, object of annexation, intendment of parties, functionality, permanency, marketability) as applied in higher court jurisprudence.
Precedent treatment: The Authority relies on Supreme Court guidance (applied principles from cases such as Solid & Correct Engineering Works and Bharti Airtel) and other AAR/AAAR decisions (cited for similar factual matrices) to determine when installed equipment loses character as "goods."
Interpretation and reasoning: The installed systems (HVAC plant rooms, chillers, centralized cooling towers, DG rooms, sprinkler and water systems, power back-up, sub-mains/distribution systems) involve extensive design, civil works, fixed installation in specified rooms/locations, integration of many components into functioning systems, insurance and managed maintenance, and charging on built-up area basis. Applying the annexation, object, intendment, functionality, permanency and marketability tests, the Authority finds that these systems are permanently affixed for the beneficial enjoyment of the building and cannot be removed or marketed as independent goods without substantial dismantling or damage.
Ratio vs. Obiter: Ratio - the installed integrated systems become part of the immovable building and therefore cease to be "goods" for purposes of the GST classification issue at hand. Obiter - observations on individual components that might be detachable in some circumstances.
Conclusion: The relevant fitted assets, taken in their integrated installed form as provided under the agreements, have lost their character as movable goods and are to be treated as part of the immovable structure for classification purposes.
Issue 3 - Composite supply versus mixed supply and impact on rate determination
Legal framework: Definitions of composite supply (Section 2(30)) and mixed supply (Section 2(74)); liability rule for mixed supplies (Section 8(b) - tax applicable is that of the supply attracting highest rate).
Precedent treatment: Authorities consider whether supplies are naturally bundled with a principal supply (composite) or are independent supplies provided for a single price (mixed). Applicant argued composite; Authority examined contractual structure and nature of services.
Interpretation and reasoning: The contracts and factual matrix do not disclose a principal supply naturally bundling the others. Multiple services/assets are supplied in conjunction for a single price calculated per sq. ft., but no single element can be identified as principal. Therefore the transaction is a mixed supply (two or more independent supplies provided together for a single price).
Ratio vs. Obiter: Ratio - the supply is a mixed supply. Obiter - discussion on nature of individual supplies within the mix.
Conclusion: The supply constitutes a mixed supply; liability is to be determined by the rate applicable to the component attracting the highest rate within the relevant residual classification.
Issue 4 - Applicable notification entry and GST rate
Legal framework: Notification No.11/2017 entries under Heading 9973 (serial 17(iii), 17(viii) etc.), rule under Section 8(b) for mixed supplies; matching of rates for "transfer of right to use goods" with rate applicable to like goods involving transfer of title.
Precedent treatment: Revenue contended assets remained "goods" and thereby SI.17(iii) (or other goods-based entries) should apply replicating supply-of-goods rates (which could produce higher rates, e.g., 28% for central AC). Prior WBAAR and applicant submissions offered alternative classifications (serial 17(iii) @ same rate as like goods; serial 17(viii) residual leasing entry; SAC 998599 support service @18%).
Interpretation and reasoning: Having held that the installed systems cease to be goods and that the transaction is leasing/renting of benefits of integrated immovable-installed systems, the Authority classifies the supply under Heading 9973 (leasing/rental services, without operator). As the supplies are mixed in nature and fall within the residual leasing/renting category (serial 17(viii) of the Notification), the applicable rate under that entry is 9% CGST + 9% SGST (i.e., aggregate 18%). The Authority therefore does not apply the approach of treating the supply as transfer/right-to-use of distinct goods attracting rates of the like goods (serial 17(iii)), because the assets in installed integrated form are not "goods" for the purpose of the classification.
Ratio vs. Obiter: Ratio - classification under Heading 9973 and charging under serial 17(viii) at 9% CGST + 9% SGST is the operative holding. Obiter - discussion rejecting applicant's "support services" characterization and the applicant's earlier argument that mixed-supply highest-rate rule should produce 28% (since that would rely on treating the installed items as goods).
Conclusion: The supply of fitted assets and related infrastructure services, in the factual matrix and contractual terms, is taxable as leasing/rental services under Heading 9973 and falls within serial no. 17(viii) of Notification No.11/2017; the applicable GST rate is 9% CGST + 9% SGST (aggregate 18%).
Proper classification of the services being provided by the applicant by way of supplying fitted assets on hire basis - applicable rate of GST - service will be covered by serial no 17(iii) of the Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 under SAC 997314 or under SAC 998599 under the category Support Service.
Whether the services provided by the applicant qualify as leasing or renting? - HELD THAT:- According to the different clauses of the agreement referred to in Paragraph 4.6, the applicant is the legal owner of the assets described in the agreement. As a lessor he leases out the assets in fitted condition to the lessee for certain period against a consideration agreed upon by the two. On the other hand, through the agreement signed between the applicant and the tenant the former allows granting access to the different kinds of utilities of the scheduled assets without transfer of possessions of the same - the applicant’s activity can be regarded as leasing or renting.
Nature of the supply - composite supply or a mixed supply? - HELD THAT:- The applicant provides various kinds of services. It is fact that the charge for the services is calculated at an agreed rate on per sq. ft. basis. That is, the charged rate is a single one covering all the services provided from the machines and systems specified in the schedules. But two or more taxable supplies which are naturally bundled cannot be identified. There is no principal supply to be identified here. Rather, the services provided by the applicant can best be described as supply of two or more services made in conjunction with each other. As already mentioned, the consideration for the supply is a single one - Thus the supply should be regarded as a mixed supply.
Supply of leasing or renting of goods or not - HELD THAT:- The assets described in the respective schedules of the agreement have lost their characteristics of movable properties and as such they cease to be goods once they are attached with the different parts of the building according to the requirements of the machines, equipments and the integrated system - the applicant is not involved in supply of leasing or renting of goods.
The supply of services as provided by the applicant will be regarded as leasing or rental services and being a mixed supply it will attract the highest rate of tax under serial no. 17(viii) as above and to be taxed @ 18% GST.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether services supplied to the Kerala Development and Innovation Strategic Council under various training and skill development programmes are exempt from GST under Entry 72 of Notification No. 12/2017-Central Tax (Rate).
1.2 Whether such services can alternatively be exempt under Entries 3, 3A or 3B of Notification No. 12/2017-Central Tax (Rate), having regard to the legal status and character of the recipient and the nature of services.
1.3 Whether input tax credit is admissible on GST charged by subcontractors on goods and services used for providing the above services.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1 & 2 - Eligibility of GST exemption on services supplied to Kerala Development and Innovation Strategic Council
Legal framework
2.1 The Court examined Entry 72 of Notification No. 12/2017-Central Tax (Rate), as amended, which exempts "services provided to the Central Government, State Government, Union territory administration under any training programme for which 75% or more of the total expenditure is borne by the Central Government, State Government, Union territory administration".
2.2 The Court also considered Entries 3, 3A and 3B of the same notification, along with the amendments brought by Notification No. 16/2021-Central Tax (Rate) and Notification No. 13/2023-Central Tax (Rate), and the definitions in Sections 2(53) and 2(69) of the CGST Act, 2017 and Sections 3(8) and 3(60) of the General Clauses Act, 1897.
Interpretation and reasoning - Entry 72 (services to Government)
2.3 The conditions for exemption under Entry 72 were identified as: (i) services must be provided to the "Government"; and (ii) 75% or more of the total expenditure of the training programme must be borne by the Government.
2.4 It was accepted that K-DISC is fully funded from the State budget through the Consolidated Fund of the State, satisfying the second condition relating to expenditure.
2.5 The Court examined whether K-DISC could be treated as "Government" or a "Government Department" for purposes of Entry 72. Section 2(53) of the CGST Act defines "Government" as the Central Government and the State Government. Read with Sections 3(8) and 3(60) of the General Clauses Act, this was held to refer exclusively to the sovereign executive authority represented by the President (Union) or the Governor (State).
2.6 On the documents produced, including the Government Order authorising registration and the letter of the Member Secretary, it was found that K-DISC stands registered as a society under the Travancore-Cochin Literary, Scientific and Charitable Societies Act, 1955. The Court held that such a society, though fully funded and controlled by the State and integrated with departmental functioning, is a separate legal entity distinct from the State Government.
2.7 It was further held that even if K-DISC could be treated as a Governmental Authority or Government Entity, this would not make it "Government" or a "Government Department" within the meaning of Section 2(53) of the CGST Act and Entry 72. A society, even when wholly controlled and financed by Government, cannot be regarded as "Government" for purposes of the exemption.
2.8 On this basis, the Court concluded that services provided by the applicant to K-DISC cannot be regarded as services provided "to the Central Government or State Government", and hence are not eligible for exemption under Entry 72.
Interpretation and reasoning - Entries 3 and 3A (pure/composite services to Government and local authority)
2.9 The Court traced the legislative evolution of Entries 3 and 3A of Notification No. 12/2017-Central Tax (Rate). Initially, these entries extended exemption for specified services not only to the Central Government, State Government, Union territory and local authority, but also to a Governmental Authority and a Government Entity, where the services related to functions listed under Articles 243G/243W of the Constitution.
2.10 By Notification No. 16/2021-Central Tax (Rate), effective 1 January 2022, the words "or a Governmental Authority or a Government Entity" were omitted from Entries 3 and 3A. The Court held that, post-amendment, exemption under these entries is confined strictly to services provided to the Central Government, State Government, Union territory or local authority.
2.11 Section 2(69) of the CGST Act defining "local authority" was examined. The Court held that this term covers only constitutionally or statutorily created self-governing bodies (such as Panchayats and Municipalities) with elected representatives, territorial jurisdiction, and statutory responsibility for a local or municipal fund.
2.12 The Court found that K-DISC, as a society under the Travancore-Cochin Literary, Scientific and Charitable Societies Act, 1955, has no elected body, no territorial jurisdiction, and no local or municipal fund, but functions as a State-level coordinating and advisory body. It therefore does not qualify as a "local authority".
2.13 On these findings, the Court held:
(a) K-DISC is, at best, a Governmental Authority or Government Entity, not "Government" or a "local authority".
(b) For periods on or after 1 January 2022, Governmental Authorities and Government Entities are not covered by Entries 3 and 3A due to the express legislative deletion. Applying the principle expressio unius est exclusio alterius, such entities cannot be read back into those entries by interpretation.
(c) Accordingly, for the relevant period, services supplied to K-DISC cannot claim exemption under Entries 3 or 3A.
2.14 The Court noted that for periods prior to 1 January 2022, services of the kind rendered could arguably have fallen under Entries 3 or 3A if all conditions were met; however, in light of the current statutory framework and the questions posed, the operative position is that no exemption is now available under these entries for services to K-DISC.
Interpretation and reasoning - Entry 3B (specified civic services to Governmental Authority)
2.15 The Court considered the newly inserted Entry 3B (Notification No. 13/2023-Central Tax (Rate)), which grants exemption for specific services-water supply, public health, sanitation conservancy, solid-waste management, and slum improvement/upgradation-when provided to a Governmental Authority.
2.16 The services supplied by the applicant to K-DISC were identified as skill development, capacity building, employability enhancement training and related programs. The Court held that these services do not fall within any of the five specified utility services enumerated in Entry 3B.
2.17 Even assuming K-DISC to be a Governmental Authority, the Court held that the nature of the services supplied by the applicant lies outside Entry 3B, and therefore no exemption is available under that entry.
Conclusions on Issues 1 & 2
2.18 K-DISC, being a society registered under the Travancore-Cochin Literary, Scientific and Charitable Societies Act, 1955, is a distinct legal entity and not "Government" or a "Government Department" under Section 2(53) of the CGST Act; it also does not qualify as a "local authority" under Section 2(69).
2.19 The services supplied by the applicant to K-DISC do not satisfy the recipient-condition under Entry 72 (services must be to Central/State Government) and therefore are not exempt under that entry.
2.20 After 1 January 2022, Governmental Authorities and Government Entities are expressly excluded from the scope of Entries 3 and 3A, and K-DISC cannot be brought within those entries by interpretation.
2.21 The applicant's services to K-DISC do not fall within the narrow set of civic utility services listed in Entry 3B and therefore cannot claim exemption under that entry.
2.22 Consequently, under the current framework of Notification No. 12/2017-Central Tax (Rate), the services rendered by the applicant to K-DISC are taxable and not eligible for GST exemption.
Issue 3 - Admissibility of input tax credit on GST charged by subcontractors
Legal framework
2.23 The Court considered Sections 16 and 17 of the CGST Act, 2017 and Rule 42 of the CGST Rules, 2017. Section 16(1) entitles a registered person to input tax credit on goods or services used in the course or furtherance of business. Section 17(2) mandates proportionate restriction and reversal of ITC where inputs are used for both taxable and exempt supplies.
Interpretation and reasoning
2.24 The applicant procures goods and services from subcontractors for executing training and skill-development projects for K-DISC, and such subcontractors charge GST on their invoices. These inward supplies are directly linked to the applicant's business and meet the basic "used in the course or furtherance of business" requirement.
2.25 Since, on the Court's findings, the services supplied by the applicant to K-DISC are taxable and not exempt, Section 17(2) does not require proportionate restriction of ITC in respect of those outputs. Inputs and input services used exclusively for taxable supplies are eligible for full credit, subject to the specific conditions in Sections 16(2) and 17(5).
Conclusions on Issue 3
2.26 The GST charged by subcontractors on goods and services used for providing taxable training and skill development services to K-DISC is eligible for full input tax credit in the hands of the applicant.
2.27 Such ITC entitlement is subject to verification of proper tax invoices, actual receipt of goods and/or services, payment of tax by the supplier, and compliance with all other conditions and restrictions prescribed under the CGST Act and Rules.
Exemption from GST under Entry No. 72 of Notification No. 12/2017-Central Tax (Rate), dated 28.06.2017 - services provided by ICTAK to K-DISC - eligibility to claim Input Tax Credit (ITC) of the GST charged by subcontractors on works directly related to the said exempt supply to K-DISC, considering that such subcontracted services would, in principle, also fall within the scope of the said exemption.
GST exemption on services rendered by the applicant to K-DISC - HELD THAT:- A society is a separate legal entity under the Travancore-Cochin Literary, Scientific and Charitable Societies Act, 1955. While it may be funded, promoted, or controlled by the Government, it is legally distinct from the Government itself. Although the applicant has submitted that K-DISC is fully under the control of the Government and has produced the Government Order listing its governing bodies, it is established that a society, even if fully controlled by the Government, a society cannot be considered a Government or a Government Department. At most, such an entity may qualify as a Government Entity or a Governmental Authority. From the data available on the official website of K-DISC and the Government Order submitted by the applicant, it is evident that K-DISC does not constitute a Government or Government Department - A society registered under the Travancore-Cochin Literary, Scientific and Charitable Societies Act, 1955, even if wholly funded or controlled by the Government, does not fall within this definition. The Kerala Development and Innovation Strategic Council (K-DISC), though functioning. under the administrative control of the State, is a distinct legal entity and cannot be regarded as the “State Government” or a “Government Department” for the purposes of the CGST Act or Notification No. 12/2017-Central Tax (Rate).
Accordingly, it cannot claim exemption under Entry 72, which is restricted to services provided to the Central or State Government.
In the present matter, the recipient, Kerala Development and Innovation Strategic Council (K-DISC) is a society registered under the Travancore-Cochin Literary, Scientific and Charitable Societies Act, 1955, functioning under the administrative control of the Government of Kerala. On the basis of its constitution, objectives and government control, K-DISC may at best qualify as a Governmental Authority or Government Entity, but it is not the State Government itself, nor is it a local authority within the meaning of Section 2(69) of the CGST Act - The newly inserted Entry 3B under Notification 13/2023-Central Tax(Rate) (effective 20 October 2023) provides exemption only for specified services-water supply, public health, sanitation conservancy, solid-waste management and slum improvement/up-gradation when provided to a Governmental Authority. The services supplied by the applicant, namely skill development, capacity building and employability enhancement training, do not fall within any of these enumerated categories. Therefore, even though K-DISC may be regarded as a Governmental Authority for limited purposes, the nature of the services in question lies outside the ambit of Entry 3B. Consequently, no exemption can be availed under Entry 3B for such training or educational programmes.
Eligibility of Input Tax Credit (ITC) on Goods and Services Procured from Subcontractors - HELD THAT:- Section 17(2) provides that where inputs and input services are used partly for taxable supplies and partly for exempt supplies, ITC shall be restricted to the portion attributable to taxable supplies, with proportionate reversal for exempt activities in accordance with Rule 42. In the present case, since the services rendered by ICTAK to K-DISC have been held to be taxable (and not exempt under Notification 12/2017-Central Tax (Rate) as amended), the entire input tax incurred on goods and services procured from subcontractors for such projects is eligible for full credit, subject to fulfilment of the conditions under Sections 16(2) and 17(5) of the Act - Accordingly, it is held that ICTAK is eligible to claim full Input Tax Credit on the GST charged on goods and services procured from subcontractors used for providing taxable training and skill development services to K-DISC, subject to verification of proper tax invoices, actual receipt of services, and compliance with the conditions prescribed under the CGST Act and Rules.
Issues: Whether solid waste management services rendered to Clean Kerala Company Limited, a Government-controlled body entrusted with municipal functions, are exempt from GST under Entry 3B of Notification No. 13/2023-Central Tax (Rate).
Analysis: The recipient was found to be a Governmental Authority because it was established and controlled by the Government with complete equity participation and was entrusted with functions falling under Article 243W of the Constitution of India. The services supplied by the applicant included collection, handling, storage, transportation, processing, bundling, and final disposal of non-recyclable plastic waste, which fell within the ambit of solid waste management as understood under Rule 3(46) of the Solid Waste Management Rules, 2016. Entry 3B of Notification No. 13/2023-Central Tax (Rate) specifically grants exemption for services provided to a Governmental Authority by way of solid waste management, and the factual matrix matched that entry.
Conclusion: The services were exempt from GST under Entry 3B of Notification No. 13/2023-Central Tax (Rate), and the ruling was in favour of the applicant.
Exemption from GST under Entry 3B of N/N. 13/2023-Central Tax (Rate) dt. 19.10.2023 - solid waste management services rendered by the applicant to Clean Kerala Company Limited - Clean Kerala Company Limited (CKCL) can be considered a Governmental authority or not.
Whether the solid waste management services rendered by Tiffot Private Limited to Clean Kerala Company Limited, including the collection, storage, transportation, processing, and bundling of non-recyclable plastic waste for co-processing, are exempt from GST under Entry 3B of Notification No. 13/2023-Central Tax (Rate) dated 19th October 2023? - HELD THAT:- The Solid Waste Management Rules, 2016, issued under the Environment (Protection) Act, 1986, provide clear definitions of key terms related to solid waste and lay down guidelines for its segregation, collection, processing, and disposal. These rules apply to all urban local bodies, census towns, villages with a population of more than 3,000, notified areas and industrial townships, as well as areas under the control of Indian Railways, airports, ports, defence establishments, SEZs, government organisations, and places of pilgrimage or historical importance as notified by the State. The Rules extend to every domestic, institutional, commercial and. other non-residential solid waste generator in such areas, except in respect of industrial waste, hazardous waste, biomedical waste, e-waste, lead acid batteries and radioactive waste - the applicant is engaged in providing services of solid waste management including the services of collection, handling, storage, transportation, processing and final waste disposal to CKCL, a public sector undertaking wholly owned by the Government of Kerala.
Whether Clean Kerala Company Limited (CKCL) can be considered a Governmental authority? - HELD THAT:- CKCL is a Public Limited Company incorporated under the Companies Act with 100% equity owned and controlled by the Government of Kerala, through the Local Self-Government Department (LSGD). It has been entrusted with the responsibility of carrying out municipal functions, including solid waste management and sanitation, which are functions expressly falling within the scope of Article 243W of the Constitution. In view of its complete government ownership, control, and discharge of functions constitutionally entrusted to municipalities, CKCL squarely falls within the ambit of clause (ii) of the definition of “Governmental Authority” under GST law, and therefore qualifies as such.
The applicant is eligible for exemption under N/N 12/2017 Central Tax (Rate) dated 28-06-2017 as amended vide Notification No. 13/2023-Central Tax (Rate) dated 19-10-2023 (Entry 3B).
ISSUES PRESENTED AND CONSIDERED
1. Whether, in respect of supply of goods, tax invoices can lawfully be issued and GST paid at the time of receipt of advances or part-payments, notwithstanding Notification No. 66/2017-Central Tax and the provisions on time of supply.
2. Whether multiple tax invoices can be issued for a single supply of goods corresponding to successive advances, and a final invoice issued for the balance amount, with the E-way bill reflecting the full value of the goods supported by all such invoices.
3. Whether a single tax invoice can be issued for the total value of the goods at the time of delivery and earlier invoices (if any) against advances can be neutralised through credit notes, particularly where manufacture and delivery span multiple financial years.
ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Permissibility of issuing tax invoices and paying GST at the time of receipt of advances for supply of goods
Legal framework
1. The Court considered Section 12(2) of the CGST Act (time of supply of goods), Section 31(1) and 31(3)(d) of the CGST Act (tax invoice and receipt voucher), Section 34 of the CGST Act (credit notes), Rule 46 and Rule 50 of the CGST Rules (contents of tax invoice and receipt voucher), and Notification No. 66/2017-Central Tax issued under Section 148 of the CGST Act.
2. Notification No. 66/2017-Central Tax mandates that registered persons (other than those under composition levy) supplying goods "shall" pay tax on outward supply at the time of supply as specified in Section 12(2)(a), including cases covered by Section 14, thereby expressly excluding Section 12(2)(b) (date of payment trigger) for such persons.
3. Section 31(1) stipulates that a registered person supplying taxable goods shall issue a tax invoice before or at the time of removal of goods for supply involving movement, or at the time of delivery/making available in any other case. Section 31(3)(d) requires a registered person, on receipt of advance payment with respect to any supply of goods or services or both, to issue a receipt voucher or other prescribed document evidencing such payment.
Interpretation and reasoning
4. The Court rejected the contention that Notification No. 66/2017-Central Tax is merely an optional exemption. It was held that the notification is issued under Section 148 (special procedure for certain classes of persons) and not under Section 11 (exemption). It therefore prescribes a mandatory procedural rule for suppliers of goods regarding the timing of tax payment.
5. By using the expression "shall pay tax ... at the time of supply as specified in Section 12(2)(a)", the notification confines the time of supply to the earlier of the date of issue of invoice or the last date on which such invoice is required to be issued under Section 31. It disables the operation of Section 12(2)(b) for suppliers of goods who are not under composition, thereby excluding advances from being a trigger for tax liability.
6. The Court held that this special procedure is binding on all taxpayers within the specified class and cannot be treated as an optional concession that may be waived. Any attempt to pay tax on advances for goods by voluntarily issuing tax invoices at the advance stage would lack legal sanction, as it would be contrary to the statutorily prescribed time of supply.
7. Relying on principles laid down by the Supreme Court-namely, that where a statute prescribes that a thing must be done in a particular manner it must be so done or not at all, and that a taxpayer cannot, by declining a statutory relief, alter the incidence of tax-the Court held that the applicant cannot lawfully choose to revert to the earlier regime of paying tax on advances for goods.
8. On the construction of Section 31(1), the Court held that in the case of supply of goods (which is quantised and tangible) the provision envisages issuance of "a tax invoice" for the supply and does not contemplate multiple tax invoices for a single product or issuance of an invoice merely on receipt of advance long before removal/delivery.
9. Section 31(3)(d), read with Rule 50, was held to "squarely cover" the applicant's situation. For advances in respect of goods, the proper document is a "receipt voucher or any other document, containing such particulars as may be prescribed", not a tax invoice under Rule 46. This demarcation between a receipt voucher and a tax invoice reflects the legislative intent that advances for goods are not to be invoiced as completed supplies.
10. The Court clarified that while Notification No. 66/2017 modifies determination of time of supply under Section 12(2), it does not alter the independent requirement under Section 31(1) regarding the permissible point in time for issuing a tax invoice, which remains tied to actual or imminent supply (removal or delivery), not merely to receipt of advance.
Conclusions
11. The applicant is not permitted to issue tax invoices at the time of receiving advance or part payment towards supply of goods, for either domestic or export transactions.
12. Advances received prior to actual supply of goods must be documented only by way of a receipt voucher (or equivalent document under Rule 50), and GST is payable with reference to the tax invoice issued at or before the time of removal/delivery of goods as per Section 31(1) read with Section 12(2)(a) and Notification No. 66/2017-Central Tax.
Issue 2 - Issuance of multiple tax invoices for a single supply and alignment with E-way bill requirements
Legal framework
13. The Court examined Section 31(1) (requirement of issuing a tax invoice for supply of goods), read with the special procedure under Notification No. 66/2017-Central Tax and the provisions on receipt vouchers (Section 31(3)(d), Rule 50) and tax invoices (Rule 46). The E-way bill mechanism was considered in the context of the statutory requirement that the value in the invoice and consignment value in the E-way bill must correspond.
Interpretation and reasoning
14. The Court held that GST law does not permit issuance of multiple tax invoices for a single supply of goods. Section 31(1) contemplates a single tax invoice for the taxable supply of goods, to be issued before or at the time of removal/delivery.
15. The applicant's proposed practice of issuing tax invoices at intermediary stages against advances and issuing a final tax invoice for the balance amount was found inconsistent with the statutory scheme, which prescribes receipt vouchers for advances and a single invoice at the time of supply.
16. On the concern regarding mismatch between invoice value and E-way bill value, the Court held that the E-way bill should be generated against the single final tax invoice, which must reflect the entire value of the consignment. While advances can be reflected in the final invoice for accounting clarity, the "invoice value" must match the value of goods transported to avoid inconsistency with the E-way bill.
Conclusions
17. The applicant cannot issue multiple tax invoices for a single supply of goods based on stages of advance receipt.
18. The corresponding E-way bill must be based on the single final tax invoice that reflects the full value of the goods transported; any prior advances must be documented via receipt vouchers and only adjusted arithmetically within that final invoice, without fragmenting the supply into multiple tax invoices.
Issue 3 - Use of a single final tax invoice with subsequent credit notes to adjust earlier advance-related invoices
Legal framework
19. The Court considered Section 34 of the CGST Act (credit and debit notes), together with Sections 31(1), 31(3)(d), 12(2)(a), Notification No. 66/2017-Central Tax and the associated Rules on invoices and receipt vouchers.
Interpretation and reasoning
20. The applicant proposed an alternative mechanism: issue a single tax invoice for the total value of the boat at the time of delivery, and thereafter issue credit notes to adjust earlier invoices that were raised at the time of receiving advances, to offset tax already paid on those advances.
21. The Court held that this method is not aligned with statutory provisions. Since tax invoices themselves cannot validly be issued at the time of advance receipt for goods (as per Sections 31(3)(d), 31(1) and Notification No. 66/2017-Central Tax), any subsequent issuance of credit notes to nullify or adjust such invalid invoices would lack legal sanction.
22. Under Section 34, credit notes are permissible only against valid tax invoices issued for completed supplies and within prescribed time limits. Where the initial documents should have been receipt vouchers rather than tax invoices, there is no legal basis for issuing credit notes to reverse or adjust those documents as if they were valid invoices for supplies.
23. The Court also noted that, notwithstanding the apparent revenue-neutrality of such a procedure, GST law prescribes a specific procedural and technical framework that must be strictly followed and cannot be circumvented in the name of convenience or accounting treatment.
Conclusions
24. The applicant cannot lawfully issue a single tax invoice for the total value of the boat at the time of delivery and thereafter issue credit notes to adjust earlier invoices raised against advances, because such earlier invoices themselves cannot validly be issued.
25. As the applicant is not permitted to issue tax invoices on advances, the premise for issuing credit notes to offset such invoices does not arise; only the statutorily prescribed method-receipt vouchers for advances and a single tax invoice at the time of supply-may be followed.
Issuance of Tax invoices at the time of receiving advance or part payment from the customers in the case of Domestic and Exports Sales of goods - declaration of the same as turnover in the corresponding GST return period and the taxes paid - process involved is not a service - issuance of multiple tax invoices for supply of same goods upon receipt of advances at the time of delivery of the boat - whether applicant can issue the Tax invoice for balance amount receivable from the customer and show the full value of the boat in the E-way bill for transportation of the consignment supported by all tax invoices already issued to the customer against the advances? - whether Tax Invoice for total value of boat can be issued at the time of' delivery of boat and issue Tax credit notes against advances or part payments received for which Tax invoices are issued earlier to offset the tax liability?
HELD THAT:- N/N. 66/2017-Central Tax dated 15.11.2017 provides that all registered persons who have not opted for the composition levy under Section 10 of the CGST Act shall pay central tax on the outward supply of goods at the time of supply as specified in Section 12(2)(a) of the Act and furnish returns accordingly. Since the Notification uses the word “shall”, it is opined that compliance is mandatory, and the time of supply is to be determined as the earlier of the date of issue of invoice or the last date on which the invoice is required to be issued under Section 31. Although it appears that Section 12(2)(b) states that the time of supply to be the date of receipt of payment, this clause has been expressly excluded by the Notification in the case of such registered persons (who has not opted for composition levy) and therefore, in the applicant's case, the tax liability arises at the time of supply under Section 12(2)(a), i.e., time of supply of goods, irrespective of when payment is received.
Notification No. 66/2017-Central Tax, issued under Section 148 of the CGST Act, specifies that suppliers of goods who are not under the composition scheme shall pay tax at the time of supply as per Section 12(2)(a), including in situations covered by Section 14. This effectively curtails the applicability of Section 12(2)(b), the date-of-payment trigger for determining the time of supply of goods. The express reference to Section 14 ensures that even in cases involving change in the rate of tax, the time of supply shall continue to be reckoned only on the basis of the invoice date, thereby excluding advances from taxability altogether.
The Hon'ble Supreme Court in Hukam Chand Shyam Lal v. Union of India [1975 (12) TMI 168 - SUPREME COURT] held that where a statute prescribes that a thing must be done in a particular manner, it must be done in that manner or not at all. Similarly, in CIT v. Shahzada Nand & Sons [1966 (1) TMI 23 - SUPREME COURT] it was observed that a taxpayer cannot, by declining to claim a statutory relief or by voluntarily foregoing it, alter the incidence of tax as determined by law. Applying these principles, the timing of tax payment prescribed under Section 148 read with Notification No. 66/2017 is not a matter of taxpayer choice but a statutory mandate. Once the law prescribes that suppliers of goods shall pay tax only at the time of issue of invoice and not upon receipt of advance, no discretion exists to revert to the earlier method of payment on advances. Any tax paid contrary to this special procedure would have no legal sanction under the Act.
It is also found that Section 31 (3) (d) of the CGST Act, 2017 squarely covers the situation faced by the applicant and it says that “a registered person shall, on receipt of advance payment with respect to any supply of goods or services or both, issue a receipt voucher or any other document, containing such particulars as may be prescribed, evidencing receipt of such payment”. Thus, the proper document to cover advance with regard to supply of goods is not an invoice, but a “receipt voucher or any other document, containing such particulars as may be prescribed”. The document in this regard is prescribed under Rule 50 of the CGST Rules, 2017. On verification of this Rule, it is found that the prescribed document is not the same as a Tax Invoice prescribed under Rule 46 of the CGST Rules, 2017. Hence, the particular situation as expressed in the application is not to be circumvented by issuance of multiple invoices, but by issuance of document under Rule 50 (receipt voucher) with regard to advances and by issuance of document under Rule 46 (Invoice) at the time of supply. GST law does not permit issuance of multiple tax invoices for a single supply in case of supply of goods.
The applicant cannot issue multiple tax invoices against a single supply of goods. Instead, receipt vouchers must be issued at the time of receiving advances, and a single tax invoice should be issued at the time of final delivery of the goods. The corresponding E-way bill shall be generated against this final invoice, reflecting the entire value of the consignment. While the applicant may reflect advances received in the final invoice for accounting clarity as per the relevant .accounting standards, the invoice value must match the value of goods transported. Recognition of unbilled revenue in financial statements does not create a mandatory GST liability. The applicant may choose to discharge GST at the time of advance receipt or upon delivery of goods, at their discretion, in accordance with law.
Issues: Whether the applicant's courses in JDC and HDC & BM constitute education as part of a curriculum for obtaining a qualification recognised by law so as to qualify as an educational institution, and whether the services supplied to its students are exempt under Serial No. 66 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.
Analysis: The courses conducted by the applicant are statutorily recognised under the Kerala Co-operative Societies Act, 1969 and the Kerala Co-operative Societies Rules, 1969 as qualifications for employment in co-operative societies. The applicant conducts the courses through a structured curriculum, with admission criteria, teaching, evaluation, issuance of certificates and academic supervision, and the qualifications are recognised by the competent statutory framework. On that basis, the applicant falls within the definition of an educational institution in clause 2(y) of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, namely an institution providing education as part of a curriculum for obtaining a qualification recognised by law. Once so classified, services supplied by the institution to its students are covered by Entry 66(a) of the notification.
Conclusion: The applicant is an educational institution for the purpose of the notification, and the services provided to students in connection with the JDC and HDC & BM courses are exempt from GST under Serial No. 66(a) of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.
Final Conclusion: The ruling confirms full GST exemption on the applicant's course-related services supplied to its students.
Ratio Decidendi: Where a course is conducted under a statutory framework and leads to a qualification recognised by law, the provider is an educational institution and supplies made to its students in relation to that curriculum fall within the GST exemption for educational institution services.
Eligibility for GST exemption as per N/N. 12/2017-Central Tax (Rate), dated 28.06.2017services provided by the applicant in connection with the courses conducted for students and employees of co-operative societies to achieve eligible qualifications as prescribed under the Kerala Co-operative Law - applicability of clause (b) of sub-section (2) of Section 97 of the CGST Act, 2017 - HELD THAT:- The educational activities of the applicant are squarely covered under Entry 66(a) of Notification No. 12/2017-Central Tax (Rate), dated 28.06.2017, which exempts “services provided by an educational institution to its students, faculty, and staff.” The applicant, having been recognized as an “educational institution” under clause (ii) of paragraph 2(y) of the said Notification, provides structured educational services through systematic instruction, defined curriculum, qualified faculty, and evaluation leading to the award of diplomas that are qualifications recognized by law. The services rendered by the applicant to students enrolled in the HDC & BM and JDC courses are, therefore, services provided by an educational institution to its students in the course of imparting education. The scope of Entry 66(a) specifically covers such supplies made by an educational institution to its own students in relation to academic instruction and allied educational processes forming part of the curriculum. The fees collected from the students for the said courses are consideration for such exempt services.
Hence, the applicant's supply of educational services to students in connection with the HDC & BM and JDC courses is eligible for full exemption from GST under Entry 66(a) of Notification No. 12/2017-Central Tax (Rate), dated 28.06.2017.
Issues: (i) Whether GST is applicable to the landowner's share of constructed residential flats under the joint development agreement; (ii) If GST is applicable, what is the applicable rate and valuation for the construction service and development rights.
Issue (i): Whether GST is applicable to the landowner's share of constructed residential flats under the joint development agreement.
Analysis: The arrangement was found to be a joint development agreement on an area-sharing basis, under which the landowner transferred development rights to the promoter and received constructed flats in exchange. Such exchange constitutes a supply under section 7(1)(a) of the CGST Act, 2017. The construction of residential apartments for the landowner's share was treated as a taxable supply of construction service, and the transfer of development rights was also treated as a supply of service, with reverse charge implications for the promoter in respect of the applicable portion of development rights.
Conclusion: GST is applicable to the landowner's share of constructed residential flats, and the promoter is liable to discharge the tax as determined under the GST law.
Issue (ii): If GST is applicable, what is the applicable rate and valuation for the construction service and development rights.
Analysis: The project was held not to be an affordable residential apartment project, as the apartment size exceeded the prescribed threshold for a non-metropolitan city. Accordingly, the construction service was held taxable at 5% without input tax credit under the relevant rate notification. The value of construction service was directed to be determined by the deemed value mechanism based on similar apartments sold to independent buyers nearest to the date of transfer of development rights. For development rights, the notifications governing exemption and reverse charge were applied so that GST would be payable on the promoter's construction service and, in the case of un-booked units at completion or first occupation, on the relevant portion of development rights under reverse charge.
Conclusion: The applicable GST rate on the construction service is 5% without input tax credit, and valuation is to be based on the value of similar apartments sold to independent buyers nearest to the date of transfer of development rights; development rights are governed by the applicable exemption and reverse charge notifications.
Final Conclusion: The transaction under the joint development agreement was held taxable under GST, with the landowner's share of flats treated as consideration for supply, and the promoter made liable under the notified rate and valuation mechanism.
Ratio Decidendi: In an area-sharing joint development agreement, transfer of development rights in exchange for constructed flats constitutes a taxable supply of services, and the value and tax rate are governed by the specific GST notifications applicable to residential apartment construction and development rights.
Levy of GST - Land owner’s share of Constructed residential flats - rate of GST and the value on which such GST is applicable. - Joint Development Agreement. - Development rights.
Scope of supply - HELD THAT:- As per entry 5(b) of Schedule II of CGST Act 2017, construction of complex, building, civil structure or part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation whichever is earlier. Thus, if some conditions are satisfied, construction of a complex, building, civil structure or part thereof, including a complex or building intended for sale to a buyer takes on the character of supply. From the above, it is clarified that the activity of the applicant being developer/promoter is related to supply under CGST Acts - In the present case, the Developer has entered into an Agreement to provide construction services in accordance with the terms set out in Clause 5(b) of Schedule II. In return the land owner has agreed to transfer development rights to the applicant/developer. Hence, the said transaction falls within the ambit of “supply” as contemplated under the provisions of the CGST Act 2017 and is taxable as supply of services.
GST on Construction Service - HELD THAT:- Since the applicant entered into a Joint Development Agreement with Shri S. Madhava Menon on 08.04.2022 for the construction of a residential apartment complex, and the project does not qualify as an affordable residential apartment project, the applicant is liable to pay GST at the rate of 5% (without Input Tax Credit) on the construction services rendered in respect of the residential units allotted to the landowner, as per Notification No. 03/2019-CT(R) dated 29.03.2019, read with Notification No. 11/2017-CT(R) - Further the value of the construction service provided to the landowner shall be determined in accordance with Para 2A of Notification No. 03/2019-Central Tax (Rate) dated 29.03.2019 - Accordingly, the taxable value for the purpose of GST shall be the open market value of similar flats sold to other buyers around the date the landowner transferred the development rights to the promoter.
GST on development rights - HELD THAT:- In the instant case, the JDA is not based on revenue sharing but is structured on an area-sharing basis, whereby the landowner receives a share of the constructed area in lieu of land contribution. It is evident that the agreement contemplates a transfer of development rights (TDR) by the landowner to the applicant/promoter for the purpose of project execution - The transfer of development rights (TDR) by a landowner to a developer is treated as a supply of service under Section 9 of the CGST Act, read with Heading 9972 of N/N. 11/2017-Central Tax (Rate), and attracts tax at 18% and in respect of the unsold units as on the date of completion, GST at 18% becomes payable by the developer under RCM, with the liability arising at the time of issuance of the completion certificate or first occupation, as specified under N/N. 06/2019.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether the conduct of recruitment examinations and related activities by a statutory recruitment board constitutes a "supply" and a taxable service under the CGST/KSGST Act.
1.2 Whether the recruitment board, being a "governmental authority", is entitled to exemption from GST under Notification No. 12/2017-Central Tax (Rate), particularly Serial Nos. 4 and 5 read with Articles 243G and 243W of the Constitution.
1.3 Whether GST is chargeable on application / examination fees collected from candidates for participation in the recruitment process.
1.4 Whether the recruitment board is required to obtain registration under Section 22 (and, where applicable, Section 24) of the CGST Act based on its aggregate turnover from taxable supplies.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1 & 2: Taxable nature of recruitment examination services and applicability of exemption to a "governmental authority"
Legal framework:
2.1 Section 7 of the CGST Act defines "supply" to include all forms of supply of goods or services for a consideration in the course or furtherance of "business". Section 2(17) gives an inclusive definition of "business", covering activities whether or not for pecuniary benefit. Section 2(84) defines "person".
2.2 Notification No. 12/2017-Central Tax (Rate) defines "governmental authority" with reference to the explanation to Section 2(16) of the IGST Act and grants exemptions at Serial Nos. 4 and 5 for services in relation to functions entrusted under Articles 243W (Twelfth Schedule - municipalities) and 243G (Eleventh Schedule - Panchayats) of the Constitution.
Interpretation and reasoning:
2.3 The recruitment board is a statutory body constituted under a State Act and thus qualifies as a "person" under Section 2(84) and as a "governmental authority" under Notification No. 12/2017-Central Tax (Rate).
2.4 Its core activity is conducting examinations and undertaking all connected recruitment processes (advertisement, printing and transport of question papers, provision of stationery, supervision and invigilation, practical tests and interviews, evaluation, honorarium to experts, publication of rank lists, etc.).
2.5 The Board collects application / examination fees from candidates, which are used to meet expenses of the recruitment process. These activities fall within the wide, inclusive definition of "business" in Section 2(17), irrespective of profit motive, and thus the conduct of examinations for consideration is a "supply" under Section 7.
2.6 Though the Board qualifies as a "governmental authority", its recruitment services do not relate to, or fall within, any of the functions listed in the Eleventh Schedule (Article 243G) or the Twelfth Schedule (Article 243W). The activity is one of independent recruitment services provided to Devaswom Boards for selection of staff for temple administration, not an activity in relation to municipal or Panchayat functions.
Conclusions:
2.7 The conduct of recruitment examinations and associated processes by the Board constitutes a taxable "supply of services" under the CGST/KSGST Act.
2.8 Although the Board is a "governmental authority", its recruitment activities do not fall under any function entrusted to Panchayats or Municipalities under Articles 243G and 243W; consequently, the exemption at Serial Nos. 4 and 5 of Notification No. 12/2017-Central Tax (Rate) is not available. The services remain taxable.
Issue 3: GST liability on application / examination fees collected from candidates
Legal framework:
2.9 Sections 7(1)(a), 2(17) and 2(31) of the CGST Act govern "supply", "business", and "consideration". Section 15 provides that the value of supply includes consideration charged for the service. Section 9 provides for the levy of GST on taxable supplies.
Interpretation and reasoning:
2.10 Application / examination fees are charged as a condition for permitting candidates to participate in the recruitment process and for providing all related administrative and evaluative services. There is a clear quid pro quo and a reciprocal relationship between payment of the fee and the service of conducting the recruitment examination and selection process.
2.11 The fees are neither voluntary contributions nor statutory levies unconnected with a specific supply; they are directly linked to the service rendered and therefore constitute "consideration" within Section 2(31).
2.12 The statutory character of the Board and the fact that fees may only offset costs do not alter the taxable nature of the activity, since Section 2(17) expressly covers activities of public authorities irrespective of pecuniary gain.
Conclusions:
2.13 Application / examination fees paid by candidates form part of the taxable value of the supply of recruitment services under Section 15 and are consideration for a taxable supply of services.
2.14 GST is therefore chargeable on such fees under Section 9 at the rate applicable to recruitment / placement services.
Issue 4: Requirement of registration under Section 22 / Section 24 of the CGST Act
Legal framework:
2.15 Section 22(1) mandates registration for every supplier making taxable supplies from a State, where aggregate turnover in a financial year exceeds Rs. 20 lakhs (Rs. 10 lakhs for specified special category States). The Explanation clarifies that "aggregate turnover" includes all supplies made by the taxable person, on his own account or on behalf of principals. Section 24 prescribes categories for compulsory registration irrespective of threshold.
Interpretation and reasoning:
2.16 The Board is making taxable supplies (recruitment examination services) and collects consideration (examination fees) from candidates, forming part of its aggregate turnover.
2.17 Liability to register depends on whether its aggregate turnover of taxable services, including examination fees and any other taxable receipts, exceeds the monetary threshold in Section 22, or whether it otherwise attracts compulsory registration under Section 24.
Conclusions:
2.18 The Board is a taxable service provider. It is required to obtain registration under the CGST/KSGST Act if its aggregate turnover of taxable supplies exceeds the threshold limit prescribed in Section 22, or if it falls under any category specified in Section 24.
Taxability of the activities undertaken for conducting examinations for such posts, wherein application fees are collected from candidates - requirement of registration under the CGST/KSGST Act - supply of goods or services or both - GST is to be collected or charged on the application/examination fee collected from candidates or not.
Whether GST is applicable for the activity of conducting examination? - HELD THAT:- The applicant provides independent recruitment services to candidates for selection to these posts. As a preliminary matter, it must be examined whether the applicant qualifies as a “governmental authority” as defined in Para 2(zf) of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, and thereby becomes eligible for the GST exemption provided in the relevant entries of the said Notification - the applicant is a recruitment board established under the Kerala Devaswom Recruitment Board Act, 2015, passed by the State Legislative Assembly. Therefore, it satisfies the condition for classification as a “governmental authority” as defined in Notification No. 12/2017-Central Tax (Rate), dated 28.06.2017, which is a prerequisite for availing the GST exemption under the said Notification.
Thus, it is observed that the activities undertaken by the applicant, though categorized as a “governmental authority,” do not fall under any of the functions entrusted to a Panchayat or a Municipality under Articles 243G and 243W of the Constitution, respectively. Instead, it is found that the applicant is engaged as an independent recruitment service provider for selecting candidates to various posts in the Devaswom Boards, which are constituted by the Government for the administration of temples in different geographical areas of the State.
Having concluded that the applicant is a “person” as defined under Section 2(84) of the CGST Act, 2017, and qualifies as a “governmental authority” under Para 2(zf) of N/N. 12/2017-Central Tax (Rate), dated 28.06.2017, it is held that the services provided by the applicant in conducting examinations for recruitment to permanent posts in the Devaswom Boards constitute taxable services under the CGST Act. These services do not fall within the scope of exemptions provided under Serial Numbers 4 and 5 of the said Notification.
Whether GST registration is to be obtained by them? - HELD THAT:- The applicant is a governmental authority constituted under an Act passed by the State Legislature, and the services provided in connection with the recruitment of candidates to various posts in the Devaswom Boards constitute taxable supplies. Section 22 of the CGST Act lays down the conditions and liability for registration - Hence, the applicant is liable to be registered if the aggregate value of taxable services exceeds the threshold limit under Section 22, or if the applicant otherwise falls under any of the categories specified in Section 24 of the Act.
Whether GST is to be collected on the application or examination fees collected from candidates? - HELD THAT:- It is observed that these receipts are directly linked to the service supplied by the applicant in conducting recruitment examinations. The payment of such fee is not a voluntary contribution or a statutory levy; it is the consideration charged in exchange for permitting the candidate to participate in the selection process and for providing the related administrative and evaluative services. The relationship between the payment and the service rendered is thus one of reciprocal obligation-quid pro quo. The Board conducts the examination, arranges evaluation, declares results, and provides a list of eligible candidates, and in return, the candidates pay a prescribed fee. The existence of such a reciprocal relationship squarely brings the transaction within the scope of a supply of service for consideration as contemplated under sections 7(1)(a), 2(17) and 2(31) of the CGST Act. The mere fact that the activity is statutory or that the receipts may only offset costs does not take away its taxable character, since the definition of “business” under section 2(17) expressly includes activities of public authorities whether or not carried out for pecuniary gain - the examination fee collected by the applicant forms part of the taxable value under section 15 of the Act, and GST is required to be collected on such amounts at the rate applicable to recruitment or placement services.
1. ISSUES PRESENTED AND CONSIDERED
1.1. Whether the share of fee received from skill training partners is exempt from GST under Notification No. 12/2017-Central Tax (Rate), particularly Entries 66, 69, 4 and 5, or constitutes a taxable supply.
1.2. Whether the fee collected directly from students by the applicant's own skill training institutes is exempt from GST under Notification No. 12/2017-Central Tax (Rate), particularly Entries 66 and 69, or is liable to GST.
1.3. Whether the applicant qualifies as an "educational institution", an NSDC/NCVET-approved body, or a "governmental authority" for purposes of claiming the above exemptions.
1.4. Whether exemption can be claimed merely because the applicant or its initiatives (e.g. IIIC, PMKVY/SANKALP schemes) are otherwise covered under separate rulings or schemes, when the services in question are revenue-shares/affiliation charges and not direct training services.
1.5. Whether Input Tax Credit (ITC) is available on inputs/services procured out of Government grants used in relation to activities generating taxable income, and whether the source of funds affects ITC eligibility under Section 16 of the CGST Act.
2. ISSUE-WISE DETAILED ANALYSIS
2.1. GST exemption on share of fee received from skill training partners
2.1.1. Legal framework
(a) Notification No. 12/2017-Central Tax (Rate), Entry 69 (as successively amended) exempts services provided by specified entities (NSDC, NCVET, NCVET-recognised awarding/assessment bodies, and NSDC/SSC-approved training partners) in relation to: (i) National Skill Development Programme or other NSDC schemes; (ii) vocational skill courses under National Skill Certification and Monetary Reward Scheme; or (iii) NSQF-aligned qualifications/skills approved by NCVET.
(b) Entry 66 exempts services provided by an "educational institution" by way of education as part of curriculum for obtaining a qualification recognized by law.
2.1.2. Precedent treatment
(a) Reliance was placed on Advance Ruling No. KER/126/2021, which held that IIIC was exempt as an "educational institution" under Entry 66, but only in respect of specific courses that led to recognized qualifications; no finding was made there on revenue share received by the applicant.
(b) Decisions in Nxtwave Disruptive Technologies Pvt. Ltd. (AAR Telangana) and Scaler/InterviewBit (AAR Karnataka) were referred to hold that exemption under Entry 69 does not extend to subcontracted/affiliated entities which are not themselves NSDC-approved training partners.
2.1.3. Interpretation and reasoning
(a) Entry 69 is to be construed strictly: the phrase "services provided by" confines the exemption to services directly provided by the specified entities, not to all entities in the broader ecosystem or to downstream/subcontracted entities.
(b) The applicant claimed affiliation as NSDC training partner and status as State Skill Development Mission, but training delivery is substantially through other institutes/skill partners whose independent approval under NSDC/SSC/NCVET was not established with evidence.
(c) The applicant did not demonstrate that the services rendered by outsourced partners, from which the applicant derives a share of fee, are:
(i) themselves provided by NSDC/SSC/NCVET recognised entities; and
(ii) "in relation to" NSDP, other NSDC schemes, National Skill Certification and Monetary Reward Scheme, or NSQF-aligned qualifications backed by NCVET-approved qualification packages.
(d) The share of fee received by the applicant from these partners was not shown to be consideration for direct training supplied by the applicant to the students under any notified scheme. Instead, in the absence of contrary evidence, it was presumed to be consideration for services such as affiliation, academic oversight, curriculum support, infrastructure and administrative coordination rendered to the partner institutes.
(e) Such services to partners are distinct taxable supplies and are not covered by Entries 66 or 69 merely because the partner or some courses may be in the skill-development domain.
2.1.4. Ratio vs. obiter
(a) Ratio: Exemption under Entry 69 is available only where the applicant, as the service provider, is a specified NSDC/NCVET entity and the service is directly and demonstrably in relation to a specified scheme/NSQF-approved qualification. Revenue shares/affiliation-like receipts from unapproved or unproven partners do not qualify.
(b) Obiter: General discussion on the evolution of Entry 69 (NSDC-centric to NCVET-focused and subsequent restoration of NSDC partners) and CBIC's compassionate approach for the interim period is descriptive and does not determine the specific taxability of the applicant's receipts.
2.1.5. Conclusion
(a) The share of fee received by the applicant from its skill training partners does not qualify for exemption under Entries 66 or 69 of Notification No. 12/2017-Central Tax (Rate).
(b) Such receipts constitute consideration for taxable services and are liable to GST.
2.2. GST exemption on fee collected from students of the applicant's own training institutes
2.2.1. Legal framework
(a) Entry 69, as summarised above, requires: (i) the provider to be NSDC/NCVET specified; and (ii) training to be in relation to notified programmes or NSQF-aligned qualifications with NCVET-approved qualification packages.
(b) Entry 66 requires the provider to qualify as an "educational institution" imparting education as part of a curriculum for obtaining a qualification recognized by law.
2.2.2. Precedent treatment
(a) Earlier ruling in respect of IIIC treated IIIC (not the present applicant per se) as an "educational institution" only for certain courses that culminate in legally recognized qualifications; exemption was confined correspondingly.
(b) That ruling did not examine fee collected or shared by the applicant itself, nor did it grant blanket exemption to all skill-related services of entities within the same administrative framework.
2.2.3. Interpretation and reasoning: Entry 69
(a) The applicant produced an MoU with NSDC, stating that programmes at its Centres of Excellence will "align to NSQF" and that assessment/certification will be by NSDC-approved Sector Skill Councils.
(b) However, mere intended or generic alignment with NSQF was held insufficient; Entry 69 specifically requires that the training be "in relation to" an NSQF-aligned qualification/skill in respect of which NCVET has approved a qualification package.
(c) The applicant did not furnish any NCVET approval order or documents proving that its courses are linked to NCVET-approved qualification packages.
(d) The applicant's assertion that it is recognized as an awarding and assessing body by NCVET was not supported by any final recognition order; on enquiry, it was admitted that only an application was pending.
(e) In absence of such conclusive recognition or NCVET-backed qualification packages, the statutory conditions of Entry 69 were held not satisfied.
2.2.4. Interpretation and reasoning: Entry 66
(a) To be covered as an "educational institution" under clause (y) of paragraph 2, the courses must be part of a curriculum for a qualification recognized by law.
(b) The applicant's courses were described as vocational, but no evidence was furnished to show that they form part of any curriculum approved by a statutory authority or that resulting qualifications are recognized by law or by the State Government.
(c) Accordingly, the applicant's own institutes do not meet the definition of "educational institution" for the purposes of Entry 66.
2.2.5. Ratio vs. obiter
(a) Ratio: Absent proof of NCVET recognition and NCVET-approved qualification packages, or proof that the courses lead to legally recognized qualifications, the applicant's direct training services do not qualify under Entries 69 or 66 and are taxable.
(b) Obiter: Reference to future/pending NCVET applications is incidental and does not affect current taxability.
2.2.6. Conclusion
(a) The applicant has not established that its own training institutes' courses fall under any programme/qualification covered by Notification No. 12/2017-Central Tax (Rate).
(b) Accordingly, fees collected from students of the applicant's own training institutes are liable to GST.
2.3. Applicant's status as "governmental authority" and claim under Entries 4 and 5
2.3.1. Legal framework
(a) Entries 4 and 5 of Notification No. 12/2017-Central Tax (Rate) provide exemption for services provided to or by Central Government, State Government, Union Territory, local authority, or "governmental authority" by way of activities in relation to functions entrusted under Articles 243G and 243W of the Constitution.
2.3.2. Interpretation and reasoning
(a) The applicant, a wholly Government-owned Section 8/Section 25 company and State Skill Development Mission, argued that it is a governmental authority and that its activities relate to vocational training (Entry 17 of Eleventh Schedule) and therefore to functions under Article 243G; and further that its services fall within promotion of educational aspects under Article 243W.
(b) The Tribunal examined the Kerala Municipality Act to discern functions entrusted to municipalities under Article 243W; while "promotion of cultural, educational and aesthetic aspects" is entrusted, the actual imparting of education as such is not a direct municipal function.
(c) On that basis, services of the applicant in imparting skill training/education were not held to fall within the scope of functions exempted under Sl. No. 4 of Notification No. 12/2017-Central Tax (Rate).
2.3.3. Ratio vs. obiter
(a) Ratio: Even assuming arguendo the applicant's governmental authority-like status, the specific services in issue do not correspond to functions entrusted to municipalities under Article 243W; hence Entries 4 and 5 do not grant exemption.
(b) Obiter: Broader interpretative comments on "any other body" in the definition of governmental authority and references to constitutional entries are incidental and not determinative.
2.3.4. Conclusion
(a) Exemption under Entries 4 and 5 is not available to the applicant's services, either towards training partners or to students.
2.4. Availability of Input Tax Credit (ITC) where expenditure is funded by Government grants
2.4.1. Legal framework
(a) Section 16 of the CGST Act, 2017 permits a registered person to avail ITC on input goods/services used or intended to be used in the course or furtherance of business, subject to specified conditions.
(b) GST law does not distinguish ITC eligibility based on source of funds (internal accruals, loans, grants, etc.).
2.4.2. Interpretation and reasoning
(a) The Tribunal clarified that the mere fact that the inputs are procured from Government grants does not, by itself, curtail ITC, provided the inputs are used for making taxable outward supplies and all conditions in Section 16 are met.
(b) Grants from Government are generally not consideration for supply unless there is a specific contractual supply obligation in return; hence, receipt of grants, per se, does not determine output tax liability but may be relevant in understanding the nature of activities they support.
(c) In the instant case, the applicant did not provide sufficient factual details on:
(i) the specific goods and services procured from grant funds;
(ii) their actual use or nexus with the identified taxable supplies (services to partners and to students); and
(iii) precise nature of taxable services rendered to partners.
(d) Because an advance ruling demands concrete facts, the Authority considered itself unable to give a conclusive, transaction-specific ruling on ITC entitlement in the absence of such details.
2.4.3. Ratio vs. obiter
(a) Ratio: Under GST law there is no bar on availing ITC solely because expenditure is funded by Government grants; ITC depends on satisfaction of Section 16 conditions and linkage to taxable outward supplies.
(b) Obiter: General observations that grants are not ordinarily consideration for supply are contextual but not dispositive of any specific transaction in the present case.
2.4.4. Conclusion
(a) No conclusive, fact-specific ruling on ITC entitlement can be issued due to lack of detailed information on inputs and their use.
(b) It is, however, clarified that the source of funds (including Government grants) does not, in principle, affect ITC eligibility if statutory conditions under Section 16 are otherwise complied with and the inputs relate to taxable supplies.
Levy of GST - share of fee received from the skill training partners of M/s KASE and fee collection from their own skill training institutes - Eligibility of ITC on the amount spent from the grant received from Government in relation to the generation of such income.
GST liability on the share of fee received from the skill training partners of M/s KASE and fee collection from their own skill training institutes - whether such receipts qualify for exemption under Notification No. 12/2017-Central Tax (Rate), particularly Entry 69, when the actual training services are delivered through outsourced institutes? - HELD THAT:- On a plain reading of Entry 69 of Notification No. 12/2017-Central Tax (Rate), as amended, the exemption is applicable only to services provided by specified entities such as the National Skill Development Corporation (NSDC), Sector Skill Councils, assessment agencies, or training partners approved by NSDC or the Sector Skill Council, and that too only in relation to specified skill development schemes implemented by the NSDC. The expression “services provided by” is crucial in this context. It restricts the scope of exemption strictly to the service provider who is either directly implementing the scheme or has been duly approved under the NSDC framework.
In the present case, while the applicant (KASE) has claimed status as an NSDC approved training partner, it has also admitted that training delivery is carried out through other institutes or skill partners. However, it has not been established before this Authority whether such outsourced training institutes or partners are themselves independently approved by NSDC or a Sector Skill Council. As held in Nxtwave Disruptive Technologies Put. Ltd. [2022 (10) TMI 780 - AUTHORITY FOR ADVANCE RULING, TELANGANA], the benefit of exemption under Entry 69 cannot be extended to services provided by subcontracted or affiliated entities that are not NSDC approved training partners, even if the principal entity is so approved. Therefore, unless it is demonstrated that these outsourced partners are themselves NSDC approved and that the services delivered are directly under a scheme implemented by NSDC, the exemption cannot be granted. Further, on being contacted, the representative of the applicant informed that their courses are not yet approved by.
Moreover, the applicant has not furnished sufficient evidence to show that the services rendered by these outsourced partners are “in relation to” the National Skill Development Programme, the National Skill Certification and Monetary Reward Scheme, any other scheme implemented by the NSDC, or any National Skill Qualification Framework (NSQF) aligned qualification or skill in respect of which the National Council for Vocational Education and Training (NCVET) has approved a qualification package, as now included under Entry 69 of Notification No. 12/2017-Central Tax (Rate). The exemption under this entry is available only when the services are demonstrably linked to one of these specified schemes or frameworks. In the absence of clarity or supporting documentation to establish such a nexus, this Authority is unable to conclude that the services provided by the applicant's outsourced training partners fall within the scope of the exemption. Accordingly, the share of fees received by the applicant from such outsourced training partners does not qualify for GST exemption.
It is noted that while the applicant has claimed that its courses are vocational in nature, no documentary evidence has been furnished to establish that such courses form part of a curriculum approved by any statutory body or lead to qualifications recognized by any law or by the State Government. In the absence of such evidence, the training institutes of the applicant do not satisfy the definition of an “educational institution” as required under clause (y) of paragraph 2 of the said notification. Accordingly, the benefit of exemption under Entry 66 is not available in the present case - while the responsibility for the “promotion of cultural, educational, and aesthetic aspects” is entrusted to municipalities under Article 243W, the actual imparting of education does not fall within their mandated functions. Hence, the services provided by the applicant do not qualify for exemption under Sl. No. 4 of Notification No. 12/2017-Central Tax (Rate) dated 28-06-2017.
If GST is applicable on the same, if input tax credit is eligible on the amount spent from the grant received from Government in relation to the generation of such income? - HELD THAT:- The applicant has not furnished sufficient clarity regarding the specific nature of goods or services procured using the grant funds, nor has it explained the nexus between such inputs and the taxable supplies namely, the services rendered to training partners or the provision of training through its own institutes. Further, the applicant has not disclosed the precise nature of services rendered to its training partners in consideration of the fee share it receives, which would enable this Authority to determine the underlying taxable supply and corresponding input linkages. It is also noted that grants received from the Government are not, in themselves, consideration for any supply, unless there exists a specific contractual obligation to deliver a supply in return. As such, the grant receipts are not relevant in determining output tax liability but may still be relevant for understanding whether the related inputs support a taxable or exempt supply. In the absence of adequate information regarding the inputs used, their application toward taxable outputs, and the specific business purpose, this Authority is unable to provide a conclusive ruling on the applicant's eligibility to claim ITC.
Notwithstanding the absence of specific factual details in the present case, it is clarified that under the GST law, there exists no provision that restricts the availment of Input Tax Credit solely on the basis that the expenditure has been funded through a government grant. As long as the conditions prescribed under Section 16 of the CGST Act, 2017 are met particularly that the goods or services are used in the course or furtherance of business and are linked to taxable outward supplies, the source of funding, whether internal accruals, loans, or grants, has no bearing on ITC eligibility. Therefore, if the applicant's outward supply is taxable and the input goods or services are directly attributable to such supply, the ITC shall not be denied merely on the ground that the underlying expenditure was incurred using grant funds.
1. ISSUES PRESENTED AND CONSIDERED
(1) Whether the service of providing self-drive passenger vehicles (without driver) on rent is classifiable under Chapter 99, Heading 9973 and Service Code 997311, or under some other Service Accounting Code after the amendments made by Notification No. 20/2019-Central Tax (Rate).
(2) Whether the activity constitutes a "transfer of the right to use goods" attracting Serial No. 17(iii) of Notification No. 11/2017-Central Tax (Rate), or is a different form of leasing/renting of goods.
(3) Whether, for services classifiable under Heading 9973, the applicable rate entry is Serial No. 17(viia) or Serial No. 17(viii) of Notification No. 11/2017-Central Tax (Rate), as amended; and consequently whether the applicable GST rate is 18% or the same rate as on supply of like goods.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (1): Correct classification of the self-drive vehicle rental service
(a) Legal framework
The Court examined the Scheme of Classification of Services and the effect of amendments brought in by Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 and Notification No. 20/2019-Central Tax (Rate) dated 30.09.2019.
Originally, Heading 9966 covered "Rental services of transport vehicles, with or without operator." Post-Notification No. 20/2019, effective 01.10.2019, Heading 9966 was confined to "rental services of transport vehicles with operator." Concurrently, Heading 9973 was amended to read "Leasing or rental services without operator," making it the designated heading for services where no operator is provided.
Within Heading 9973, the Scheme distinguishes: (1) Group 99731 - leasing or rental services concerning machinery and equipment (including certain transport equipment such as containers). (2) Group 99732 - leasing or rental services concerning other goods, with residual Service Code 997329 for "other goods, n.e.c."
(b) Precedent treatment
The Tribunal relied on earlier advance rulings to clarify the post-amendment classification scheme:
(i) It referred to a ruling that, post-Notification No. 20/2019, self-drive rentals without operator were held to fall under Heading 9973 rather than 9966.
(ii) It noticed that another ruling by an Appellate Authority similarly confirmed that rentals without operator are classifiable under SAC 9973, while rentals with operator remain under Heading 9966.
These were followed in substance as supporting authorities for the interpretative shift after 01.10.2019.
(c) Interpretation and reasoning
The Tribunal applied the maxim expressio unius est exclusio alterius to the amendment adding the words "with operator" to Heading 9966. By explicitly including "with operator," the legislature impliedly excluded rentals "without operator" from Heading 9966.
On the facts, the service consists of providing self-drive passenger cars on rent, without any driver, on daily/weekly/monthly basis, for personal (non-commercial) use. No operator is provided; customers arrange their own fuel and must return the vehicle with equivalent fuel level. GPS tracking and remote control features ensure continuous oversight by the owner.
From 01.10.2019, such services therefore cannot fall under Heading 9966, which is confined to rentals with operator. They necessarily fall under Heading 9973 ("leasing or rental services without operator").
Within Heading 9973, the Tribunal held that:
* Group 99731, including SAC 997311, concerns machinery and equipment, including certain transport equipment like containers. Passenger cars used by end-users for self-drive do not appropriately fall within "machinery and equipment" in this context.
* Passenger cars are better characterised as "other goods" and hence fall in Group 99732.
* Within Group 99732, no dedicated service code exists specifically for self-drive passenger cars, and therefore the residual Service Code 997329 ("Leasing or rental services concerning other goods, n.e.c.") is the closest and most specific fit.
The Tribunal rejected classification under SAC 997311 on the ground that it is framed for leasing/renting of transport equipment within the broader category of machinery and equipment, which does not accurately describe consumer self-drive car rentals.
(d) Ratio vs. obiter
The determination that, after 01.10.2019, self-drive vehicle rentals without operator fall under Heading 9973 and within it under SAC 997329 is part of the ratio decidendi, as it directly answers Question 1 and forms the necessary basis for resolving the rate issue (Issue (3)).
References to historical billing under SAC 996601 and the broader interpretative discussion on Heading 9966 before 2019 are largely contextual and explanatory, verging on obiter, as the ruling is confined to the post-amendment period.
(e) Conclusion on Issue (1)
The Tribunal concluded that the applicant's services of providing self-drive passenger cars on rent, without operator, are classifiable under Chapter 99, Heading 9973, Service Code 997329 ("Leasing or rental services concerning other goods, n.e.c."), and not under SAC 997311 or under Heading 9966.
Issue (2): Whether the transaction is a "transfer of the right to use goods" under Serial No. 17(iii)
(a) Legal framework
Serial No. 17(iii) of Notification No. 11/2017-Central Tax (Rate) covers "transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration," which is treated as a deemed sale under Article 366(29A)(d) of the Constitution.
Schedule II, para 5(f) of the CGST Act treats "transfer of the right to use any goods for any purpose for consideration without transfer of title" as a supply of service.
(b) Precedent treatment
The Tribunal applied the test laid down by the Supreme Court in Bharat Sanchar Nigam Ltd. v. Union of India (BSNL), where five cumulative conditions were laid down for a transaction to qualify as a "transfer of the right to use goods," the crucial condition being the conferment of exclusive possession and effective control of the goods upon the transferee for the period of hire.
It also referred to advance rulings where the BSNL test was applied to self-drive vehicles and cycles, holding that such arrangements did not pass the threshold for transfer of right to use goods because the owner retained effective control.
(c) Interpretation and reasoning
On the facts, the hirer receives a vehicle for self-drive use, but:
* The owner tracks the vehicle in real time via GPS (location, speed, fuel, tyre pressure, driver behaviour).
* The owner imposes strict contractual restrictions on the area and manner of use.
* The system can detect unauthorised use or tampering and can remotely immobilise the vehicle.
* The owner retains responsibility vis-à-vis statutory compliances (motor vehicle laws, insurance, third-party damages), subject only to possible reimbursement by the customer.
The Tribunal held that, given this continuous control and unilateral ability to intervene, reclaim, or restrict use, the hirer does not obtain the "exclusive possession and effective control" required under the BSNL test.
The hirer's use is permissive and regulated, rather than an unfettered legal right of possession.
Accordingly, the arrangement does not amount to a "transfer of the right to use goods" under Article 366(29A)(d) and does not fall under Serial No. 17(iii) of Notification No. 11/2017.
(d) Ratio vs. obiter
The finding that the transaction is not a transfer of the right to use goods and hence does not fall under Serial No. 17(iii) is part of the ratio decidendi because it narrows the applicable rate entries and is a necessary step in choosing between Serial No. 17(viia) and 17(viii) (see Issue (3)).
Detailed references to comparable factual matrices in other rulings are illustrative, but do not independently constitute binding reasoning.
(e) Conclusion on Issue (2)
The Tribunal held that the self-drive vehicle rental arrangement does not satisfy the BSNL conditions for "transfer of the right to use goods"; therefore, Serial No. 17(iii) of Notification No. 11/2017-Central Tax (Rate) is inapplicable to the applicant's services.
Issue (3): Applicable rate entry - Serial No. 17(viia) versus 17(viii)
(a) Legal framework
The Tribunal traced the evolution of Serial No. 17 of Notification No. 11/2017-Central Tax (Rate) and its amendments, identifying three relevant entries concerning leasing/renting of goods without operator under Heading 9973:
(i) Serial No. 17(iii) - "Transfer of the right to use any goods..." (TOTRU) - already held inapplicable (Issue (2)).
(ii) Serial No. 17(viia) - "Leasing or renting of goods" - inserted w.e.f. 01.01.2019 by Notification No. 27/2018-Central Tax (Rate), covering leasing/renting of goods that do not qualify as deemed sales under 17(iii). It prescribes the same GST rate as applicable to the supply of like goods.
(iii) Serial No. 17(viii) - "Leasing or rental services, without operator, other than (i) to (vii) and (viia) above" - a residual entry. After amendments, it carries a flat rate of 9% CGST + 9% SGST (18%) and is expressly residual, excluding cases covered by 17(viia).
(b) Precedent treatment
The Tribunal noted divergence in earlier authorities:
* One ruling (same State AAR) had classified self-drive rentals under Serial No. 17(viii), applying the flat 18% rate, treating it as the residual "leasing or rental services without operator" entry.
* Another ruling by an Appellate Authority had instead classified renting of e-bikes and bicycles without operator under Serial No. 17(viia), holding that the applicable rate is the same as that for supply of like goods.
The Tribunal recognised these as divergent approaches and undertook its own interpretative analysis of 17(viia) and 17(viii).
(c) Interpretation and reasoning
Having excluded Serial No. 17(iii) (Issue (2)), the Tribunal considered whether the applicant's service was better covered by Serial No. 17(viia) or Serial No. 17(viii).
It reasoned as follows:
* Factually, the transaction is "leasing or renting of tangible goods (motor vehicles) without transfer of title," with no operator provided.
* Legally, under Section 2(102) of the CGST Act, such leasing/renting is a "service," and Schedule II, para 5(f) expressly deems "transfer of the right to use any goods for any purpose for consideration without transfer of title" as a supply of service. The present case fits within the broader concept of service-based leasing/renting of goods, albeit without constituting a deemed sale under Article 366(29A)(d).
* Serial No. 17(viia) was introduced specifically to cover "Leasing or renting of goods" that are not covered by the deemed sale category in 17(iii). It prescribes a rate linked to the rate on supply of like goods, indicating legislative intent to match service-rate with goods-rate for such non-deemed-sale leasing/renting.
* Serial No. 17(viii) is expressly drafted as a residual entry, to apply only when the services cannot be brought within sub-entries (i) to (vii) and (viia). By its own language, it excludes services already falling under 17(viia).
Applying the principle generalia specialibus non derogant (the specific provision prevails over the general), the Tribunal held that if a service falls within the scope of 17(viia), it cannot be pushed into the residual 17(viii), which is meant as a last resort for unclassified leasing/rental services without operator.
The Tribunal found that the applicant's service is "squarely covered" by the specific language of 17(viia) - being a leasing/renting of goods (passenger motor vehicles), without transfer of title, and not amounting to transfer of right to use in the BSNL sense. Hence 17(viia), and not 17(viii), applies.
(d) Ratio vs. obiter
The holding that Serial No. 17(viia) applies, and that Serial No. 17(viii) does not, is part of the ratio decidendi, as it directly disposes of the applicant's second question on rate. The comparative discussion of differing AAR/AAAR views is supportive and contextual, not essential to the outcome.
(e) Conclusion on Issue (3)
The Tribunal concluded that:
* The applicant's services, classifiable under Heading 9973 (SAC 997329), fall under Serial No. 17(viia) of Notification No. 11/2017-Central Tax (Rate), as amended.
* Serial No. 17(viii) is inapplicable, being a residual entry that is excluded where 17(viia) is attracted.
* The applicable GST rate is therefore the same as the rate on the supply of like goods (i.e., the corresponding goods-rate for the particular category of motor vehicles supplied on rent), and not a flat 18% under Serial No. 17(viii).
Cross-reference summary
* The classification finding (Issue (1), SAC 997329) is foundational to the rate analysis in Issue (3).
* The rejection of "transfer of right to use goods" under BSNL (Issue (2)) directly excludes Serial No. 17(iii) and channels the analysis towards competing entries 17(viia) and 17(viii) (Issue (3)).
* The preference for Serial No. 17(viia) over 17(viii) relies on both the specific-vs-residual interpretative rule and the legislative history linking rentals without operator to Heading 9973 after 01.10.2019.
Classification of the service rendered by the applicant - service of providing self-drive passenger vehicles (without driver) on rent - classifiable under Service Code 997311 or not - applicability of Serial No. 17(iii) of Notification No. 11/2017-Central Tax (Rate) -
Classification of service of providing self-drive passenger vehicles (without driver) on rent - HELD THAT:- The revised description of 9973, read with the Explanatory Notes to the Scheme of Classification of Services, confirms this division: Heading 9966 covers only rental of transport vehicles with operator. Heading 9973 covers leasing or rental services without operator, subdivided according to the type of goods. Within Heading 9973, Group 99731 covers “Leasing' or rental services concerning machinery and equipment,” whereas Group 99732 covers “Leasing or rental services concerning other goods.” Passenger cars do not fit the machinery/equipment grouping and instead fall under the “other goods” group. The residual Service Code 997329 (“Leasing or rental services concerning other goods, n.e.c.”) is thus the closest match for self-drive passenger car rentals. The Explanatory Notes make this distinction clear - the activity is classifiable under Heading 9973 and that the possible rate entries are 17(iii), 17(viia) and 17(viii) of Notification No 11/2017-Central Tax (Rate).
Applicability of Entry 17(iii) - HELD THAT:- This entry covers “transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration,” which is a deemed sale under Article 366(29A)(d) of the Constitution. The Supreme Court in Bharat Sanchar Nigam Ltd. v. Union of India [2006 (3) TMI 1 - SUPREME COURT] laid down five cumulative conditions for a transaction to qualify as such a transfer, the most critical being that the transferee obtains exclusive possession and effective control of the goods for the period of hire, to the exclusion of the owner. In the present case, the arrangement for self-drive vehicle rentals does not satisfy this test. The owner retains significant control over the vehicle at all times-tracking its location via GPS, imposing contractual restrictions on its use, retaining the right to intervene or immobilise the vehicle in cases of breach, and ensuring compliance with stipulated terms.
Once it is established that Entry 17(iii) for “transfer of the right to use goods” does not apply, the classification under Serial No. 17 of Notification No. 11/2017-CT (Rate) narrows down to two possibilities-Entry 17(viia) and Entry 17(viii).
Which is more apt for the applicant's activity-Entry 17(viia) or Entry 17(viii)? - HELD THAT:- While the subject matter of the lease is a tangible good, the nature of supply under GST law is a service. Section 2(102) of the CGST Act defines “services” to include “anything other than goods, money and securities,” and Schedule II, para 5(f) expressly treats “transfer of the right to use any goods for any purpose for consideration without transfer of title” as a supply of service. The present arrangement falls squarely within this description. Therefore, given that the nature of supply is a service of leasing/renting goods, the transaction aligns fully with 17(viia) and does not require recourse to the fallback 17(viii). The residual entry should be applied only when the activity cannot be brought within any of the earlier, more specific sub-entries, which is not the case here.
Applicable GST rate - whether Serial No. 17(viii) of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, as amended by N/N. 20/2019-CT (Rate), is applicable to the services rendered? - whether the GST rate would be 18%? - HELD THAT:- The applicant's service falls squarely under “leasing or renting of goods” as contemplated in Serial No. 17(viia). Entry 17(viia) is a specific provision intended for such arrangements and takes precedence over the residual entry 17(viii), which applies only when no other sub-entry, including 17(viia), is attracted. Accordingly, Serial No. 17(viii) is not applicable to the applicant's services, and the correct classification for rate purposes is under Serial No. 17(viia) of Notification No. 11/2017-CT (Rate), as amended. In terms of rate, Entry 17(viia) prescribes the same GST rate as applicable to the supply of like goods.
1. ISSUES PRESENTED AND CONSIDERED
(1) Whether services by way of renting of residential dwellings by unregistered landlords to a registered person, who further allots them as staff quarters to employees as a welfare/perquisite measure, are liable to GST under the reverse charge mechanism (RCM) in terms of Section 9(3) of the CGST Act and the applicable notifications.
(2) Whether the provision of residential accommodation by an employer to employees, as part of the contractual terms of employment or company policy and without separate recovery of rent, constitutes a "supply" liable to GST, or is covered by Schedule III to the CGST Act as neither a supply of goods nor a supply of services.
(3) Whether input tax credit (ITC) is admissible on GST paid under RCM on the renting of residential dwellings by the registered employer from unregistered persons where such dwellings are used to provide rent-free residential accommodation to employees as a perquisite under the employment contract.
(4) Whether employer-provided transportation and canteen facilities, when covered in the employment contract, being treated as non-taxable on the employer-employee footing, can by analogy justify a similar non-taxable treatment for the renting of residential dwellings to the employer under RCM.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (1): GST liability under RCM on renting of residential dwellings by unregistered landlords to a registered employer
Legal framework
(a) Section 9(3) of the CGST Act, 2017 empowers the Government to specify categories of supply of goods or services on which the tax shall be paid on reverse charge by the recipient.
(b) Notification No. 13/2017-Central Tax (Rate) dated 28.06.2017, as amended by Notification No. 5/2022-Central Tax (Rate) dated 13.07.2022, inserted Sl. No. 5AA providing that "Service by way of renting of residential dwelling to a registered person" is taxable under RCM, where the supplier is "any person" and the recipient is "any registered person".
(c) Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, as amended, at Sl. No. 12, exempts "services by way of renting of residential dwelling for use as residence, except where the residential dwelling is rented to a registered person", subject to a limited exception for proprietors renting in their personal capacity (Explanation 1) and excluding certain accommodation services (Explanation 2).
Interpretation and reasoning
(d) The Tribunal distinguishes two separate transactions: (i) renting of residential dwellings by various unregistered landlords to the applicant (registered employer), and (ii) provision of residential accommodation by the applicant to its employees. The employer-employee relationship is held to be relevant only to the second transaction, and not to the first.
(e) For the first transaction, the suppliers are "unregistered landlords" and the recipient is a "registered person". The applicant is not a proprietorship, and the dwellings are not rented in the personal capacity of a proprietor. Thus, the exemption under Sl. No. 12 of Notification No. 12/2017 does not apply; by express language, the exemption is inapplicable where residential dwelling is rented to a registered person (other than the narrow proprietor exception).
(f) Under Sl. No. 5AA of Notification No. 13/2017 (as amended), any service of renting of residential dwelling to a registered person attracts GST under RCM, payable by the registered recipient. The supplier category being "any person" covers the unregistered landlords; thus registration status of landlords is irrelevant for triggering RCM.
Ratio vs. Obiter
(g) The finding that the renting of residential dwellings by unregistered landlords to the applicant is a taxable supply to a registered person, covered by Sl. No. 5AA of Notification No. 13/2017, and thereby liable to GST under RCM, forms the operative ratio.
Conclusion
(h) GST is payable under reverse charge by the registered employer on rent paid to unregistered landlords for residential dwellings used as staff quarters, by virtue of Sl. No. 5AA of Notification No. 13/2017-Central Tax (Rate), as amended by Notification No. 5/2022-Central Tax (Rate).
Issue (2): Taxability of employer-provided residential accommodation to employees
Legal framework
(a) Section 7(2)(a) of the CGST Act, read with Entry 1 of Schedule III, provides that "services by an employee to the employer in the course of or in relation to his employment" shall be neither a supply of goods nor a supply of services.
(b) Circular No. 172/04/2022-GST dated 06.07.2022 (CBIC), at Serial No. 5, clarifies that perquisites provided by the employer to employees in terms of the contractual agreement are in lieu of services provided by employees in relation to their employment and will not be subjected to GST when provided as per the employment contract.
Precedent treatment
(c) The Tribunal relies upon the CBIC Circular No. 172/04/2022-GST to clarify the GST treatment of perquisites provided under the employment contract. No conflicting judicial precedent is formally analyzed, though the applicant had referred to rulings on other perquisite-type services (canteen, transport) for analogy.
Interpretation and reasoning
(d) The Tribunal assumes, as a foundational fact, that residential accommodation is provided to employees as part of the employment contract or company policy, without any separate rent or recovery from employees. This is treated as a perquisite forming part of the overall compensation/CTC.
(e) Applying the Circular, such perquisites are considered to arise from the contractual employment relationship and are in lieu of services rendered by employees; they therefore fall within the employer-employee nexus contemplated by Schedule III, and are treated as neither a supply of goods nor a supply of services.
(f) On this factual basis, the Tribunal concludes that the provision of residential accommodation by the employer to employees, without any independent consideration, is a non-taxable transaction falling outside the scope of GST.
(g) The Tribunal expressly delineates an alternative scenario: if the employer were to charge rent or recover any amount from employees for such accommodation, the transaction "may amount to an outward supply for consideration", potentially attracting GST. However, this is expressly marked as outside the ruling, which is confined to the fact situation where no consideration is recovered.
Ratio vs. Obiter
(h) The determination that employer-provided, rent-free staff quarters, extended as a perquisite under the employment contract and without separate recovery, are not a "supply" under GST but fall under Schedule III, is the operative ratio.
(i) The observation that a different tax result "may" follow if rent or recovery is made from employees is obiter, confined to a hypothetical scenario not arising on the facts presented.
Conclusion
(j) Accommodation provided by the employer to employees as a perquisite under the employment contract or policy, with no separate recovery of rent, is neither a supply of goods nor a supply of services under Schedule III and is not liable to GST.
Issue (3): Eligibility of ITC on GST paid under RCM on residential dwelling rent used for employee accommodation
Legal framework
(a) Section 16(1) of the CGST Act permits a registered person to take ITC on input tax charged on supply of goods or services used or intended to be used in the course or furtherance of business, subject to conditions and restrictions.
(b) Section 17(2) of the CGST Act stipulates that where goods or services are used partly for effecting taxable supplies and partly for effecting exempt supplies, the ITC shall be restricted to the amount attributable to taxable supplies.
(c) Section 2(47) of the CGST Act defines "exempt supply" to include "non-taxable supply".
Interpretation and reasoning
(d) The renting of residential dwellings from landlords is an "inward supply" on which the applicant pays GST under RCM. This service is used to provide accommodation to employees which, on the facts of this case, has been held to be neither a supply of goods nor a supply of services and hence outside GST.
(e) By virtue of Section 2(47), this non-taxable outward provision of accommodation constitutes an "exempt supply". Therefore, the inward RCM-taxed service is used for making an exempt (non-taxable) outward activity.
(f) Applying Section 17(2), input tax attributable to exempt supplies is not admissible as ITC. Since the entire use of the inward renting service, on the stated facts, is for providing staff accommodation that qualifies as an exempt (non-taxable) activity, ITC on the corresponding RCM tax is barred.
Ratio vs. Obiter
(g) The holding that the non-taxable (Schedule III) provision of residential accommodation to employees is treated as an "exempt supply" for purposes of Section 17(2), and that ITC on RCM for renting such dwellings is inadmissible, is ratio and directly answers the question posed.
Conclusion
(h) The applicant is not eligible to avail ITC on GST paid under RCM on renting of residential dwellings from landlords, to the extent such dwellings are used to provide rent-free accommodation to employees as a perquisite under the employment contract.
Issue (4): Analogy with transportation and canteen facilities provided by employer to employees
Legal framework and precedent references
(a) The applicant relied on the principle that employer-provided canteen and transportation facilities, when forming part of the employment contract, are treated as non-taxable, referring inter alia to a Press Release dated 10.07.2017 and a Maharashtra AAR ruling (Tata Motors Ltd.) which held that nominal recoveries from employees for transportation services cannot be treated as taxable supplies by the employer.
(b) The applicant also acknowledged contrary views in rulings of the Kerala AAR and AAAR (Caltech Polymers Pvt. Ltd.) in respect of canteen recoveries from employees, which treated full or non-subsidized recoveries as taxable outward supplies.
Interpretation and reasoning
(c) The Tribunal characterizes the renting of residential dwellings by landlords to the applicant as a distinct and independent transaction between landlord and employer, unaffected by the employer-employee relationship, unlike perquisites directly provided under the contract of employment.
(d) It holds that the analogy to transportation and canteen facilities is misplaced at the level of the landlord-employer transaction. Even if the subsequent provision of accommodation to employees is non-taxable under Schedule III, the initial renting to the registered employer is squarely covered by Sl. No. 5AA of Notification No. 13/2017 and thus attracts RCM.
(e) Accordingly, the Tribunal rejects the extension of the employer-employee protection (Schedule III) to the independent inward supply from third-party landlords to the employer.
Ratio vs. Obiter
(f) The conclusion that the employer-employee exemption logic applicable to transportation/canteen perquisites cannot be transposed to negate RCM on the landlord-to-employer renting transaction forms part of the reasoning underpinning the ratio on Issue (1). Specific earlier advance rulings cited by the applicant are not followed or overruled but are effectively distinguished on factual and transactional grounds.
Conclusion
(g) Employer-employee treatment of perquisites such as transportation and canteen facilities does not exempt or alter the GST liability under RCM on the renting of residential dwellings to the employer by third-party landlords; the latter is a distinct taxable transaction governed by Notification No. 13/2017 (as amended).
Levy of GST - renting of residential dwellings by unregistered landlords to a registered person - employer-employee relationship - accommodation is provided to the employees - applicability of Reverese Charge Mechanism - Eligibility of Input Tax Credit (ITC) in respect of GST paid under reverse charge on the rent paid by the applicant for residential dwellings.
Rrenting of residential dwellings by unregistered landlords to a registered person - HELD THAT:- The letting of the houses by the applicant to their employees is certainly in the nature of employer-employee relations. However, such a character does not apply to the renting of houses by various land lords to the applicant. Under this arrangement, the unregistered landlords are the suppliers of service, and the applicant is the recipient. Therefore, the provision of residential accommodation by unregistered persons to the applicant cannot be regarded as a service rendered by the employer (i.e., the applicant) to its employees. It is a separate and independent transaction between the landlord and the applicant - Since the applicant is a registered entity under GST and is not operating as a proprietorship concern, the exemption mentioned above will not be applicable to them. As a result, GST is payable on the rent paid by the applicant for the dwellings supplied to them by the land lords.
Eligibility of Input Tax Credit (ITC) in respect of GST paid under reverse charge on the rent paid by the applicant for residential dwellings - HELD THAT:- Section 17 (2) read with Section 2 (47) makes it amply clear that the applicant is not eligible for ITC on the RCM paid by them on residential units taken from various landlords on rent in so far as the outward supply involved is an exempt supply.
Issues: Whether further proceedings pursuant to the penalty notice issued during the subsistence of the stay granted by the Court were liable to remain stayed.
Outcome: The Court directed that all further proceedings arising from the notice shall remain stayed, and disposed of the application.
Validity of reopening of assessment - Penalty under Section 272(A) - HELD THAT:- The order passed by the High Court was stayed by this Court [2025 (6) TMI 86 - SC ORDER (LB)]
An application has been moved by the applicant(s)/petitioner(s) pointing out that in spite of the stay granted by this Court, the respondent-Authority has issued a notice for penalty under Section 272(A) of the Income Tax Act 1961.
In view of the fact that we have stayed the order of the High Court [2025 (4) TMI 1495 - MADRAS HIGH COURT], all further proceedings as a consequence of the notice dated 14.11.2025 shall also remain stayed.
I.A stands disposed of.
Reopening of assessment - notice issued beyond the period of 4 years from the end of the relevant assessment year - as decided by HC [2024 (3) TMI 1501 - BOMBAY HIGH COURT] proviso to Section 147 shall apply in view of an assessment order u/s 143(3) of the Act having been passed on 8th December, 2011 and the notice under Section 148 of the Act was issued four years after the expiry of the relevant assessment year.We are also satisfied that the issue was also a subject of consideration during the assessment proceedings - Delayed filling of SLP - HELD THAT:- There is a gross delay of 483 days in filing the Special Leave Petition which has not been satisfactorily explained by the petitioner.
Even otherwise, we see no reason to interfere with the impugned order passed by the High Court. Special Leave Petition is, therefore, dismissed on the ground of delay as well as merits.
Validity of reopening of assessment - scope of new regime - Extended Period of Limitation as per IT Act read with TOLA - period of limitation - time limits specified under the provisions of” 149(1)(b) of the old regime - as decided by [2024 (12) TMI 1657 - DELHI HIGH COURT] HC First proviso to Section 149(1)(b) requires the determination of whether the time limit prescribed u/s 149(1)(b) of the old regime continues to exist for the assessment year 2021-2022 and before. Resultantly, a notice u/s 148 of the new regime cannot be issued if the period of six years from the end of the relevant assessment year has expired at the time of issuance of the notice. This also ensures that the new time limit of ten years prescribed under Section 149(1)(b) of the new regime applies prospectively.
HELD THAT:- These Special Leave Petitions are covered by the Judgment of this Court rendered in “Union of India & Ors. vs. Rajeev Bansal” [2024 (10) TMI 264 - SUPREME COURT (LB)]
Petitions filed by the Revenue are disposed of. The assessee will be governed by reasons discussed in the said Judgment. The assessing officers will dispose of the objections in terms of the law laid down by this Court
Validity of reopening of assessment - validity of reasons recorded for reopening - addition u/s 68 - bogus LTCG - as alleged entries from whom the assessee has received funds through RTGS and other banking channels were shell companies - As decided by HC [2024 (2) TMI 1609 - GUJARAT HIGH COURT] recording the reasons for reopening of the case, the AO has not recorded his own reasons, but has heavily relied upon the report of the investigating team of Kolkata.
HELD THAT:- The Special Leave Petition is dismissed on the ground of delay as well as on merits.
Pending application(s), if any, shall stand disposed of.
Validity of reopening of assessment - scope of new regime - Extended Period of Limitation as per IT Act read with TOLA -
SLP is disposed of by following the orders in Deepak Steel and Power Limited [2025 (4) TMI 1367 - SC ORDER] and Nehal Ashit Shah [2025 (4) TMI 1095 - SC ORDER] and also by bearing in mind case of Union of India vs. Rajeev Bansal[2024 (10) TMI 264 - SUPREME COURT (LB)
Pending application(s), if any, shall stand disposed of.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether penalty under section 271(1)(c) was leviable where additions/disallowances arose from claims under sections 42, 80-IB(9), depreciation on drilling wells and pipelines, and school building expenditure, in the absence of any finding that particulars furnished in the return were incorrect, erroneous, or false.
1.2 Whether penalty under section 271(1)(c) could be sustained when the ultimate tax liability was determined under Minimum Alternate Tax (MAT) provisions and remained the same as per the return and order giving effect to appellate orders.
1.3 Whether the Tribunal was justified in confirming the order of the appellate authority deleting the penalties, by applying the principles laid down in the decision of the Supreme Court in relation to "making an incorrect or unsustainable claim" and "furnishing inaccurate particulars of income".
2. ISSUE-WISE DETAILED ANALYSIS
2.1 Levy of penalty under section 271(1)(c) in respect of disallowances of claims under sections 42, 80-IB(9), depreciation and school building expenditure
2.1.1 Legal framework (as discussed)
(a) Section 271(1)(c) - concealment of particulars of income or furnishing of inaccurate particulars of income.
(b) Explanation 1 to section 271(1)(c) - deeming fiction regarding concealment where explanation is not substantiated, subject to bona fides and full disclosure of material facts.
(c) Judicial exposition of section 271(1)(c) by the Supreme Court holding that "making an incorrect claim" or a "claim not sustainable in law" does not ipso facto amount to "furnishing inaccurate particulars of income", and that penalty requires particulars in the return to be found inaccurate, incorrect, erroneous, or false.
2.1.2 Interpretation and reasoning
(a) The Tribunal, relying on binding precedent, held that to attract section 271(1)(c) there must be concealment of particulars of income or furnishing of inaccurate particulars; the word "particulars" embraces the details of the claim made.
(b) Where no information given in the return is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing inaccurate particulars; a mere making of a claim that is not sustainable in law does not, by itself, amount to furnishing inaccurate particulars.
(c) In the present case, all material facts relating to claims under section 42 (for different blocks), section 80-IB(9), depreciation on drilling wells and pipelines, and school building expenditure were disclosed in the return and during assessment; there was no finding by the Assessing Officer or appellate authorities that any detail in the return was incorrect, erroneous, or false.
(d) The claims in question were, in fact, initially accepted in the original assessment in an earlier year, and in the year under consideration some claims had been partly or fully allowed at various stages, which supported the bona fide and debatable nature of the issues.
(e) The Tribunal noted that the High Court had admitted a quantum appeal on the section 42 claim, indicating that the issue was debatable; this militated against any presumption of deliberate concealment.
(f) Applying the principle laid down in the earlier High Court decision that Explanation 1 to section 271(1)(c) does not apply where the explanation is bona fide and all material facts are disclosed, the Tribunal concluded that the assessee's explanations for the impugned claims were bona fide and adequately substantiated.
(g) As regards school building expenditure, the Tribunal found that the assessee had made a bona fide claim in the return, and that the subsequent treatment over a period by the appellate authority did not convert the original disclosure into concealment or furnishing of inaccurate particulars.
(h) The Court further noted that, in relation to depreciation on land-based drilling platforms/mineral oil wells, it has been judicially held that mineral oil wells are to be treated as "plant" and not "building", which reinforced that the assessee's claim was on a debatable issue rather than a case of false particulars.
2.1.3 Conclusions
(a) There was no material or finding to show that the assessee had concealed particulars of income or furnished inaccurate particulars; the disallowances arose from bona fide and debatable claims fully disclosed in the return and during assessment.
(b) Mere rejection or non-acceptance of such claims, even when ultimately confirmed in quantum proceedings, did not justify penalty under section 271(1)(c).
(c) The Tribunal was correct in affirming the deletion of penalty in respect of disallowances under section 42, section 80-IB(9), depreciation on drilling wells and pipelines, and school building expenditure.
2.2 Effect of MAT liability and Explanation 4(c) to section 271(1)(c) on levy of penalty
2.2.1 Legal framework (as discussed)
(a) Explanation 4(c) to section 271(1)(c) - computation of "amount of tax sought to be evaded" in cases where tax is payable on book profits under section 115JB (MAT).
(b) Section 115JB - determination of tax liability on the basis of book profits (MAT regime).
2.2.2 Interpretation and reasoning
(a) The Tribunal noted that, in the relevant year, the ultimate tax liability of the assessee was determined under section 115JB (MAT) and the assessee had disclosed income under section 115JB in its return and paid tax accordingly.
(b) It was recorded that, after giving effect to the appellate orders in the quantum proceedings, the tax liability as per the return and the final computation remained the same due to the operation of MAT provisions.
(c) Relying on Explanation 4(c) and on judicial precedent holding that no penalty is leviable where, under MAT, the ultimate tax payable remains unchanged despite additions under the normal provisions, the Tribunal held that in such circumstances no valid "tax sought to be evaded" could be said to arise for the purpose of section 271(1)(c).
(d) The Tribunal therefore upheld the appellate authority's view that no penalty should be levied under section 271(1)(c) when the tax liability under MAT remains the same after adjusting for the disallowances/additions.
2.2.3 Conclusions
(a) In the facts of the case, where tax was ultimately chargeable under the MAT provisions and the tax liability remained the same as per the return and the order giving effect to appellate decisions, penalty under section 271(1)(c) was not leviable in view of Explanation 4(c).
(b) The Tribunal rightly confirmed the deletion of penalty on this independent ground as well.
2.3 Overall justification for Tribunal's confirmation of deletion of penalty
2.3.1 Interpretation and reasoning
(a) The Court approved the Tribunal's reliance on the Supreme Court decision clarifying that incorrect or unsustainable claims, without anything more, do not amount to furnishing inaccurate particulars of income.
(b) The Court accepted the Tribunal's finding that all claims were made on full disclosure of primary facts, were supported by explanation, and in some instances were accepted in original assessments or recognised as debatable by appellate forums, thereby negating any inference of deliberate concealment.
(c) The Court further noted that, particularly for the depreciation on land-based drilling platforms/mineral oil wells, subsequent judicial recognition of such wells as "plant" supported the assessee's treatment and underscored that the claim was at least arguable and bona fide.
2.3.2 Conclusions
(a) The Tribunal's decision to uphold the deletion of penalty under section 271(1)(c) was legally justified on the twin grounds that (i) there was no concealment or furnishing of inaccurate particulars, and (ii) in any event, given MAT-based tax determination, there was effectively no tax sought to be evaded within the meaning of Explanation 4(c).
(b) The substantial questions of law were answered in favour of the assessee and against the Revenue, and the appeals were dismissed.
Penalty u/s 271(1)(c) - disallowance made by the Assessing Officer insofar as deduction under section 42 of the Act for Hazira and Bhandut block, and Surat block, deduction under section 80IB(9) of the Act and claim of depreciation on pipelines - CIT(A) allowed depreciation at the rate of 80% on drilling Well instead of 10% restricted by the AO and allowed the expenses on school building over a period of 10 years.
HELD THAT:- Considering the decision of Hon’ble Apex Court in case of Reliance Petroproducts Pvt. Ltd [2010 (3) TMI 80 - SUPREME COURT] has rightly come to the conclusion that no penalty could have been levied upon the appellant in absence of any finding that details supplied by the appellant in the return of income were found to be incorrect, erroneous or false.
Similarly, so far as the claim of depreciation on land based drilling platform is concerned, this Court in case of Niko Resources Ltd. [2016 (7) TMI 1328 - GUJARAT HIGH COURT] has held that mineral oil Wells to be treated as plant and not building and therefore, in view of such facts also the Tribunal has rightly deleted the penalty levied upon the appellant assessee.
1. ISSUES PRESENTED AND CONSIDERED
(1) Whether the assessee was entitled to special deduction under section 42 of the Income Tax Act, 1961 for the relevant assessment year.
(2) Whether the reassessment under section 147 of the Act was invalid as a mere change of opinion, and whether the assessee could be permitted to raise the challenge to reopening at the appellate stage.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (1): Entitlement to special deduction under section 42 of the Act
Legal framework
Section 42(1) of the Act provides special allowances in respect of business consisting of prospecting for, extraction or production of mineral oil where the Central Government has entered into a written agreement with the assessee, subject to specified conditions. The Court relied upon the principles laid down by the Supreme Court in relation to section 42, including that the agreement with the Central Government must specify the allowances and the manner of computation, and that the agreement constitutes an independent accounting regime overriding general provisions of the Act to that extent.
Interpretation and reasoning
(a) The Tribunal had denied the claim under section 42 by following its earlier decision in another assessee's case involving similar Production Sharing Contracts (PSCs). The assessee before the Court candidly accepted that, in view of the Supreme Court decision on section 42, the deduction was not allowable on merits.
(b) The Court reproduced and applied the reasoning of the Supreme Court which held that to claim deduction under section 42, the following conditions must be fulfilled: (i) business is carried on in association with the Central Government or an authorised person; (ii) business relates to prospecting for, extracting or producing mineral oil, etc.; (iii) there is a written agreement between the Central Government and the assessee; (iv) the agreement is laid before both Houses of Parliament; (v) the allowances claimed are specifically provided for in the agreement; and (vi) the allowances are to be computed in the manner specified in the agreement.
(c) The Supreme Court had further held that the allowances under section 42 are otherwise inadmissible on general principles and are available only if expressly stipulated in the PSC; and that the tax authorities cannot travel beyond the terms of the PSC for this purpose.
(d) Applying this dictum, the Court held that the case before it was squarely covered: the necessary conditions under section 42 were not fulfilled inasmuch as the relevant agreements did not stipulate the special allowances claimed. Therefore, the Assessing Officer could not have granted the deduction in absence of such contractual stipulations.
Conclusions
The assessee was not entitled to special deduction under section 42 of the Act for the year in question. The question was answered in favour of the Revenue and against the assessee.
Issue (2): Validity of reopening and right to raise additional ground challenging reassessment
Legal framework (as discussed)
The Tribunal had declined to entertain the assessee's challenge to reopening on the ground that it was not raised before the Assessing Officer or the first appellate authority and that Rule 27 of the Income Tax (Appellate Tribunal) Rules permits only supporting the order of the Commissioner (Appeals) on issues decided, not the raising of entirely new issues. The Court examined the question of reopening on merits, without deciding the larger procedural issue in the abstract.
Interpretation and reasoning
(a) On scrutiny of the original assessment order under section 143(3), the appellate order of the Commissioner (Appeals), notices and replies, the Court found that the Assessing Officer had not examined on merits the assessee's entitlement to deduction under section 42.
(b) The show cause notice issued during the original assessment pertained to proposed disallowance of the claim under section 42 while computing book profit under section 115JA (MAT), on the footing that the deduction was not debited to the Profit and Loss Account. The Court reasoned that if the Assessing Officer had actually proceeded to disallow the claim under section 42 on merits in the normal computation, the question of applying MAT provisions in the manner done would not have arisen.
(c) From the fact that the Assessing Officer ultimately applied section 115JA, the Court inferred that the claim for deduction under section 42 in the regular computation was not the subject of scrutiny or consideration during the original assessment. Hence, there was no formed opinion on that issue.
(d) On this factual basis, the Court held that the reassessment could not be characterised as a mere change of opinion, since there had been no prior opinion on the eligibility of deduction under section 42 in the original proceedings.
(e) The Court observed that though the Tribunal's reasoning in refusing to allow the assessee to raise the additional ground challenging reopening "may not be tenable", a remand would be an empty formality because, even assuming the assessee had the right to raise such challenge, the contention would fail on merits for the reasons recorded by the Court.
Conclusions
(i) On the facts, the reopening of assessment under section 147 was valid and not vitiated as a mere change of opinion, since there was no prior scrutiny or examination of the merits of the deduction under section 42 in the original assessment.
(ii) In view of the Court's substantive finding upholding the reassessment on merits, the question regarding the Tribunal's refusal to entertain the additional ground was not answered in the abstract; the Court declined to answer the second substantial question as a matter of form, while effectively upholding the reassessment. The appeal was disposed of accordingly.
Deduction u/s 42 - Entitlement to special deduction u/s 42 - business consisting of the prospecting for or extraction for production of mineral oil - HELD THAT:- Whether the assessee is entitled for special deduction under section 42 of the Act for the year under consideration or not, same is no more res integra in view of decision of Joshi Technologies International Inc [2015 (5) TMI 521 - SUPREME COURT] wherein Hon’ble Apex Court regarding the issue of deduction under section 42 held that intention behind the aforesaid clauses is more than apparent, namely, not to look into any other document or correspondence which took place between the parties prior to the signing of this agreement. Not only this, even the so-called "understanding" between the parties is to be ignored as well. It is, therefore, impermissible for the appellant to take the aid of MPSC or the clauses contained therein while construing the terms of PSCs. Therefore, it was not even open to the Income Tax Authorities to go beyond the stipulations contained in the PSCs while making the assessment and had to exclusively remain within the provisions of the Agreement. On that touchstone, the Assessing Officer had no option but to deny the benefit of deductions/allowances claimed by the appellant in its income tax returns filed for the Assessment Year 2005-06.
As already noted that Article 32.2 categorically provides that this Contract shall not be amended, modified, varied or supplemented in any respect except by an instrument in writing signed by all the parties, which shall state the date upon which the amendment or modification shall become effective. In continuation to what has been observed by us while answering point no.(ii) above, it becomes apparent that the question of any intention to the contrary between the parties does not arise. It is because of the reason that Article 32 of the Agreement specifically supersedes any understanding between the parties prior to the effective date of this contract.
Reopening of assessment - We are of the opinion that though the reasons assigned by the Tribunal in not permitting the assessee to raise the additional issue for challenging the reopening may not be tenable, however, in the facts of the case, even if it is held that the assessee was entitled to raise the issue of challenge to reopening, such contention cannot be accepted on merits, therefore, to remand the matter to the Tribunal would be an empty formality as we have already examined the contention of challenge to reopening on merits and are of the opinion that in the facts of the case, the reopening is valid as it cannot be said to be mere change of opinion in absence of any scrutiny and examination by the Assessing Officer on merits of deduction under section 42 of the Act. We, therefore, decline to answer the question no.2 in the facts of the case.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether the addition treating sale proceeds of shares in a penny stock company as unexplained income could be sustained when based solely on undisclosed information not shared with the assessee.
1.2 Whether principles of natural justice were violated by the Assessing Officer in relying on investigation material and information without confronting the assessee with such material.
1.3 Whether the transactions in shares, held for over seven years and supported by documentary evidence (contract notes, Demat account, bank statement, STT-paid sale through stock exchange), could be treated as sham or stage-managed for generating bogus long-term capital gains.
1.4 Whether, in an appeal under section 260A of the Income Tax Act, 1961, any substantial question of law arose from the concurrent factual findings of the appellate authorities deleting the addition.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1 & 2: Basis of addition and compliance with principles of natural justice
Interpretation and reasoning
2.1 The Assessing Officer made an addition of Rs. 7,15,679 treating the sale proceeds of shares of Global Capital Markets Ltd. as unexplained income, solely on the basis of information available with him regarding alleged use of the scrip for generating bogus long-term capital gains and losses.
2.2 The source of such information was neither recorded in the assessment order nor was such information or any relevant material shared with the assessee. The Assessing Officer also did not record whether the assessee's name appeared in the alleged information or whether the assessee's broker was involved in price manipulation.
2.3 The assessee, in reply to the show-cause, furnished return of income, computation, bank statement reflecting the gain, Demat account, broker notes for sale, and broker ledger, and specifically pointed out that one sale entry had been considered twice, including one reversed on the same date. These aspects and evidences were not examined or commented upon by the Assessing Officer, indicating non-application of mind.
2.4 The appellate authority recorded that no statement or relevant part of the material relied upon from the investigation wing was confronted to the assessee, thereby violating the principles of natural justice. The Tribunal affirmed these findings.
Conclusions
2.5 The addition was based on undisclosed and non-confronted information, without examining the assessee's evidences and without establishing any direct nexus between the assessee and alleged price manipulation; the approach violated principles of natural justice and could not be sustained.
Issue 3: Genuineness of share transactions and allegation of sham / bogus long-term capital gain
Interpretation and reasoning
3.1 The assessee had purchased 4,000 shares on 27.03.2003 through a stock exchange (Calcutta Stock Exchange) and sold them on 23.09.2010 through Bombay Stock Exchange; the shares were thus held for more than seven years.
3.2 The assessee showed long-term capital gain of Rs. 3,31,781 in the return and produced contract notes, broker's ledger, Demat account, and bank statement to substantiate purchase and sale; securities transaction tax was paid on sale through stock exchange.
3.3 The appellate authority found that the assessee had proved the "bona fide of nature and source of sum credit" in his books. It was also noted that Global Capital Markets Ltd. continued to be traded on BSE and was neither barred nor blacklisted by SEBI; no material regarding its turnover, profit, or net worth was brought on record to justify treating the scrip as inherently bogus.
3.4 The Assessing Officer did not dispute the holding period, the fact of purchase and sale through recognized exchanges, nor rebut the documentary evidence; the addition proceeded solely on general allegations about penny stock modus operandi without specific linkage to the assessee.
3.5 The Tribunal, affirming the first appellate authority, held that the transactions were carried out in a legitimate manner, and mere characterization of the scrip as a "penny stock" or reliance on an investigation report, without confronting material or establishing manipulation by or on behalf of the assessee, was insufficient to treat the transactions as sham.
Conclusions
3.6 On the factual matrix of long holding period, documented purchase and sale through stock exchanges, payment of STT, and absence of contrary material, the share transactions were to be treated as genuine; the disallowance of long-term capital gain and treatment of the entire sale consideration as unexplained income were rightly deleted.
Issue 4: Existence of substantial question of law under section 260A
Legal framework (as reflected in the judgment)
4.1 The appeal was under section 260A of the Income Tax Act, 1961, which permits an appeal to the High Court only on "substantial questions of law" arising from the order of the Tribunal.
Interpretation and reasoning
4.2 The Court noted the concurrent factual findings of the appellate authorities that: (i) the Assessing Officer had not disclosed or confronted the information relied upon, (ii) the assessee had held the shares for about seven years, (iii) the transactions were routed through recognized stock exchanges and supported by documentary evidence, and (iv) no specific material linked the assessee or its broker to price manipulation or bogus entries.
4.3 Based on these factual determinations, the Court found that the challenge by the revenue merely sought reappreciation of facts and evidentiary conclusions, without demonstrating any perversity in the Tribunal's order or any misinterpretation of law.
Conclusions
4.4 No question of law, much less any substantial question of law, arose from the impugned order of the Tribunal; the appeal was devoid of merit and was dismissed.
Addition of sale proceeds of the share on account of unexplained income - CIT(A) deleted the addition - AO having information that the scrip of Global Capital Markets Ltd is used for generating bogus long term capital gain and long term capital loss by recording modus operendi of penny stock and held that entities involved in the transactions were either bogus or devoid of any financial capacity to make investment.
HELD THAT:- Addition made by the AO is made only on the basis of the information available without recording as to from where such information has been received nor such information was shared with the assessee.
Assessee in the reply has specifically submitted that the assessee has purchased the shares in 2003 which were sold in the Year 2010 and therefore there is no element of earning long term capital gain within a period of less than one year so as to disallow the entire sale consideration as unexplained investment by the AO. It is also not in dispute that the assessee has sold the shares through stock exchange and has also paid the STT.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether the reference to the Departmental Valuation Officer under section 142A, and consequent addition under section 69 as "unexplained investment", was valid where the assessee had in fact purchased (and not sold) the property for a consideration higher than the circle rate/stamp duty value.
1.2 Whether a negligible variation (about 1.71%) between the declared consideration and the value estimated by the Departmental Valuation Officer can justify an addition under section 69.
1.3 Whether the approval granted under section 153D was mechanical and without application of mind, rendering the assessment under section 153A read with section 143(3) invalid.
1.4 Whether, in view of the above findings, the addition made in the hands of the co-owner is also unsustainable.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Validity of reference to DVO and addition under section 69 where property was purchased above circle rate
Legal framework (as discussed)
2.1 The assessment was framed under section 153A read with section 143(3), and the addition was made under section 69 based solely on the fair market value determined by the Departmental Valuation Officer pursuant to a reference under section 142A.
Interpretation and reasoning
2.2 The Court noted that during the relevant year the assessees had jointly purchased property BP-22, West Patel Nagar, New Delhi, for Rs. 9,90,00,000, whereas the circle rate/stamp duty value was Rs. 9,70,06,834. Thus, the declared purchase price exceeded the circle rate.
2.3 Despite repeated written replies and documentary evidence (agreement to sell, sale deed, affidavit of seller's director, bank statements evidencing payment and source, and home loan sanction letter) showing that the assessees had purchased and not sold the property, the Assessing Officer proceeded on the premise that the assessees had sold the property at a value lower than market value.
2.4 The reference to the Departmental Valuation Officer dated 17.03.2022 was founded on this incorrect assumption recorded in the assessment order that the assessees had sold the property and that the sale consideration was lower than "market value". The Assessing Officer explicitly referred the property "to determine the fair market value as on date of sale".
2.5 The Court held that, as a matter of fact, there was no sale by the assessees in the relevant year; instead there was a purchase at a price higher than stamp duty value. Thus, the very factual premise for making a reference to the Departmental Valuation Officer - that the property had been sold below market value - did not exist.
2.6 Consequently, the reference to the Departmental Valuation Officer was held to be based on a wrong factual assumption and "has no factual basis and [is] bad in law". Since the addition under section 69 was founded exclusively on the Departmental Valuation Officer's valuation arising from this invalid reference, the basis for the addition itself was vitiated.
Conclusions
2.7 The reference to the Departmental Valuation Officer under section 142A, having been made on the erroneous assumption that the assessees had sold the property at a value below market rate, was invalid in law.
2.8 The consequent addition under section 69, based solely on such invalid valuation, could not be sustained.
Issue 2 - Effect of negligible variation (1.71%) between declared consideration and DVO valuation
Legal framework (as discussed)
2.9 The Court referred to and applied the principles laid down by the jurisdictional High Court in decisions including Commissioner of Income-tax v. Ambience Developers & Infrastructure (P.) Ltd. and PCIT v. Vishnu Apartments (P.) Ltd., where additions based on minor differences between declared cost and Departmental Valuation Officer's estimate were disapproved.
Interpretation and reasoning
2.10 It was undisputed that the Departmental Valuation Officer valued the property at Rs. 10,06,99,100 while the declared consideration was Rs. 9,90,00,000. The absolute difference was Rs. 16,99,100, amounting to only about 1.71% of the declared consideration.
2.11 Relying on Ambience Developers, where a difference of 3.86% was held to be "very minor" and insufficient to justify an addition, and on Vishnu Apartments, where a 2.54% variation was also held insignificant, the Court held that the variation of 1.71% in the present case was even smaller and clearly negligible.
2.12 The Court held that, in view of these precedents and having regard to the large value involved, such minor variation between the Departmental Valuation Officer's estimate and the declared figure could not form a valid basis for sustaining an addition under section 69.
Conclusions
2.13 Independently of the invalidity in the reference itself, the addition could not be sustained because the variation between the declared price and Departmental Valuation Officer's valuation, being only 1.71%, was insignificant and fell within the range treated as negligible by the jurisdictional High Court.
2.14 On this ground also, the addition under section 69 was liable to be deleted.
Issue 3 - Validity of approval under section 153D and consequent validity of assessment under section 153A read with section 143(3)
Legal framework (as discussed)
2.15 The assessment was made under section 153A read with section 143(3) after obtaining approval of the Joint Commissioner under section 153D. The Court considered whether that approval was mechanical and without application of mind, thereby vitiating the assessment.
Interpretation and reasoning
2.16 The record showed that the assessee had, on multiple occasions before completion of assessment, clearly informed the Assessing Officer that he had purchased, and not sold, the property in question, and furnished extensive supporting evidences. Despite this, the assessment order was framed on the premise that the assessee had sold the property.
2.17 A corrigendum was issued by the Assessing Officer after the assessment, describing the earlier use of the word "sold" as a typographical error and substituting "purchased" while stating that the "rest of the contents" of the order would remain unchanged. The Court considered that both the initial assumption (sale instead of purchase) and the casual correction reinforced that there had been no proper appreciation of the facts at the assessment stage.
2.18 The Court observed that the draft assessment order, premised on the incorrect assumption of sale, was placed before the Joint Commissioner, who granted approval under section 153D without noticing or rectifying the fundamental factual error, despite the material and replies on record showing purchase. This indicated that the Joint Commissioner did not meaningfully examine the record, the draft order, or the assessee's evidences.
2.19 In these circumstances, the Court held that both the Assessing Officer and the Joint Commissioner failed to apply their minds to the true facts. The Joint Commissioner's approval under section 153D was characterised as having been granted "without application of mind", "in an incorrect and inconsistent draft assessment order without perusing the records".
2.20 The Court consequently held that the approval under section 153D was bad in law and that the assessment framed under section 153A read with section 143(3), being founded on such invalid approval, was "null and void".
Conclusions
2.21 The approval accorded under section 153D was mechanical and without proper application of mind, rendering it invalid.
2.22 The assessment under section 153A read with section 143(3), being dependent on such invalid approval, was held to be null and void; on this ground also the impugned addition could not survive.
Issue 4 - Applicability of findings to co-owner's appeal
Interpretation and reasoning
2.23 The co-owner held the remaining 50% share in the same property, and the addition in his case was made in an identical manner, for the same amount of Rs. 8,49,500, based on the same Departmental Valuation Officer's report and the same reasoning.
2.24 The Court held that the facts in the co-owner's case were "identical" to those in the lead case and that the decision in the lead appeal applied mutatis mutandis to the co-owner.
Conclusions
2.25 For the co-owner, the addition under section 69, made on the same invalid reference and insignificant variation, and pursuant to an assessment vitiated by the same defective approval under section 153D, was likewise unsustainable.
2.26 The additions in both appeals were directed to be deleted, and both appeals were allowed.
Unexplained investment u/s 69 - difference between the value of property shown in the sale deed and fair market value determined by the DVO - valuation of property having 50% share as joint owners - AO made a reference to the DVO for the valuation of the property on the premise that the assessee had sold a property in Delhi and as per information available with the Department the market value of the land was very high as compared to the value shown in the sale deed - HELD THAT:- As a matter of fact the assessee’s during the year under consideration never sold any property and on the other hand, they have jointly purchased the property for consideration over and above the circle rate/stamp duty valuation. In the circumstances, we see that the basis and premise on which the AO referred the valuation is on a wrong premise that the assessee’s sold the property and therefore the reference itself has no factual basis and bad in law.
Even otherwise the difference in valuation as per the sale consideration and the DVO is merely Rs. 16,99,100/- which comes to 1.71% and therefore the variation is very negligible.
As in the case of CIT vs. Ambience Developers & Infrastructure Pvt. Ltd. [2012 (8) TMI 157 - DELHI HIGH COURT] held that from a comparison of the valuation by the assessee with that of the DVO the variation is 3.86% and this is a very minor variation having regard to the large sums involved.
Applying the principle laid down by the above judgments to the facts of the assessee’s case, we find that the variation in the case on hand before us is only 1.71% which is a very minor variation and therefore on this account also the addition cannot be sustained.
Validity of approval granted u/s 153D - The draft order sent by the AO for approval u/s 153D for JCIT was promptly approving without even applying the mind to the materials available on record replies furnished by the assessee the documentary evidences proving that the assessee had only purchased the property during the assessment year under consideration but never sold any property. Neither the AO applied his mind while framing the assessment nor the JCIT while granting approval u/s 153D of the Act. The JCIT granted approval in an incorrect and inconsistent draft assessment order without perusing the records and therefore the approval granted u/s 153D is without application of mind and is bad in law and consequently the assessment framed u/s 153A r.w.s. 143(3) of the Act based on an invalid approval granted u/s 153D is null and void. Therefore, on this account also the addition cannot be sustained. Thus, we direct the AO to delete the addition made u/s 69 of the Act. Grounds raised by the assessee are allowed.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether the addition under section 68 in respect of share capital call money and share premium received from corporate investors could be sustained where (i) the Assessing Officer relied on a third-party statement that was neither supplied to the assessee nor subjected to cross-examination, and (ii) the assessee had furnished documentary evidence establishing identity, creditworthiness and genuineness, and similar receipts in earlier/subsequent years were accepted.
1.2 Whether, for the relevant assessment year, the onus under section 68 extended to explaining the "source of source" in the hands of the share subscriber companies in light of the subsequent amendment by Finance Act, 2022.
1.3 Whether ad hoc disallowance of a percentage of expenses on account of "personal use" is permissible in the hands of a private limited company, in the absence of specific defects in the books or expenditure.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1 & 2 - Addition under section 68 on share capital call money and share premium received from corporate investors
Legal framework (as discussed)
2.1 The Tribunal examined section 68 in the context of share capital / share premium received from companies, and the established requirements of proving identity, creditworthiness of investors and genuineness of transactions.
2.2 The Tribunal referred to decisions of the Supreme Court and High Courts emphasising: (i) the requirement of supplying material relied upon by the Revenue and granting opportunity of cross-examination of witnesses whose statements are used against the assessee; (ii) that suspicion, however strong, cannot substitute evidence; and (iii) that once the assessee has discharged its initial onus with supporting documents, additions cannot be made without cogent contrary material.
2.3 The Tribunal also noticed the Finance Act, 2022 insertion of a second proviso to section 68 regarding the obligation to explain the "source of source" in the hands of creditors/entry providers, and expressly recorded that this amendment applies prospectively from assessment year 2023-24 and not to the year under consideration.
Interpretation and reasoning
2.4 The assessee had received call money (including share premium) from eight corporate entities in respect of shares already allotted in earlier years. Detailed particulars were furnished during assessment: identity documents, income tax returns, bank statements, financial statements and evidences of reserves and surplus of investor companies, as well as proof of receipt of funds through banking channels.
2.5 The Assessing Officer treated the entire call money as unexplained under section 68, primarily on the allegation that some of the subscriber companies lacked creditworthiness and were accommodation entry providers, relying on the statement of one third party (alleged entry operator) recorded by the Investigation Wing.
2.6 The Tribunal found that: (i) the said statement was never confronted to the assessee during assessment; (ii) no copy of the statement was provided; (iii) no opportunity for cross-examination was afforded; and (iv) in the remand report, the Assessing Officer himself admitted that the statement was not available in the assessment folder and had not been received from the Investigation Wing. In such circumstances, the Tribunal held that the statement could not be used as evidence against the assessee nor form the sole basis of addition.
2.7 The Tribunal applied the principles laid down by the Supreme Court that additions based on statements of third parties are unsustainable where the statement is not supplied and cross-examination is denied, holding that the duty lies on the Assessing Officer to confront such material before drawing adverse inferences.
2.8 The Tribunal noted that the assessee had been receiving share application money, allotment money and other call monies with respect to the same shares in preceding and succeeding years from the same companies, and that such receipts had been accepted by the Department without any adverse inference. Applying the principle of consistency, it held that the creditworthiness and genuineness of the same subscribers could not be selectively doubted only in the year under appeal without fresh adverse material.
2.9 The Tribunal also observed that: (i) the assessee was engaged in regular business, showing substantial turnover and profits; (ii) low fixed assets alone could not be a valid ground to doubt share premium; and (iii) the subscriber companies had adequate reserves and surpluses on record, and were shown as active in MCA records. No material was brought on record by the Assessing Officer to demonstrate that the funds in the hands of subscriber companies were non-genuine or that the assessee had provided unaccounted cash in lieu of the call money.
2.10 The Tribunal reaffirmed that the addition under section 68 cannot rest on mere suspicion or preponderance of probabilities; concrete evidence is required to show that the ostensible investors are name-lenders or that the assessee's own unaccounted money is routed back, which was absent in the present case.
2.11 On the "source of source", the Tribunal expressly held that the second proviso to section 68 introduced by Finance Act, 2022, mandating explanation of source in the hands of the creditor, is prospective from assessment year 2023-24, and has no application to the assessment year in question. Consequently, the assessee's obligation was confined to proving the identity of the investors, their creditworthiness, and the genuineness of the transactions, which was found to be discharged.
Conclusions
2.12 The Tribunal held that:
(a) The reliance placed by the Assessing Officer on the un-confronted, unavailable third-party statement, without providing a copy or cross-examination, violated principles of natural justice; such a statement could not form the basis of addition under section 68.
(b) The assessee had duly established the identity, creditworthiness of the subscriber companies and genuineness of the share call money transactions through documentary evidence and banking channels.
(c) The Department itself had accepted similar receipts from the same subscribers in earlier and subsequent years, and no contrary evidence was produced to justify a different view for the year under appeal.
(d) The post-2022 "source of source" requirement under section 68 was inapplicable to the relevant assessment year.
2.13 Accordingly, the addition under section 68 in respect of the share call money and premium was deleted and the related grounds were allowed.
Issue 3 - Ad hoc disallowance of expenses in hands of a company on account of "personal use"
Legal framework (as discussed)
3.1 The Tribunal considered the principle that a company is a separate legal and assessable entity distinct from its directors, as recognised by the High Court, and examined whether the concept of "personal use" can be applied to corporate expenditure in the same manner as for individuals or proprietors.
Interpretation and reasoning
3.2 The Assessing Officer had disallowed a portion of various expenses on an ad hoc basis on the ground that an element of personal use could not be ruled out. The first appellate authority reduced the disallowance to 10% of the total expenses without pointing out any specific instance or defect.
3.3 The Tribunal noted that the assessee was a private limited company, a separate legal entity, and that the concept of personal expenditure does not ordinarily arise in respect of a company, since all expenses are, in law, incurred for business purposes of the company, even if they incidentally benefit directors or employees.
3.4 The Tribunal further observed that no specific defect in the books of account, no particular voucher, and no concrete instance of non-business expenditure had been identified by the Assessing Officer or the appellate authority; the disallowance was purely estimative and based on conjecture.
Conclusions
3.5 The Tribunal held that ad hoc disallowance on the ground of possible "personal use" is impermissible in the case of a company without pinpointing specific instances of non-business expenditure or defects in the accounts.
3.6 Accordingly, the 10% disallowance of expenses sustained by the appellate authority was deleted and this ground was allowed.
Addition u/s 68 on account of unexplained cash credit - Reliance on statement of third party - onus of proof - HELD THAT:- While making addition u/s 68 AO has doubted the financial capacity of subscriber companies but such addition cannot be made on preponderance of probability and there has to be some evidence and substance in contention. AO has not brought anything on record to establish that the sources in the hands of subscriber companies are non-genuine. It is well-settled position of law that no matter how strong suspicion is, it cannot take place of the evidence. Therefore, in the absence of any evidence showing that in fact, appellant has given cash in lieu of call money received, merely on the basis of suspicion, no addition can be made for which reliance is placed on decision of Daulatram Rawatmull [1964 (3) TMI 14 - SUPREME COURT]
Looking at the fact that all the relevant details and documentary evidences were filed by the assessee to establish the identity, creditworthiness and genuineness of the transactions, the said evidences cannot be rejected without any contrary documentary evidence brought on record. It is seen all the call money was received through banking channels and the subscriber companies are having sufficient worth int eh shape of their reserves and surpluses which proves the creditworthiness and genuineness of the transactions.
It is trite law that suspicion, howsoever strong, cannot take the place of proof as held in Umacharan Shaw & Bros. [1959 (5) TMI 11 - SUPREME COURT] - The Hon'ble Supreme Court in the case of Dhakeswari Cotton Mills Ltd [1954 (10) TMI 12 - SUPREME COURT (LB)] has observed that powers given to the Revenue authority, howsoever, wide, do not entitle him to make the assessment on pure guess without reference to any evidence or material. The assessment cannot be framed only on bare suspicion. The assessment should rest on principles of law and one should avoid presumption of evasion in every matter. The assessee, in the instant case, has sufficiently demonstrated the creditworthiness of the subscriber companies.
Assessee has been able to discharge the burden casted upon it of establishing the creditworthiness of the subscriber companies and further looking tot eh fact that the department has accepted the creditworthiness of all these subscriber companies on the occasion when they had paid application money and remaining call money. Thus, the addition made is hereby, deleted. Ground of appeal Nos. 1 & 2 raised by the assessee are accordingly, allowed.
Disallowance being 10% of out of various expenses - The Hon’ble Gujarat High Court in the case of Sayaji Iron And Engg. Co [2001 (7) TMI 70 - GUJARAT HIGH COURT] held that limited company is a separate assessable entity from its directors. Therefore, the concept of "personal use" or "non-business purpose" in the context of the company itself is generally not applicable in the same manner as it would be for an individual or a sole proprietorship. Accordingly, disallowance upheld by Ld. CIT(A) out of various expenses claimed is hereby, deleted. Ground of appeal No.3 raised by the assessee is allowed.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether the loss claimed on current year derivative trading in currency derivatives executed through a registered stock exchange could be treated as bogus solely on the basis of Investigation Wing information and a retracted statement recorded under section 132, in absence of corroborative evidence and without affording cross-examination.
1.2 Whether the difference between declared sale consideration of immovable property and the value adopted for stamp duty purposes, being within 5%, attracted section 50C for the relevant assessment year, and whether the third proviso to section 50C introducing a 5% safe harbour tolerance is retrospective in nature, including its impact on depreciation and written down value of building.
1.3 Whether the first appellate authority violated Rule 46A of the Income-tax Rules, 1962 by accepting additional documents without affording the Assessing Officer an opportunity, when such documents were filed pursuant to directions of the appellate authority and/or were already before the Assessing Officer.
1.4 Whether the difference between receipts as per Form 26AS and income credited in the Profit and Loss account justified an addition as undisclosed income, when Form 26AS figures included service tax whereas the accounts recorded only the revenue component separately from service tax, and a minor item of interest income was admittedly omitted.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Addition on account of alleged bogus loss on current year derivatives
Legal framework (as discussed)
2.1 The assessment was made treating the loss from derivative trading in currency derivatives on a recognised stock exchange as bogus, based on Investigation Wing information and a statement recorded under section 132 of the Act from a director of an intermediary company, later retracted. Reference was made to notices issued under section 133(6).
Interpretation and reasoning
2.2 The Tribunal noted the categorical findings that the assessee was a registered broker with a specific client code for trading in currency derivatives on MCX Stock Exchange, had issued valid contract notes, and all trades were executed through the online stock exchange platform and routed through normal banking channels.
2.3 The appellate authority had found that the Assessing Officer did not detect any discrepancy in the derivative trades themselves and relied solely on Investigation Wing information alleging that transactions through a particular company were non-genuine, and on the statement of its director recorded under section 132, which had been retracted.
2.4 It was recorded that: (i) apart from such information and the retracted statement, no independent or further investigation was carried out by the Assessing Officer; (ii) the Assessing Officer issued notice under section 133(6) to the stock exchange but did not discuss or utilise the reply in the assessment order; (iii) the statement of the said director was neither supplied to the assessee nor was cross-examination allowed.
2.5 The appellate authority had further relied on a co-ordinate Bench decision holding that similar current year derivative transactions routed through the same company were genuine, and concluded that there was no corroborative material to establish that the assessee's derivative transactions were sham.
2.6 The Tribunal examined these findings and agreed that the Assessing Officer had merely acted on the Investigation Wing report and a retracted statement, without bringing any tangible material on record to disprove the genuineness of the trades or to contradict the contract notes and exchange-based trades produced by the assessee.
Conclusions
2.7 The loss on current year derivative trading could not be treated as bogus in the absence of corroborative evidence and in light of valid exchange-based transactions supported by contract notes and bank records.
2.8 The deletion of the addition on account of alleged bogus loss in derivative trading was upheld.
Issue 2: Applicability of section 50C and 5% safe harbour, and consequential depreciation
Legal framework (as discussed)
2.9 The Assessing Officer invoked section 50C to substitute the declared sale consideration of a co-owned immovable property with the value as per stamp valuation / DVO, leading to an addition under the head "Capital gains" and consequential adjustment to written down value and depreciation on building.
2.10 The third proviso to section 50C, inserted by the Finance Act, 2018 with effect from 01.04.2019, provides that where the variation between the stamp duty value and the actual consideration does not exceed a specified percentage (5% during the relevant period), the actual consideration shall be deemed to be the full value of consideration. The Assessing Officer contended that this amendment was prospective, as per the Explanatory Notes to the Finance Act, 2018.
Interpretation and reasoning
2.11 The appellate authority found that the DVO's estimated value of the property as on 31.01.2012 was marginally higher than the declared consideration, and that the difference was less than 5% of the declared sale consideration.
2.12 It was noted that several judicial decisions, including those of the same Tribunal, had held the insertion of the third proviso to section 50C to be declaratory and curative in nature, characterising it as procedural and not substantive, and hence retrospective from the date of introduction of section 50C, i.e., 01.04.2003, even though the statute did not expressly provide for retrospective application.
2.13 On this reasoning, the appellate authority held that, since the difference between the DVO value and the declared consideration did not exceed 5%, the assessee was entitled to the safe harbour benefit and section 50C could not be invoked to substitute the declared consideration.
2.14 It was further observed that once the safe harbour rule was applied and no substitution under section 50C was permissible, the assessee's original computation of capital gains remained undisturbed, and consequently the written down value of the building and the depreciation claimed thereon, computed on the basis of such WDV, could not be adjusted.
2.15 The Tribunal agreed with the appellate authority's approach and its conclusion that, in the facts of the case, the difference fell within the permissible tolerance as per the third proviso and therefore no addition under section 50C or on account of depreciation was sustainable.
Conclusions
2.16 The third proviso to section 50C, providing a 5% safe harbour, was held applicable to the assessment year in question as a declaratory and curative provision.
2.17 Since the variation between DVO valuation and declared consideration was within 5%, the declared consideration had to be accepted; no addition under section 50C and no consequential adjustment to written down value or depreciation was warranted.
2.18 The deletion of the addition of capital gains and disallowance of depreciation was upheld.
Issue 3: Alleged violation of Rule 46A by the first appellate authority
Legal framework (as discussed)
2.19 The Revenue alleged that the appellate authority contravened Rule 46A of the Income-tax Rules, 1962 by not remanding fresh documents to the Assessing Officer or calling for his comments before relying upon them.
Interpretation and reasoning
2.20 The Tribunal recorded the factual finding that the assessee had filed documents before the appellate authority only pursuant to directions issued by that authority.
2.21 It was also found that no new documents, which had not been before the Assessing Officer during assessment proceedings, were introduced; the documents were either already on record or were obtained and filed as called for by the appellate authority.
2.22 On these facts, the Tribunal concluded that there was no violation of Rule 46A, as the appellate authority had not entertained independent fresh evidence behind the back of the Assessing Officer, but had exercised its appellate powers in calling for and examining materials.
Conclusions
2.23 No breach of Rule 46A of the Income-tax Rules, 1962 was made out in the conduct of the appellate proceedings.
2.24 The ground alleging procedural violation by the appellate authority was rejected.
Issue 4: Addition for difference between income as per Profit and Loss account and Form 26AS
Legal framework (as discussed)
2.25 The Assessing Officer added the difference between receipts reflected in Form 26AS and income recorded in the Profit and Loss account, treating it as unexplained income, on the ground that the assessee failed to give a satisfactory explanation.
Interpretation and reasoning
2.26 The appellate authority examined the reconciliation furnished by the assessee and found that the gross amounts reported in Form 26AS included service tax, whereas in the books the assessee had recognised only the revenue component in the Profit and Loss account and accounted for service tax separately.
2.27 On this basis, it was held that there was no suppression of income; the apparent difference arose merely because Form 26AS showed composite figures inclusive of service tax, while the accounts reflected net taxable receipts with service tax segregated.
2.28 However, the assessee admitted that interest income from a utility company in the sum of Rs. 39,936 had not been included in total income. The appellate authority directed that only this amount be added to the total income.
2.29 The Tribunal endorsed the finding of fact that, except for the admitted omitted interest income, there was no real difference between the income as per the Profit and Loss account and Form 26AS, as the discrepancy was attributable to inclusion of service tax in Form 26AS figures.
Conclusions
2.30 The addition on account of difference between Form 26AS and the Profit and Loss account was not justified to the extent it arose from inclusion of service tax in Form 26AS figures.
2.31 Only the amount of interest income admittedly omitted by the assessee was liable to be added; the balance addition was rightly deleted, and this deletion was upheld.
Bogus loss on current year derivatives - assessee is a broker with allotted client code for trading in currency derivatives at MCX Stock Exchange - assessee had issued valid contract notes in respect of online trading and all the transactions were accepted on the stock exchange platform - HELD THAT:-We find that the learned CIT (A) has given a very clear-cut finding on the issue that the AO failed to bring on record any material corroborating the allegation against the assessee whereas the assessee has filed all the contract notes for the transactions executed on the exchange before the learned AO. We note that the learned AO has only acted on the report of the investigation wing and retracted statement of Shri Sachet Saraf. Thus, we do not find any infirmity in the order of the learned CIT (A) and are inclined to uphold that the same on this issue by dismissing ground no. 1 and 2 in the appeal of the Revenue.
Addition under the head capital gain by invoking the provisions of Section 50C - AO added the different between sale consideration and the valuation as per stamp valuation authority u/s 50C of the Act while the CIT (A) deleted the addition stating the same to be falling under safe harbor limit of 5% as per third proviso to Section 50C - HELD THAT:- We are in full agreement with the conclusion drawn by the learned CIT (A) with regard to the difference being within the permissible limit as per third proviso to Section 50C of the Act. Therefore, no addition can be made. Decided against revenue.
CIT (A) violating the provisions of Section 46A of the Income Tax Rules, 1962 by not referring to the learned AO the fresh documents submitted before the learned CIT (A) - We find that the assessee has submitted document before the CIT (A) only pursuant to the direction of the learned CIT (A) and no new documents were furnished which were not placed before the AO. Therefore, we do not find any merit in this ground and accordingly the ground no. 5 is dismissed.
Addition of difference between the income shown in Profit and Loss account vis-à-vis 26AS - AO added the same on the ground that the assessee could not furnish any explanation and therefore, added the same to the income of the assessee - CIT (A) deleted the addition - HELD THAT:- We find that the learned CIT (A) has given a clear cut finding that there is no difference of income as shown in the Profit and Loss account vis-à-vis form 26AS. CIT (A) recorded the finding of fact that the income shown in the form 26AS is inclusive of service tax also and thus, there appears to be apparent difference but as a matter of fact there was no difference as the service tax was included in the form 26AS whereas in the Profit and Loss account that was not included and shown separately. Considering these facts, we are inclined to hold the order of learned CIT (A) by dismissing the ground.
Appeal of Revenue is dismissed.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether the first appellate authority was justified in dismissing the appeal ex parte without affording adequate opportunity of hearing to the assessee.
1.2 Whether the adjustment of Rs. 44,00,000/- made in the intimation under Section 143(1) on account of alleged short allowance of deduction towards application/accumulation of income under Sections 11 and 10(23C), and income chargeable under Section 11(1B), was legally sustainable.
2. ISSUE-WISE DETAILED ANALYSIS
2.1 Ex parte dismissal by the first appellate authority
2.1.1 Interpretation and reasoning
The Tribunal noted from the order of the first appellate authority that no opportunity was afforded to the assessee and the appeal was dismissed ex parte. The Tribunal held that such disposal, without giving an opportunity to the assessee, "cannot be held as correct".
2.1.2 Conclusions
The ex parte approach of the first appellate authority in dismissing the appeal without granting opportunity to the assessee was held to be improper and not sustainable.
2.2 Validity of adjustment of Rs. 44,00,000/- in intimation under Section 143(1)
2.2.1 Legal framework (as discussed)
The Tribunal considered the intimation issued under Section 143(1) and the manner in which the Centralized Processing Centre (CPC) made an adjustment leading to an addition of Rs. 44,00,000/-, on the basis of deductions relating to Sections 11, 12 and 10(23C), including income chargeable under Section 11(1B).
2.2.2 Interpretation and reasoning
(a) The Tribunal examined the return of income and the intimation under Section 143(1), specifically the schedule of "DEDUCTIONS" (Item 4) relating to application/accumulation of income under Sections 11 and 10(23C).
(b) It found that, item-wise, all individual deduction figures claimed by the assessee were fully accepted and mirrored by the CPC in the intimation, namely:
- Amount applied during the previous year - revenue account;
- Amount applied during the previous year - capital account (excluding borrowed funds);
- Amount deemed during the previous year as per clause (2) of Explanation to Section 11(1);
- Amount accumulated or set apart to the extent of 15% of income under Section 11(1)(a)/11(1)(b) / third proviso to Section 10(23C);
and that no amount was claimed or allowed under Section 11(2) (item VII) or Section 11(1)(c) (item VIII).
(c) The aggregate "TOTAL [4I+4II+4III+4IV+4V+4VI+4VII+4VIII]" of such deductions was shown as Rs. 7,96,41,565/- in the return. However, in the intimation under Section 143(1), while all the underlying figures were identically accepted, the total was erroneously taken as Rs. 7,52,41,564/-.
(d) The Tribunal held that this discrepancy arose from a pure "totalling mistake" by the CPC and not from any disallowance or recomputation of specific deduction items.
(e) As regards income chargeable under Section 11(1B), the Tribunal recorded that there was no difference between the amount shown by the assessee and the amount computed by the CPC; the figure of Rs. 44,00,000/- appeared in both columns. The CPC's computation of additional income of Rs. 44,00,000/- resulted only from the erroneous reduction of the aggregate of deductions by the same amount due to the incorrect total.
2.2.3 Conclusions
(a) The Tribunal concluded that the addition of Rs. 44,00,000/- in the intimation under Section 143(1) was solely the result of an arithmetical error in totalling the deductions at Item 4, despite all individual deduction claims having been accepted.
(b) The resulting computation of extra income of Rs. 44,00,000/- was therefore incorrect and unsustainable.
(c) The adjustment of Rs. 44,00,000/- made under Section 143(1) was deleted, and the assessee's appeal was allowed.
Addition u/s 143(1) - Mistake by CPC in procession the return - short allowance of deduction towards application/accumulation of income under Sections 11 and 10(23C) - HELD THAT:- All the deductions as claimed by the assessee were duly accepted by the CPC while processing the return. However, there was a totalling mistake made by the CPC and the total of Rs. 7,96,41,565/- of the deductions was wrongly taken at Rs. 7,52,41,564/- by the CPC.
Addition of income chargeable u/s 11(1B) of the Act, there is no difference in the figure of the assessee and the figure as computed by the CPC, as the amount of Rs. 44,00,000/- is appearing in both the columns. It is thus apparent that the CPC had wrongly computed the gross income of Rs. 44,00,000/- which was due to wrong totalling of the four deductions claimed by the assessee and allowed while processing the return. Considering the fact that income of Rs. 44,00,000/- was wrongly computed by the CPC, which was due to arithmetical mistake in totalling the deductions as mentioned at S. No.4 of the intimation, the addition of Rs. 44,00,000/- made u/s 143(1) of the Act is deleted. Assessee appeal allowed.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether the dismissal of the appeal by the appellate authority on the ground of limitation, based on the date mentioned on the intimation under Section 143(1), was legally sustainable in the absence of proof of service of such intimation on the assessee.
1.2 Whether, in the circumstances of the case, the intimation under Section 143(1) could be treated as having been passed on 28.01.2012 when it expressly referred to CBDT Circular No. 13/2016, and what impact this had on computation of delay and service.
1.3 Whether the change of status of the assessee from "any other AOP" to "LLP" while processing the return under Section 143(1), and the consequential tax treatment, was justified, and what course of action was appropriate on the merits of such adjustment.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1 & 2: Limitation, service of intimation under Section 143(1), and validity of date of processing
Interpretation and reasoning
2.1 The appellate authority computed a delay of 4209 days with reference to the date printed on the intimation under Section 143(1), namely 28.01.2012, and dismissed the appeal without examining the merits.
2.2 The Tribunal called for a report from the Assessing Officer regarding service of the intimation. The Department stated that, as per CPC 2.0 data, an intimation under Section 143(1) "passed on 28.01.2012" was "available for AY 2011-12 and shared with the assessee", and that, as a general practice, communications were served by e-mail and through the e-filing portal. However, it was specifically admitted that there was "no tab or details" from which the actual date of service of that intimation on the assessee could be ascertained.
2.3 No copy of any e-mail evidencing service, and no documentary proof of communication of demand or of any subsequent recovery proceedings, was produced by the Revenue.
2.4 On examining the intimation, the Tribunal found that it contained a remark that "This return is processed at CPC as per CBDT Circular No.13/2016". Since the circular is of the year 2016, the Tribunal reasoned that a processing carried out "pursuant to" such circular could not have taken place on 28.01.2012. This internal inconsistency in the document undermined reliance on 28.01.2012 as the actual date of processing or basis for computing delay.
2.5 In the absence of any concrete evidence of the date of communication of the intimation or of recovery action, and keeping in view the inconsistency arising from reference to CBDT Circular No.13/2016 in a document allegedly issued in 2012, the Tribunal held that the assumption that the intimation was both passed and duly served on 28.01.2012 was unsustainable.
2.6 Consequently, the appellate authority was held to have erred in: (i) treating 28.01.2012 as the starting point for computation of delay, and (ii) dismissing the appeal solely on limitation, without first establishing proper service of the intimation and without entering into the merits.
Conclusions
2.7 The Tribunal concluded that the Department failed to establish service of the intimation under Section 143(1) on the assessee or the actual date of such service.
2.8 The Tribunal held that, in view of the reference to CBDT Circular No.13/2016 on the intimation, it could not, in law or on fact, be treated as having been processed on 28.01.2012.
2.9 The order of the appellate authority dismissing the appeal as time-barred on the basis of the date 28.01.2012, without proof of service and without considering the merits, was held to be incorrect.
Issue 3: Legality of change of status from "any other AOP" to "LLP" in processing under Section 143(1) and appropriate course on merits
Legal framework (as discussed)
3.1 The Tribunal noted that the assessee had filed its return declaring its status as "any other AOP". While processing the return under Section 143(1), CPC had treated the assessee as an "LLP", resulting in application of a different rate of tax.
3.2 The assessee's case on merits, as placed before the Tribunal, was that it is a trust declared under a will, being the only trust so declared by the testator, and that it claimed the benefit of first proviso, clause (ii) to Section 164(1), and was therefore taxable as an AOP at rates applicable to an individual, and not at the maximum marginal rate. The assessee also relied on an earlier assessment under Section 143(3) for a prior year in which its status had been accepted as AOP.
Interpretation and reasoning
3.3 The Tribunal observed that, from the return filed, the assessee had disclosed its status as "any other AOP", and that CPC appeared to have treated this as "LLP" while processing under Section 143(1). The only specific grievance on merits before the Tribunal was that this change of status was made without affording an opportunity and that the provisions of Section 164(1), first proviso, clause (ii) and the earlier acceptance of AOP status had not been considered.
3.4 Considering that the appellate authority had not adjudicated on the merits at all and that the issue of correct status involves examination of the nature of the trust, the will, the applicability of Section 164(1), and past assessments, the Tribunal deemed it inappropriate to decide the substantive status and tax rate itself in the absence of factual verification at the assessment stage.
3.5 To ensure proper appreciation of the assessee's claim that it is an AOP falling under Section 164(1), first proviso, clause (ii), and to address the correctness of CPC's treatment as LLP, the Tribunal considered it proper that the jurisdictional Assessing Officer examine the matter afresh after providing due opportunity to the assessee.
Conclusions
3.6 The Tribunal set aside the matter on merits to the file of the jurisdictional Assessing Officer with a specific direction to: (i) give the assessee an opportunity to explain and substantiate the status of "any other AOP" as declared in the return for the relevant year, and (ii) correctly determine the status of the assessee and consequential tax treatment after considering the assessee's submissions and the applicable provisions, including Section 164(1), and past assessments.
3.7 The appeal was treated as allowed for statistical purposes, with the dismissal on limitation being set aside and the merits remanded to the Assessing Officer for fresh adjudication.
Delay in filing the appeal - date mentioned on intimation u/s 143(1) - Addl./JCIT(A) has computed the delay of 4209 days on the basis of the intimation u/s 143(1) - status of the assessee, which was declared as “any other AOP” in the return, was changed to “LLP” in the intimation u/s 143(1) - HELD THAT:- If the return of the assessee for the A.Y. 2011-12 was processed pursuant to CBDT Circular No.13/2016, it could never have been processed on 28.01.2012. The Revenue has also not brought on record any evidence for intimation of demand to the assessee and about any subsequent notice issued to the assessee for recovery of demand.
Addl./JCIT(A) was not correct in computing the delay, if any, on the part of the assessee w.e.f. 28.01.2012. In the absence of any evidence for communicating the intimation to the assessee or any other communication for recovery of demand, we are constrained to come to a conclusion that the intimation was not served on the assessee. As already mentioned earlier, the intimation could not have been passed by the CPC on 28.01.2012 in pursuance to subsequent Circular No.13/2016 of CBDT. Therefore, we are of the opinion that the Ld. Addl./JCIT(A) was not correct in dismissing the appeal of the assessee on the ground of delay in filing the appeal and without examining the facts of the case.
Status was changed from AOP to LLP without allowing any opportunity - From the copy of return filed by the assessee, it is found that the assessee had disclosed its status as “any other AOP”. It appears that the status of “any other AOP” was considered as “LLP” while processing the return u/s 143(1) of the Act. The assessee has explained that the status “any other AOP” was shown considering the provisions of Section 164(1) of the Act, (1st proviso, clause-2) of the Act which was not considered by the CPC. The assessee has further contended that in the assessment order passed under Section 143(3) of the Act for the A.Y. 2008-09, the status of the assessee was treated as AOP by the Department. We deem it proper to set aside the matter to the file of the Jurisdictional Assessing Officer with a direction to allow an opportunity to the assessee to explain the status “any other AOP” as mentioned in the return of income for the A.Y 2011-12. The Jurisdictional Assessing Officer may correctly decide the status of the assessee after considering the reply of the assessee.
Appeal filed by the assessee is allowed for statistical purpose.
ISSUES PRESENTED AND CONSIDERED
1. Whether Foreign Tax Credit (FTC) claimed under section 90 can be disallowed solely on account of delay in furnishing Form 67.
2. Whether the requirement of filing Form 67 for claiming FTC is mandatory or directory.
3. Whether delay in furnishing Form 67 should be condoned and the matter remitted to the Jurisdictional Assessing Officer (JAO) for verification and adjudication on merits.
ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Disallowance of FTC solely for delay in furnishing Form 67
Legal framework: FTC was claimed under section 90 and was not allowed at the processing stage under section 143(1)(a) because Form 67 was not filed within the prescribed time; Form 67 filed subsequently.
Precedent Treatment: The Tribunal relied on its recent decision on an identical issue where FTC denial on account of delayed Form 67 was held impermissible in view of circumstances including pandemic-related disruptions.
Interpretation and reasoning: The Court observed that the assessee had paid taxes abroad and filed the domestic return claiming FTC; non-submission of Form 67 within the due date was held to be an inadvertent oversight aggravated by COVID-19 related abnormalities and changed filing timelines. The Tribunal emphasized that denial of FTC solely on timing of Form 67, without examining veracity of the underlying foreign tax payment and supporting documents, is inappropriate.
Ratio vs. Obiter: Ratio - FTC should not be denied purely for delay in filing Form 67 where the substantive claim and supporting facts exist and can be verified; Obiter - contextual references to pandemic and limitation adjustments informed the exercise of discretion.
Conclusions: Denial of FTC only because Form 67 was filed late was held to be incorrect; the claim should be examined on merits rather than rejected on procedural timing grounds.
Issue 2 - Whether filing Form 67 is mandatory or directory
Legal framework: Statutory/regulatory requirement to furnish Form 67 when claiming FTC, with an applicable due date (noted due date was up to 10/01/2021 in the facts).
Precedent Treatment: The Tribunal followed its precedents (including a recent decision dealing with the same issue) taking the consistent view that filing of Form 67 is directory and not mandatory.
Interpretation and reasoning: The Tribunal reasoned that where the substantive claim of foreign tax payment is supported by documents and the taxpayer subsequently files Form 67 prior to final adjudication, the procedural lapse of late filing should not extinguish the substantive right to FTC. The Court considered the practical difficulties posed by the pandemic and the removal of part of the limitation period by higher authority decisions as relevant context for treating the requirement as directory in application.
Ratio vs. Obiter: Ratio - filing Form 67 is directory; therefore, delay in filing is not, by itself, a valid ground to deny FTC. Obiter - observations about pandemic-related filing difficulties and limitation adjustments as mitigating factors.
Conclusions: The requirement to file Form 67 is directory in nature; the delay in furnishing it does not, per se, justify denial of the FTC claim.
Issue 3 - Condonation of delay and remittal to JAO for verification and adjudication
Legal framework: Administrative powers to condone procedural delays and remit issues to the assessing authority for verification of claims and documents.
Precedent Treatment: Following Tribunal precedent, delay was condoned where Form 67 was filed before the appellate order and where substantive documentation was available for examination.
Interpretation and reasoning: The Tribunal found that Form 67 had been filed prior to the impugned appellate order and that the appellant had placed supporting material on record. Given the tribunal's view that Form 67 is directory, the correct course is to condone delay and direct the JAO to verify the veracity of the FTC claim rather than uphold a denial on procedural timing grounds. The Tribunal stressed that the JAO must provide a reasonable opportunity of hearing and examine the authenticity and legal compliance of the foreign tax payments claimed.
Ratio vs. Obiter: Ratio - where Form 67 is filed late but before adjudication and supporting material exists, delay should be condoned and the matter remitted for verification; Obiter - instructions on procedural fairness and opportunity to be given by the JAO.
Conclusions: Delay in filing Form 67 was condoned; the matter was directed to be restored to the JAO to examine and verify the FTC claim on merits and allow the credit if substantiated, after affording the assessee an opportunity of hearing.
Interrelationship and Court's overall conclusion
The Tribunal treated the issues as interrelated: since Form 67 is directory (Issue 2), denial of FTC solely for delayed filing (Issue 1) is unsustainable, and the appropriate remedial action is condonation and remittal for merits verification (Issue 3). The Tribunal set aside the appellate authority's refusal to consider the late Form 67 and directed factual and documentary verification by the JAO, with liberty to allow FTC if records conform to law.
Disallowing Foreign Tax Credit (FTC) on account of delay in furnishing Form 67 - assessee is a salaried employee who has earned income from salary in Netherlands - HELD THAT:- We note that due date for filing of Form 67 for claiming FTC was upto 10/01/2021, however, appellant has filed on 18/12/2022, which is admittedly much prior to passing of the impugned order. This issue of delay in furnishing of Form 67 has come up before this Tribunal on various occasions and though the assessee has referred to as many as 11 decisions, we take note of the recent decision of this Tribunal in the case of Uttamkumar Tukaram Patil [2025 (5) TMI 2209 - ITAT PUNE] as heldfiling of Form No.67 is directory and not mandatory in nature and therefore delay in filing of such form should not be taken as a ground for denying the claim of FTC.
Thus, we hold that filing of Form 67 is directory in nature and not mandatory. In our view, Ld.CIT(A) ought to have entertained the From 67 filed by the assessee and we, therefore, condone the delay in furnishing of Form 67 filed by the assessee for claiming FTC and direct the Jurisdictional Assessing Officer (JAO) to examine the veracity of the claim by verifying the contents of Form 67 and if found to be in accordance with law, then allow the alleged Foreign Tax Credit to the assessee.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether delay of 473 days in filing the appeal before the Tribunal deserved condonation on account of pendency of rectification proceedings before the appellate authority.
1.2 Whether an additional legal ground challenging the validity of approval under section 151 of the Act, going to the root of jurisdiction, could be admitted at the appellate stage.
1.3 Whether the reopening of assessment under section 147 read with section 148 of the Act was invalid for want of proper, reasoned and non-mechanical sanction under section 151 of the Act.
1.4 Consequentially, whether the penalty levied under section 271(1)(c) of the Act could survive when the quantum reassessment itself was quashed for lack of valid jurisdiction.
2. ISSUE-WISE DETAILED ANALYSIS
2.1 Condonation of delay in filing the appeal
Interpretation and reasoning
2.1.1 The assessee explained that time was granted by the appellate authority to file written submissions up to a particular date, but the order was passed prior to that date. The assessee then filed a rectification application under section 154 and awaited its disposal, resulting in delay in filing the appeal before the Tribunal.
2.1.2 The Tribunal noted that the assessee was bona fide pursuing an alternative legal remedy and, therefore, was prevented by sufficient cause from filing the appeal within the limitation period.
Conclusions
2.1.3 In the interest of substantial justice, the delay of 473 days in filing the appeal was condoned and the appeal was admitted for adjudication.
2.2 Admission of additional legal ground challenging approval under section 151
Interpretation and reasoning
2.2.1 The additional ground alleged that the approval granted under section 151 was bereft of reasons, mechanical and without application of mind, rendering the reassessment proceedings without jurisdiction and bad in law.
2.2.2 The Tribunal observed that this ground relates to the validity of assumption of jurisdiction and goes to the root of the matter. It is purely legal in nature and the necessary facts for its adjudication were already on record.
Conclusions
2.2.3 The additional ground on the validity of approval under section 151 was admitted and taken up first for adjudication.
2.3 Validity of reopening under section 147 for want of proper sanction under section 151
Legal framework (as discussed)
2.3.1 The reasons recorded for reopening assessment under section 147 referred to: non-filing of return for the relevant assessment year; information regarding cash deposits of a specified sum in a savings bank account; absence of explanation for such deposits; non-response to query letter; and the deeming provision under clause (a) of Explanation 2 to section 147 treating the case as one where income had escaped assessment.
2.3.2 It was noted that more than four years had elapsed from the end of the relevant assessment year, and therefore sanction of the competent authority under section 151 was required before issuing notice under section 148.
Interpretation and reasoning
2.3.3 The Assessing Officer recorded detailed reasons and forwarded them with a proforma seeking approval under section 151 to the competent authority.
2.3.4 On perusal of the proforma, the Tribunal found that the competent authority had only stated, in substance, that he was "satisfied that this is a fit case for reopening", without recording any independent satisfaction or reasons.
2.3.5 The Tribunal held that such a bare endorsement, without any indication of application of mind to the reasons recorded by the Assessing Officer, amounts to mechanical approval.
2.3.6 The Tribunal relied on binding precedents wherein similar endorsements like "approved" or equivalent expressions by the sanctioning authority, without more, were held to be mechanical and not in compliance with the requirement of section 151 that the higher authority must apply its mind and form an opinion, even if expressed in brief.
2.3.7 Applying those principles, the Tribunal concluded that the statutory safeguard under section 151 had not been meaningfully complied with in the present case, and therefore the very assumption of jurisdiction under section 147 was vitiated.
Conclusions
2.3.8 The approval under section 151 being mechanical and without proper application of mind, the reopening under section 147/148 was held to be invalid.
2.3.9 Consequently, the entire reassessment proceedings were quashed for lack of valid jurisdiction.
2.3.10 In view of this, other legal grounds on jurisdiction and grounds on merits raised by the assessee were not adjudicated and were left open.
2.4 Consequential effect on penalty under section 271(1)(c)
Interpretation and reasoning
2.4.1 The penalty appeal related to levy of penalty under section 271(1)(c) based on the reassessment that had been quashed for invalid assumption of jurisdiction under section 147.
2.4.2 The Tribunal observed that once the quantum assessment itself is annulled on jurisdictional grounds, the penalty founded upon such assessment loses its substratum.
Conclusions
2.4.3 The penalty under section 271(1)(c) could not survive after the reassessment was quashed, and the penalty appeal was accordingly allowed.
Reopening of assessment - validity of approval granted u/s 151 - HELD THAT:- As reopening has been made in the instant case by not taking approval u/s 151 of the Act from the competent authority in the manner known to law. Accordingly, the entire reassessment proceedings are hereby quashed. Hence, one of the legal grounds challenging the validity of assumption of jurisdiction u/s 147 of the Act is allowed in the above mentioned terms. Since the reassessment is quashed, the other legal grounds raised by the assessee as well as the grounds raised by the assessee on merits need not be adjudicated and they are left open.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether the cash amount of Rs. 71,50,000 credited to the appellant's bank account, originating from the bank account of M/s Shiv Traders, constituted "benami property" and the transaction a "benami transaction" under the Prohibition of Benami Property Transactions Act, 1988.
1.2 Whether the appellant's plea of ignorance of the transaction, on the ground that her husband was managing her financial affairs, absolved her from the consequences of a benami transaction carried out through her bank account.
1.3 Whether assessment proceedings and treatment of the impugned amount as income under the Income-tax Act, 1961, including action under Section 148, nullified or barred proceedings and attachment under the Prohibition of Benami Property Transactions Act, 1988.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Characterisation of the transaction and amount as benami under the Act of 1988
Legal framework (as discussed): The Tribunal proceeded on the scheme of the Prohibition of Benami Property Transactions Act, 1988, concerning "benami transaction", "benamidar", and "beneficial owner", and the competence of the Adjudicating Authority to confirm a Provisional Attachment Order in respect of benami property.
Interpretation and reasoning: The Tribunal noted that during a survey under Section 133A of the Income-tax Act at the relevant bank branch, dummy bank accounts were found to be managed and controlled by two groups. Statements under Section 131 of the Income-tax Act were recorded from persons who admitted that (i) they had deposited large amounts of cash (old high denomination notes) into various bank accounts including that of M/s Shiv Traders, (ii) the cash did not belong to them or the account holders, (iii) the cash was not out of any business activity, and (iv) cash was received from middlemen/beneficiaries and, after deposit, was routed back to such beneficiaries through RTGS/NEFT. It was found that Rs. 8.80 crore was deposited in the bank account of M/s Shiv Traders, a proprietorship concern with no actual business activity; the proprietor admitted that the account was opened and operated at the instance of another person, in return for a fixed monthly cash consideration, and that the account was fully controlled by that person. Those involved further admitted that they had deposited Rs. 32.82 crore in various benami accounts, including Rs. 8.80 crore in the account of M/s Shiv Traders, and that Rs. 71,50,000 out of that was transferred to the appellant's account. On these findings, the Tribunal held that M/s Shiv Traders' account functioned as a benami bank account used to launder demonetized currency, the cash being first deposited in the account of a benamidar and thereafter transferred to the beneficial owners, thereby securing a future benefit for them.
Conclusions: The Tribunal concluded that the chain of transactions, including the transfer of Rs. 71,50,000 to the appellant's bank account from the bank account of M/s Shiv Traders, constituted a benami transaction, and that the amount stood rightly treated and attached as benami property under the Act of 1988. The confirmation of the Provisional Attachment Order by the Adjudicating Authority was upheld.
Issue 2: Effect of the appellant's claimed ignorance and reliance on her husband's management of the account
Interpretation and reasoning: The appellant contended that she was unaware of the transaction, as her husband handled all financial dealings and had informed her that the money represented consideration from a house sale that later did not materialise. The Tribunal noted that, in her statement under Section 131 of the Income-tax Act, the appellant did not claim absolute ignorance of the receipt of money; she acknowledged that she was told it was linked to a property transaction. The Tribunal observed that (i) no documentary evidence, including any Agreement to Sell, had been produced to substantiate a real estate transaction justifying receipt of Rs. 71,50,000 as advance or otherwise; (ii) there was no explanation or documentation evidencing any legitimate transaction between the appellant and M/s Shiv Traders to justify receipt of funds from that firm; and (iii) the money was part of the larger admitted scheme of depositing demonetized cash into benami accounts and routing it back to beneficiaries. On these facts, the Tribunal held that mere assertion of ignorance, or that the husband managed the bank account, could not exonerate the appellant from the consequences of a benami transaction taking place through her account, particularly when the funds were integrally linked to an admitted benami arrangement.
Conclusions: The Tribunal held that the appellant's plea of ignorance and reliance on her husband's handling of the account did not absolve her from involvement in the benami transaction, and did not displace the finding that the amount credited to her account was benami property.
Issue 3: Effect of Income-tax assessment proceedings, including Section 148 action, on benami proceedings
Legal framework (as discussed): The Tribunal considered the relationship between proceedings under the Income-tax Act, 1961 (including reassessment under Section 148 and assessment of undisclosed income) and proceedings under the Prohibition of Benami Property Transactions Act, 1988. It emphasised that these are distinct statutory regimes and actions.
Interpretation and reasoning: The appellant argued that since the amount in question had been subjected to assessment under the Income-tax Act, 1961, pursuant to proceedings under Section 148, the same amount could not form the basis of proceedings or attachment under the Act of 1988. The Tribunal rejected this contention, holding that (i) assessment or surrender of the amount as undisclosed income before the Income Tax Authorities does not nullify or efface a benami transaction that had already taken place; (ii) the action of assessment under the Income-tax Act is distinct and separate from proceedings initiated under the Act of 1988; and (iii) accepting the appellant's argument would enable persons to frustrate and defeat benami proceedings simply by subsequently disclosing the amount as undisclosed income, getting it assessed, and paying tax, thereby undermining the statutory purpose of the Act of 1988. The benami proceedings in the present case were noted as having been initiated prior in time to the subsequent assessment.
Conclusions: The Tribunal held that assessment of the impugned amount as income under the Income-tax Act, including action under Section 148, neither barred nor nullified benami proceedings and attachment under the Prohibition of Benami Property Transactions Act, 1988. The benami attachment and the adjudicating order remained valid notwithstanding the income-tax treatment of the amount.
Benami transaction - Cash deposited in the dummy bank accounts - managed and controlled by two groups - transferred back to beneficial owner - no business activities carried out in the firm or bank account -plea of ignorance of the transaction - appellant pleaded ignorance about the transaction as her bank account was managed by her husband. It was even in her statement u/s 131 of the Income- tax Act, 1961 but ignorance would not absolve the appellant from the benami transaction - HELD THAT:- There is no document to show sale transaction to receive a hefty amount in advance or otherwise. In fact, no Agreement to Sell has been placed on record. The fact further remains that amount aforesaid was transferred from the account of benamidar M/s Shiv Traders with whom the appellant has not shown any transaction so as to justify the receipt of the amount. In fact, using the banking channel, the group of persons got involved to convert demonetized money by the process of bank. The appellant persuaded herself or through husband to get demonetized money to be monetized and entered into the benami transaction under which the property was first transferred to benamidar through the persons and thereupon received back by the beneficial owner as future benefit. Thus, we do not find any error in the impugned order holding a case of benami transaction.
Appellant has referred to the action of the Income Tax Department u/s 148 of the Income-tax Act, 1961 in ignorance of the fact that the subsequent assessment or surrender of money showing it to be undisclosed income before the Income Tax Authorities would not nullify a benami transaction took place prior in time otherwise in all such cases, it would be easy for everyone to frustrate the proceedings of benami transaction by disclosing the amount to be undisclosed income and get assessment of the amount and thereupon pay the tax. The action of the assessment is quite different and distinct then the action under the Act of 1988 initiated prior in time, thus, subsequent assessment by the Income Tax Department would not nullify a benami transaction under the Act of 1988.
We do not find any merit in the appeal and accordingly it fails and is dismissed.
Classification of PVC Resin SP 660 Suspension Grade - to be classified under CTH 3904 2110 as Poly (vinyl Chloride) resins, [appellant] or under CTH 3904 1090 as Poly (vinyl Chloride), not mixed with any other substances - applicability of benefit of N/N. 46/2011-Cus dated 1.6.2011 - it was held by CESTAT that 'the impugned order merits to be set aside and the appropriate Customs tariff heading for the impugned goods held to be 39042110.'
HELD THAT:- There are no error in the order impugned - appeal dismissed.
Valuation - Scope of SCN - Absolute confiscation - imported intra ocular lens - mis-declaration of goods - contravention of licence requirements - short payment of duty - section 28 of Customs Act, 1962 - it was held by CESTAT that 'Both the pillars for confiscation, penalties and differential duty, viz., lack of licence and comparison with imports at Air Cargo Complex (ACC), the consequences of adjudication is without authority of law.'
HELD THAT:- There are no good reason to entertain this appeal(s), particularly when it is found that on the date of the adjudication, the importer held a valid license. However, the question as to whether the Custom Authorities would have a right to confiscate the goods after they had left the Port, is kept open.
Appeal dismissed.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether continued detention of the seized gold bar is lawful in the absence of issuance of a show cause notice within the statutory period under Section 110(2) of the Customs Act, 1962.
1.2 Whether the statement recorded under Section 108 of the Customs Act, 1962, including the purported waiver of show cause notice and personal hearing, could by itself justify confiscation or non-release of the seized gold bar in writ jurisdiction.
1.3 Whether the writ petition seeking direct release of the gold bar could be allowed without a factual inquiry by the Customs Department regarding ownership and foreign origin markings, and what directions were required to ensure due process.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Legality of continued detention of the seized gold bar without issuance of show cause notice under Section 110(2)
Interpretation and reasoning
2.1 The Court noted that the petitioner's gold bar was seized on 5 January 2023 and that no show cause notice had been issued nor any personal hearing granted thereafter.
2.2 The Court relied on the decision of the Supreme Court in Union of India v. Jatin Ahuja, which held that: (i) the only power to extend the six-month period prescribed in Section 110(2) lies in the first proviso to Section 110(2); (ii) release under Section 110A is merely interim and does not affect the mandatory consequence in Section 110(2); and (iii) where no notice under Section 124(a) is given within six months of seizure, and no valid extension under the first proviso is made, the seized goods must be returned to the person from whose possession they were seized.
2.3 The Court further noted the Supreme Court's clarification that the time period to issue notice under Section 124(a) is laid down only in Section 110(2), that the provisions are distinct, and that the consequence of non-compliance with Section 110(2) is return of the seized goods.
Conclusions
2.4 The Court held that, while deciding the petitioner's case, the Customs Department must bear in mind that, under Section 110 of the Customs Act, 1962, read with the law declared in Jatin Ahuja, if no show cause notice has been issued within the statutory period (and validly extended period, if any), the seized goods are liable to be returned to the person from whose possession they were seized.
Issue 2 - Effect of statement under Section 108 and purported waiver of show cause notice and hearing
Legal framework (as discussed)
2.5 The statement of the petitioner was recorded under Section 108 of the Customs Act, 1962, wherein he stated that the gold bar did not belong to him, admitted his omission and commission, expressed willingness to pay duty, fine and penalty, and stated that he did not need any show cause notice or personal hearing.
Interpretation and reasoning
2.6 The Court observed that statements under Section 108 would not be admissible in evidence but that such a statement at least reveals the need for a factual inquiry regarding (i) the correctness of the contents of the statement, and (ii) whether the gold bar bears foreign origin markings.
2.7 The Court noted that a pre-printed waiver of show cause notice and personal hearing had been relied upon by the Customs Department in this case.
2.8 The Court directed that, while passing the final order, the Customs Department shall also consider the legal position laid down in Amit Kumar v. Commissioner of Customs, where no show cause notice was issued and no personal hearing was granted, and a pre-printed waiver of show cause notice and hearing was relied upon.
Conclusions
2.9 The Court held that the Section 108 statement and purported waiver cannot, by themselves and without factual inquiry and due process, justify confiscation or continued non-release in the present writ proceedings, and that the competent authority must examine these aspects in light of the binding legal position, including Amit Kumar.
Issue 3 - Necessity of factual inquiry by Customs and appropriateness of relief in writ jurisdiction
Interpretation and reasoning
2.10 The Court recorded the respondent's contention that the petitioner himself stated that the gold bar did not belong to him, that he had not purchased it, and that the gold bar carried foreign markings, and therefore, in the absence of evidence of ownership, it was liable to confiscation.
2.11 The Court held that the petitioner's Section 108 statement, the question of ownership, and the issue whether the gold bar bears foreign origin markings involve factual determinations which cannot be undertaken in a writ petition.
2.12 Considering these aspects, the Court directed the petitioner to appear before the Customs Department on a specified date, either physically or through an authorised representative, and, if not physically present, to join virtually. The Court further directed that, after verifying the petitioner's credentials and affording him a hearing, the Customs Department shall pass an order in accordance with law.
2.13 The Court also directed that the competent authority shall keep in mind the legal position under Section 110 of the Customs Act, 1962, as interpreted in Jatin Ahuja, and the decision in Amit Kumar, while deciding the matter.
Conclusions
2.14 The Court declined to order direct release of the gold bar in the writ petition and instead directed a time-bound appearance and adjudication before the Customs Department, with an obligation on the authority to afford hearing, verify credentials, conduct the necessary factual inquiry, and decide the issue of release or confiscation strictly in accordance with the statutory scheme and binding precedents.
Seeking release of one gold bar weighing 117 grams which was detained by the Customs Department - after the detention of the gold bar, no SCN has been issued to the Petitioner under Section 110 of the Customs Act, 1962 and no personal hearing was provided - Violation of principles of natural justice - HELD THAT:- The Petitioner is seeking release of the gold bar as continued detention of the same would be contrary to law, in view of the recent decision of the Supreme Court in Jatin Ahuja [2025 (10) TMI 1285 - SC ORDER] where it was held that 'the time period to issue notice under Clause (a) of Section 124 is prescribed only in sub-section (2) of Section 110 of the Act, 1962. This time period has nothing to do ultimately with the issuance of show-cause notice under Section 124 of the Act, 1962. The two provisions are distinct and they operate in a different field.'
Statements under Section 108 would not be admissible in evidence but the said statement at least reveals that a factual inquiry would be required to be undertaken in respect of the contents of the statement as also if the gold bar bears foreign origin markings. These facts cannot be gone into in the present writ petition. Under these circumstances, let the Petitioner appear before the Customs Department on 22nd December, 2025 either physically or through his Authorised Representative with a proper authorisation - In case, the Petitioner is not physically appearing, he shall join the proceedings virtually. After verifying his credentials and affording a hearing the Customs Department shall pass an order in accordance with law.
Petition disposed off.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Classification for export duty - Whether export consignments consisting predominantly of iron ore fines with a small percentage of iron ore lumps can be split and partially assessed as "iron ore lumps" attracting a higher rate of export duty.
1.2 Basis of Fe content and moisture determination - Whether export duty and quantity/value could be redetermined on the basis of CRCL test reports at load port, instead of relying on discharge port analysis and the contractually agreed mechanism reflected in final invoices and BRCs.
1.3 Rejection of declared transaction value and use of contemporaneous prices - Whether the declared export transaction value, as per contracts, final invoices and BRCs, could be rejected and redetermined under the Customs Valuation (Determination of Value of Export Goods) Rules, 2007 by adopting contemporaneous export prices without following the prescribed procedure.
1.4 Cum-duty benefit on FOB value - Whether FOB value for export duty purposes can be treated as cum-duty price so as to permit deduction of export duty therefrom in determining assessable value.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Classification for export duty: treatment of mixed consignments of iron ore fines and lumps
Interpretation and reasoning
2.1 The consignments in question consisted of iron ore fines containing a limited percentage of iron ore lumps as determined by CRCL/CIQ; the lumps were not the predominant component.
2.2 The Tribunal relied on its earlier decisions, inter alia in "Daksh Minerals" and "Atha Mines, Khatau Narbheram & Co.", holding that consignments of iron ore fines having some percentage of iron ore lumps cannot be artificially segregated into fines and lumps for levy of differential export duty.
2.3 It noted that the contracts themselves treated such consignments as iron ore fines, with only a tolerance/penalty mechanism for lumps content above a specified percentage, and penalties had in fact been imposed and deducted where lumps exceeded contractual tolerance.
2.4 On that footing, differential classification and application of higher rate for the small percentage of lumps within bulk fines was held to be unjustified.
Conclusions
2.5 Export consignments consisting predominantly of iron ore fines with limited iron ore lumps are to be treated wholly as iron ore fines for export duty purposes; artificial segregation for applying a higher rate on the lumps portion is impermissible.
Issue 2 - Basis for Fe content and moisture: CRCL load-port tests vs. discharge-port results and contractual mechanism
Legal framework (as discussed)
2.6 The Tribunal proceeded on the basis of section 14 of the Customs Act, 1962 and the Customs Valuation (Determination of Value of Export Goods) Rules, 2007, as read in earlier precedents and CBIC Circular No. 12/2014-Cus, which recognizes finalization of provisional assessment with reference to discharge port test reports where variations are within contractual tolerance and do not impinge on price.
Interpretation and reasoning
2.7 In all appeals, there were written contracts stipulating that final price would be determined on the basis of Fe content and moisture percentage ascertained at the discharge port, with tolerance limits and bonus/penalty clauses.
2.8 Final invoices were issued strictly in terms of these contractual provisions, and the consideration realized, as evidenced by BRCs, matched the final invoices; there was no allegation or evidence of extra consideration being received.
2.9 The Tribunal held that, in such circumstances, Fe content and moisture must be taken as per discharge-port reports forming the basis of the contract price, and moisture percentage is irrelevant for export duty when the levy is ad valorem and not on specific weight or quantity.
2.10 It relied on its own decisions, including in "Bonai Industrial Co. Pvt Ltd, Rungta Mines, Feegrade & Co. Pvt Ltd & Others", "Essel Mining & Industries Ltd" and "VGM Exports", which hold that where price is finally determined on discharge-port analysis and fully realized through banking channels, export duty is payable on such transaction value; CRCL load-port results cannot be used to recast value or quantity in such cases.
Conclusions
2.11 On finalization of provisionally assessed shipping bills, where the final invoice and BRC reflect the contractually agreed price based on discharge-port Fe and moisture within contractual tolerance, export duty cannot be redetermined on the basis of CRCL load-port reports by altering either Fe content or moisture-derived quantity.
2.12 Consequently, redetermination of value/quantity on the basis of CRCL moisture and Fe results, in preference to discharge-port and contractual mechanism, is impermissible in the facts of these cases.
Issue 3 - Rejection of declared transaction value and adoption of contemporaneous export prices
Legal framework (as discussed)
2.13 The Tribunal proceeded with reference to section 14 of the Customs Act, 1962 and the Customs Valuation (Determination of Value of Export Goods) Rules, 2007, particularly the principle that transaction value is the primary basis and can be rejected only in accordance with the Rules and for recorded reasons.
Interpretation and reasoning
2.14 The exporters had declared prices at the time of export, followed by final invoices and BRCs at the stage of finalization; assessments had been provisional and the department itself accepted the provisional nature of initial prices.
2.15 There was no allegation that exporters had received any consideration over and above amounts shown in the final invoices and BRCs.
2.16 The Tribunal found that the assessing authorities rejected the declared transaction value and adopted higher "contemporaneous prices" without:
* disclosing to exporters the material relied upon,
* establishing that the compared consignments were identical or similar in terms of quantity, grade, destination, etc., or
* recording reasons why the contract-based transaction value was unacceptable under section 14 and the Valuation Rules.
2.17 The Tribunal held that such rejection of transaction value and recourse to Rule-based redetermination were contrary to the statutory scheme and prior judicial precedents, particularly where BRC-supported contract price was not shown to be unreal or manipulated.
Conclusions
2.18 The contract price reflected in final invoices and BRCs constitutes the transaction value under section 14 in these cases and cannot be discarded merely because other exporters obtained higher prices.
2.19 The department's redetermination of export value by adopting contemporaneous prices, without proper justification and without following the procedural safeguards under the Valuation Rules, is unsustainable; corresponding demands based on such enhanced values are set aside.
Issue 4 - Cum-duty benefit on FOB value in computation of export duty
Legal framework (as discussed)
2.20 The Tribunal considered the effect of the valuation regime applicable from 01.01.2009 under section 14 of the Customs Act and the Customs Valuation Rules, as interpreted in earlier decisions including "CC (Port), Kolkata v. Sesa Goa Ltd" and "Mahalakshmi & Co v. CC, Visakhapatnam".
Interpretation and reasoning
2.21 Following these precedents, the Tribunal held that, with effect from 01.01.2009, the assessable value for export duty is the FOB transaction value itself; export duty is chargeable on that FOB value and not on a cum-duty derived value.
2.22 Therefore, the argument that the declared FOB value should be treated as inclusive of export duty and reduced to arrive at an assessable value was rejected as contrary to settled law.
Conclusions
2.23 No cum-duty benefit is admissible in computing value for export duty; the FOB value declared (and accepted as transaction value) is the assessable value on which export duty is to be calculated.
Overall Disposition (arising from the above issues)
2.24 Departmental appeals challenging acceptance of contract-based values and discharge-port parameters are dismissed.
2.25 Exporters' appeals succeed to the extent that: (i) consignments are to be treated as iron ore fines for duty rate purposes; and (ii) redetermination of value/quantity by CRCL results or contemporaneous prices is set aside.
2.26 As FOB value is to be taken as such without cum-duty adjustment, the computation of refunds is remanded to the original authority to recompute in accordance with the Tribunal's findings on all issues.
Refund claim - rejection of part or full on finalization of provisional assessment or in view of demand made for payment of additional duty as a consequence to finalization - Application of higher rate of duty by treating certain quantity of exported Iron Ore fines as Iron Ore lumps, attracting higher duty - Redetermination of export duty on the basis of the Fe content and moisture percentage as determined by CRCL at the time of export instead of as determined by CIQ at discharge port - Redetermination of export value by resorting to Customs Valuation (Determination of Price of Export Goods) Rules, 2007 rejecting the declared export value - Denial of cum-duty benefit on FOB value for computation of value for charging export duty.
Application of higher rate of duty by treating certain quantity of exported Iron Ore fines as Iron Ore lumps, attracting higher duty - HELD THAT:- It is found that these export consignments were having certain percentage of Iron Ore lumps also and thus, were mixture of both Iron Ore fines and Iron Ore lumps. Admittedly, the percentage of lumps determined on the sample basis by either CRCL or CIQ report is also not very high so as to make lumps as predominant component of mixed ore - there cannot be an applicability of higher rate of duty by treating exported Iron Ore fines as Iron Ore lumps in the given factual matrix of the case.
Redetermination of export duty on the basis of the Fe content and moisture percentage as determined by CRCL at the time of export instead of as determined by CIQ at discharge port - Redetermination of export value by resorting to Customs Valuation (Determination of Price of Export Goods) Rules, 2007 rejecting the declared export value as true transaction value and adopting contemporaneous price Without following the prescribed procedure or giving opportunity to rebut the same - HELD THAT:- It is now settled position that wherever there is a contract, which provides for final determination of export value based on the Fe content as also moisture percentage, the Fe content and the moisture percentage determined at discharge port has to be taken into account based on which final invoice is issued and the amount is realized. In all these cases, there is a contract, which provides for determination of Fe content as well as moisture percentage at discharge port and also the final price to be worked out based on these two parameters including permissible tolerance and applicability of bonus/penalty etc. There is no dispute that the assessments were not kept provisional and neither exporter nor the department had considered the said declared price at the time of export as final price. There is also no dispute that the appellants/exporters have realized any amount over and above what has been declared in the final invoice, as evidenced by the respective BRCs submitted by them - It is also noted that the procedure adopted for rejection of declared transaction value and adoption of contemporaneous price has not been followed strictly by explaining to the appellants/exporters about the basis and applicability of contemporaneous price or the reasons for rejecting the transaction value.
Denial of cum-duty benefit on FOB value for computation of value for charging export duty - HELD THAT:- The matter is no longer res integra as the transaction value w.e.f. 01.01.2009 has to be the FOB price and no cum-duty benefit is admissible for computing the value for payment of export duty. This view has been upheld by the Tribunal in the case of CC (Port), Kolkata Vs Sesa Goa Ltd [2014 (8) TMI 213 - CESTAT KOLKATA] and Mahalakshmi & Co Vs CC, Visakhapatnam [2025 (8) TMI 1306 - CESTAT HYDERABAD] where similar view has been taken. Thus, to this extent, appeal cannot sustain.
The appeals filed by the department are dismissed, as the grounds taken for rejecting the Order of the Commissioner (Appeals) are not sustainable.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether finalisation of provisional assessments under Section 18 of the Customs Act, 1962 after a delay of about five years from provisional assessment is legally sustainable, in the absence of any statutory limitation but in the face of CBEC instructions and judicially evolved concept of "reasonable time".
1.2 Whether a demand of differential duty under Section 28 of the Customs Act, 1962 can be confirmed in respect of provisionally assessed Bills of Entry without (a) first passing an order of final assessment under Section 18, and (b) issuing a show cause notice under Section 28, and whether such confirmation violates principles of natural justice.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Time frame and legality of delayed finalisation of provisional assessment under Section 18
(a) Legal framework as discussed
2.1 The Court noted that Section 18 of the Customs Act, 1962, as applicable to the relevant period, did not prescribe any specific time limit for finalisation of provisional assessments. However, Chapter 7 of the CBEC Customs Manual, read with instructions/circulars (F. No. 512/5/72-Cus VI dated 23-4-1973; F. No. 571/7/77-Cus VI dated 9-1-1978; Circular No. 17/2011-Cus dated 8-4-2011), mandated that provisional assessments must be finalised expeditiously, generally within six months, save limited exceptions (e.g., large project imports).
2.2 The Court referred to judicial precedents (including the decisions in Gupta Smelters and State of Punjab v. Bhatinda District Co-op. Milk Producers Union Ltd. as extracted therein) holding that, where the statute is silent, actions must be taken within a "reasonable period", and that five years is treated as a reasonable outer limit in fiscal matters, including for conclusion of proceedings.
2.3 The Court treated Section 11A of the Central Excise Act, 1944 as pari materia to Section 28 of the Customs Act, and relied on precedents which held that statutory and administrative time norms must guide the concept of "reasonable time" even when an express limit is absent.
(b) Interpretation and reasoning
2.4 The Court rejected the Revenue's argument that absence of an express statutory period in Section 18 allows finalisation at any time at the discretion of authorities. It held that the absence of a time limit does not confer a licence on departmental officers to finalise provisional assessment "at their sweet will".
2.5 The Court held that CBEC instructions, though not overriding the statute, are binding on departmental officers and reflect the proper administrative understanding that provisional assessments must ordinarily be finalised within six months, barring reasonable and explained deviations for complex cases. A spillover of the six-month period "to a few more months" may be understandable, but not a delay of 5-6 years without justification.
2.6 Relying on the reasoning in Gupta Smelters (as extracted), the Court emphasised that when the legislature has prescribed limitation periods elsewhere in the statute (e.g., one year/five years under Section 28) and the courts have accepted five years as a reasonable outer time limit for fiscal proceedings, the same standard must inform the timeframe for finalising provisional assessments. If a demand cannot be issued beyond five years, provisional assessments also cannot ordinarily be finalised beyond that period without valid reasons.
2.7 On facts, the Court found that the imports, sampling, and test reports were all completed long before initiation of finalisation and demand, but the department "slept over the matter" for about five years. No valid explanation was given for such inordinate delay, and the delay far exceeded the administrative six-month norm and the judicially-accepted five-year reasonable period.
(c) Conclusions
2.8 The Court held that finalisation of provisional assessment after such inordinate and unexplained delay was not in conformity with the concept of "reasonable time" and the binding CBEC instructions. The proceedings, including the attempt to finalise provisional assessments and raise consequential demand after about five years, stood vitiated on this ground.
Issue 2 - Preconditions for demand under Section 28 where assessment is provisional; requirement of finalisation order and show cause notice; natural justice
(a) Legal framework as discussed
2.9 The Court examined the interplay between Section 18 and Section 28 of the Customs Act, 1962, with reference to analogous provisions in excise law and the jurisprudence thereon.
2.10 The Court relied extensively on the Supreme Court judgment in ITC Ltd., rendered under the Central Excise Act, 1944, which held inter alia:
(i) Section 11A (recovery of duty not levied/short levied, etc.) is a penal provision and its procedure must be strictly followed.
(ii) In cases of provisional assessment, the "relevant date" for limitation under Section 11A is the date of adjustment after final assessment.
(iii) A proceeding under Section 11A cannot be initiated without completing the assessment; finalisation of provisional assessment is a sine qua non for issuance of a show cause notice.
(iv) Provisional assessment and final assessment are distinct stages, and liability crystalises only upon completion of final assessment.
2.11 The Court further noted that the Tribunal and High Courts had consistently followed ITC Ltd., reiterating that no show cause notice for recovery can be validly issued prior to finalisation of provisional assessment.
2.12 The Court also referred to the jurisprudence in Gupta Smelters and related cases (under Section 18 of the Customs Act) which held that final assessment under Section 18 cannot be made after expiry of five years from the date of Bill of Entry and that belated attempts to finalise provisional assessment are liable to be quashed.
2.13 The Court held that Section 11A of the Central Excise Act is pari materia with Section 28 of the Customs Act and, therefore, the ratio in ITC Ltd. and related decisions applies squarely to customs proceedings involving provisional assessment.
(b) Interpretation and reasoning
2.14 The Revenue contended that: (i) Section 18 inherently empowered officers to finalise provisional assessments even before insertion of sub-section (1A); (ii) demand of differential duty "flows" directly from finalisation under Section 18 and a separate show cause notice under Section 28 is not required; and (iii) Section 28 merely enforces the demand created by Section 18, not vice versa.
2.15 The Court rejected this reasoning. It held that if differential duty is sought to be recovered from an importer, the statutory mechanism in Section 28 must be complied with. The very fact that Section 28 defines a specific "relevant date" for cases where duty is provisionally assessed-"the date of adjustment of duty after the final assessment thereof or reassessment"-demonstrates that:
(i) an order of final assessment (or reassessment) under Section 18 is a necessary precondition; and
(ii) only thereafter can limitation under Section 28 be computed and recovery proceedings be validly initiated.
2.16 The Court found that, in the present case, no specific order finalising the provisional assessment had been passed, and yet differential duty was confirmed under Section 28 without issuance of any show cause notice. This was held to be directly contrary to the statutory scheme and the ratio of ITC Ltd. and related authorities.
2.17 The Court emphasised that, consistent with ITC Ltd., liability to pay any differential duty in provisional assessment cases arises only after final assessment is completed. Only then, and only through a properly issued show cause notice under Section 28 within the prescribed or reasonable limitation, can recovery be pursued. Without a final assessment and without a show cause notice, no enforceable demand can be created.
2.18 The Court further noted that, apart from this statutory infirmity, the absence of a show cause notice and the denial of cross-examination (sought in relation to the CRCL report) together constituted a violation of principles of natural justice.
(c) Conclusions
2.19 The Court concluded that:
(i) Provisions of Section 28 are not attracted unless and until provisional assessments under Section 18 are first finalised by a speaking order.
(ii) In the present case, no such finalisation order was passed and no show cause notice under Section 28 was issued; therefore, the confirmation of differential duty was without authority of law.
(iii) The absence of a show cause notice and denial of cross-examination also resulted in violation of principles of natural justice.
2.20 Consequently, the Court held that the proceedings culminating in the impugned order were not maintainable in law and lacked legal force, and therefore the impugned order was set aside and the appeal allowed.
Classification of imported Rubber Processing Oil - classifiable under CTH 27079900 or not - order issued to finalise assessment, is time barred as the assessment has been made after expiry of five years from the date of provisional assessment, or not - whether the Revenue could proceed to conform the differential duty without issuing a show cause notice under section 28 after five years of assessing the imported goods provisionally? - HELD THAT:- It is found that the importer declared the impugned goods as ‘Rubber Processing Oil’ (RPO); after getting the samples tested from CRCL, Revenue came to the conclusion that the impugned goods were not RPO as declared as they deviated in certain characteristics like viscosity and total percentage of compounds. The appellants submit that the reports given by CRCL indicate that the impugned products fail to satisfy the specifications for RPO and do not indicate as to what the product in question was; revenue enhanced the value of the imported goods in an arbitrary manner; there is no evidence of any value of contemporaneous imports of identical goods; there is no evidence to the effect that the actual transaction value of the goods was suppressed and that the differential payment was made through non-banking channels and in the absence of any evidence, enhancement of value is not tenable.
Hon’ble Supreme Court held in the case of ITC [2006 (10) TMI 149 - SUPREME COURT] held that finalisation of provisional assessment sine qua non for issuance of notice under Section 11A.
Demand of differential duty under Section 28 - HELD THAT:- Section 28 provides that in a case where duty is provisionally assessed under Section 18, the date of adjustment of duty after the final assessment thereof or reassessment, as the case may be. It is found that having not passed an order finalising the provisional assessment, Revenue has not made out a case for confirmation of the demand under Section 28, there too without a Show Cause Notice. We find that this is violation of Principles of Natural Justice, coupled with the denial of cross-examination.
The provisions of Section 28 are not attracted unless the provisional assessment is finalised. Therefore, the proceedings in the impugned case and the impugned orders do not have the force of Law and therefore, not maintainable - Appeal allowed.
ISSUES PRESENTED AND CONSIDERED
1. Whether officers of the Directorate of Revenue Intelligence constitute "proper officer" empowered to issue a show cause notice under Section 28 of the Customs Act.
2. Whether the imported vehicle was liable to confiscation under Sections 111(d) and 111(m) of the Customs Act, having regard to alleged mis-declaration (as "new") and undervaluation at import.
3. Whether goods once released on redemption fine/under earlier adjudication can be re-confiscated or subjected to fresh confiscation/penalty proceedings against subsequent purchasers.
4. Whether penalties under Section 112(a) and Section 114AA can be sustained against subsequent purchasers/assisting persons who acquired possession after import, including issues of mens rea, abetment, and reliance on statements of third parties without corroboration or opportunity for cross-examination.
5. Whether evidence relied upon (investigating officer statements, confessions of intermediaries) without corroborative documentary proof suffices to infer collusion and to impose penalties.
ISSUE-WISE DETAILED ANALYSIS
Issue 1: Jurisdiction of DRI to issue show cause notice under Section 28
Legal framework: Section 28 authorises a "proper officer" to issue notices; the term "proper officer" is defined in statute as an officer assigned functions by Board/Commissioner.
Precedent treatment: The Tribunal observed that a recent apex review decision has settled that DRI officers qualify as "proper officer" for issuance of show cause notices under Section 28.
Interpretation and reasoning: A combined reading of Section 28 and the statutory definition of "proper officer" demonstrates that officers designated by the Board/Commissioner, including DRI officers, can issue notices. The Court accepts the apex pronouncement as determinative.
Ratio vs. Obiter: Ratio - DRI officers are proper officers for Section 28 notices; conclusion follows from binding higher court decision.
Conclusion: Challenge to jurisdiction of DRI to issue the show cause notice is rejected.
Issue 2: Liability to confiscation under Sections 111(d) and 111(m)
Legal framework: Section 111(d) covers goods imported contrary to prohibitions; Section 111(m) covers goods not corresponding in value or particulars with entry made under the Act. Section 125 permits release on redemption fine but requires assessment of market value and payment of duties before release.
Precedent treatment: The Tribunal relied on its own findings of mis-declaration and undervaluation in the adjudicating order and referenced prior tribunal/high court authority holding that re-confiscation after release on redemption is impermissible in certain circumstances.
Interpretation and reasoning: The adjudicating authority concluded that the vehicle was registered abroad, not "new", and was undervalued in declared invoices; intermediary exporter was not authorized dealer; intermediary importation scheme involved deliberate suppression. Those factual findings, if sustained, fall within Sections 111(d) and 111(m). However, the Tribunal examined whether the goods, having been earlier adjudicated and released on payment of redemption fine, could be re-confiscated.
Ratio vs. Obiter: Ratio - Where goods have been released on redemption after an adjudication that ought to have assessed market value and duties, a later attempt to re-confiscate and saddle a subsequent bona fide purchaser with liability is impermissible; this follows established binding authority.
Conclusion: Confiscation in the impugned order could not be upheld where goods had previously been redeemed/released; re-confiscation against subsequent purchaser is not sustainable on these facts. Consequently, confiscation set aside.
Issue 3: Imposition of penalties under Section 112(a) on subsequent purchasers and assisting persons
Legal framework: Section 112(a) penalises persons who do or omit acts rendering goods liable to confiscation or who abet such acts. Mens rea/knowledge is material to abetment; statutory scheme addresses penalties on persons dealing with goods liable to confiscation.
Precedent treatment: The Tribunal considered authorities holding that mere subsequent purchase does not automatically attract penalty where purchaser is bona fide and had no role in import or misdeclaration; conversely, jurisprudence recognises imposition where purchaser's conduct reflects knowledge or reasonable belief of illegality.
Interpretation and reasoning: The adjudicating authority relied heavily on statements of an intermediary that the import was arranged for onward sale to purchasers and on circumstantial facts (immediate transfer, use of informal channels) to infer that purchasers had reason to believe the goods were tainted. The Tribunal, however, found that appellant(s) purchased bona fide and that there was no independent evidence of active participation in the fraudulent import or financing of the import. The Tribunal further noted precedential protection for bona fide purchasers who acquired redeemed goods for value, particularly where the earlier adjudication should have ascertained market value and recovered duties before release.
Ratio vs. Obiter: Ratio - Penalties under Section 112(a) cannot be imposed on a bona fide purchaser absent evidence of participation, financing, or knowledge/reasonable belief of illegality; mere possession/purchase post-import is insufficient. Obiter - Circumstantial indicia may justify inference of knowledge where strong corroborative evidence exists.
Conclusion: Penalty under Section 112(a) as imposed on the purchasers/assisting person is set aside for want of cogent evidence of abetment or knowledge; bona fide purchase/assistance without participation in import irregularity does not attract penalty on these facts.
Issue 4: Applicability of Section 114AA and requirement of corroborative evidence/cross-examination
Legal framework: Section 114AA penalises knowingly or intentionally making/using false or incorrect declarations/documents in customs transactions; penalties may be multiple of value. Procedural fairness principles require opportunity to test prosecution evidence, including cross-examination where statements of third parties are relied upon.
Precedent treatment: The Tribunal referenced authorities emphasising that statements relied upon by the department require corroboration and that denial of opportunity to cross-examine such witnesses may breach natural justice.
Interpretation and reasoning: The adjudicating authority relied predominantly on statements of intermediaries to impute use of false documentation and collusion by purchasers. The Tribunal found absence of documentary corroboration (emails, invoices from manufacturer/authorized dealer) and absence of evidence that the purchasers themselves made or used false customs declarations. Given the high standard required to infer knowledge/intent under Section 114AA, reliance solely on uncorroborated statements was insufficient.
Ratio vs. Obiter: Ratio - Section 114AA cannot be invoked against a person absent evidence of use/creation/signing of false customs declarations or corroborated proof of knowledge; uncorroborated statements of third parties are insufficient to sustain penalty where procedural safeguards (cross-examination) are not met.
Conclusion: Penalty under Section 114AA against the appellants is unsustainable on the record; the Tribunal set aside the penalties imposed under Sections 112(a) and 114AA.
Cross-References
For Issues 2 and 3: The Tribunal's conclusion on non-sustainability of confiscation (Issue 2) directly informs the decision on penalties (Issue 3), since re-confiscation and subsequent penal liability on bona fide purchasers were central to both questions; findings that earlier redemption/release precluded re-confiscation strengthened the conclusion that penalties could not be imposed on purchasers.
For Issues 3 and 4: The absence of corroborative documentary evidence and procedural opportunities to test statements is cross-referenced in the analysis of abetment/knowledge (Issue 3) and applicability of Section 114AA (Issue 4), leading to a common conclusion that penalties based on uncorroborated statements are inadequate.
Mis-declaration of the Mercedes car as "new" to claim benefit under N/N. 21/2002-Customs (Sl. No. 344) - undervaluation and collusion - Jurisdiction of Additional Director, DRI to issue SCN.
Jurisdiction of Additional Director, DRI to issue SCN - HELD THAT:- Regarding the jurisdiction of DRI to issue show cause notice, it is found that this issue stands settled by the Supreme Court in its review judgment [2024 (11) TMI 391 - SUPREME COURT (LB)] wherein Apex Court held that DRI Officers are indeed ‘proper officer’ under section 28 of the Customs Act are empowered to issue show cause notices.
Confiscation of the Mercedes car and imposition of penalties on Appellant No. 1 and 2 - HELD THAT:- In the instant case, the appellant No. 1 had purchased the said car in a bonafide manner and the appellant No. 2 had assisted the purchase of the said car. Therefore, there is no breach of any legal provisions by the appellants. In this context, it is noted that Bombay High Court in Gagandeep Singh Anand vs. Commissioner of Customs (Import), Mumbai[2019 (5) TMI 272 - BOMBAY HIGH COURT] in similar facts and circumstances held 'The demand of duty could only be made upon the importer of the goods and not upon the person in whose possession / ownership the confiscated goods were found when the owner/ possessor of the confiscated goods does not seek to redeem the offending goods u/s 125 of the Act'.
The impugned order is set aside - appeal allowed.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether the seized peas were proved to be of Nepali/foreign origin and smuggled so as to warrant confiscation under the Customs Act.
1.2 Whether the burden of proving the smuggled/foreign origin of peas lay on the person in possession or on the Department in light of Section 123 of the Customs Act.
1.3 Whether, in the absence of proof of smuggled nature of the goods, penalties imposed under Section 112 of the Customs Act could be sustained.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1 & 2: Proof of foreign/smuggled origin of peas and burden of proof under Section 123
Legal framework (as discussed)
2.1 The Tribunal examined Section 123 of the Customs Act, 1962 regarding "burden of proof in certain cases" and noted that the section applies only to (a) gold, (b) watches, and (c) any other class of goods notified by the Central Government.
2.2 The Tribunal noted that peas are not specified under Section 123 nor shown to be notified by the Central Government for the purposes of that section. Hence, the general rule applies that the burden to prove foreign/smuggled nature of such goods lies on the Department.
2.3 The Tribunal also referred to and relied upon the reasoning in a prior decision of the Kolkata Bench holding that, for non-notified goods such as black pepper and peas, the onus to establish foreign origin is entirely on Customs and that mere policy documents, parliamentary replies or press releases do not have statutory effect unless followed by proper notification.
Interpretation and reasoning
2.4 The goods (peas) were intercepted and seized within Indian territory (Ram Leela Maidan near the Indo-Nepal border). The Tribunal observed that seizure inside India, at a distance from the border, requires evidence of illicit import to invoke confiscation provisions.
2.5 The Tribunal considered the statement of the Market Assistant, Agriculture Production Mandi Committee, who categorically stated that there is no discernible difference between Indian peas and Nepali peas and that he could not identify any distinguishing feature; the gate pass was issued treating the peas as Indian.
2.6 On that basis, the Tribunal held that there was no material on record to show how Customs had identified these peas as of Nepali origin, nor any attempt to obtain expert opinion, testing, or any other scientific or objective basis to distinguish origin.
2.7 The Tribunal noted that the departmental finding branding the mandi documents as being used "in disguise of Indian peas" was not supported by any cogent evidence of foreign origin or smuggling; at best, it indicated suspicion about the documents but did not discharge the statutory burden to prove smuggling.
2.8 Applying the legal principles from the cited precedent, the Tribunal held that, for non-notified goods like peas, Customs must conclusively prove that the goods are of foreign origin and are smuggled. This was not done; there was no admission by any person that the peas were illicitly brought from Nepal, no enquiry into origin by testing or tracing supply chain, and no other positive evidence of cross-border movement.
Conclusions
2.9 Peas are not notified under Section 123; therefore, the burden to prove that they were smuggled/foreign origin lay on the Department, not on the appellant.
2.10 The Department failed to bring any reliable evidence on record to establish that the seized peas were of Nepali origin or illicitly imported from Nepal, whether by expert testing, documentary trail, or admission.
2.11 Consequently, the confiscation of peas on the basis that they were smuggled/foreign origin, under the Customs Act and the cited notifications, could not be sustained.
Issue 3: Sustainability of penalties under Section 112 in absence of valid confiscation
Interpretation and reasoning
3.1 The Tribunal noted that penalties on the appellant had been imposed under Section 112 of the Customs Act on the premise that the goods were smuggled and liable to confiscation.
3.2 Having found that the Department failed to establish the smuggled/foreign nature of the peas and that confiscation itself could not be upheld, the foundational requirement for imposition of penalty under Section 112 was held to be absent.
Conclusions
3.3 With confiscation of the peas held unsustainable for lack of proof of smuggling, the penalties imposed under Section 112 of the Customs Act on the appellant also could not be sustained and were required to be set aside.
3.4 The impugned appellate order upholding confiscation of the goods and penalty on the appellant was held to be without merit and was set aside, and the appeal was allowed.
Smuggling - prior knowledge or reason to believe that the seized goods were offending in nature or not - failure to adduce any cogent and positive evidence in support of allegation that the said goods were smuggled one - burden to prove the smuggled nature of the goods u/s 123 of the Customs Act, 1962 - HELD THAT:- From perusal of the statement made by the Market Assistant states that it was not possible to distinguish between the peas of Indian or Nepali origin. Hence, there are no evidence brought on record by which it can be said that the said peas were the peas of Nepali origin. Further, it is found[ that these goods are not even specified u/s 123 of Customs Act and hence the burden to prove the smuggled nature of these goods is squarely on the departmental authorities.
Kolkata Bench of this Tribunal in the case of Shri Rahul Kumar & others [2025 (4) TMI 1724 - CESTAT KOLKATA] have held that 'Since the Revenue has not been overcome the test of bringing in conclusive proof towards the foreign origin of the goods, going into the detailed investigation process and allegations and findings given in the impugned order would be more of academic interest. Admittedly, prima facie, the documentary evidence brought in by the appellants have been found to be doubtful. But the point in the present case is, unless it is proved that the goods are of foreign origin, the anomalies found in the transactions cannot implicate the appellants under Customs Act provisions, though they might get implicated under other statutory provisions. Illegality or otherwise of other statutory provisions will have no bearing on the Customs Act provisions and hence they cannot come to the rescue of the Revenue in the present case.'
It is also not brought on record as to how any test or opinion of certain experts were taken in the matter for determining the origin of these goods. In absence of any evidence to establish that the impugned goods were illicitly brought from Nepal, there are no merits in the impugned order upholding the confiscation of the goods. As it is held that confiscation of the goods could not be upheld, the penalties imposed under Section 112 of the Act needs to be set aside.
Impugned order lacks merit and needs to be set aside - appeal allowed.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether an appeal lies under Section 128 of the Customs Act, 1962 against a seizure memo issued under Section 110 of the Act.
1.2 Whether proceedings before the appellate authorities challenging seizure prior to adjudication of confiscation are premature.
1.3 Whether the appropriate remedy against seizure, pending adjudication, is to seek provisional release under Section 110A of the Customs Act, 1962.
2. ISSUE-WISE DETAILED ANALYSIS
2.1 Appealability of seizure memo under Section 128 of the Customs Act, 1962
(a) Legal framework
2.1.1 The Court reproduced and considered Section 128 of the Customs Act, 1962, which provides for appeals to the Commissioner (Appeals) against any "decision or order" passed under the Act by an officer of customs lower in rank than a Commissioner (Appeals), within the prescribed time.
2.1.2 Section 110 of the Customs Act, 1962 was noted as the provision under which seizure of goods is effected on the basis of reasonable belief that the goods are liable to confiscation.
(b) Interpretation and reasoning
2.1.3 The Court found that the appeal before the Commissioner (Appeals) had been filed directly against the seizure memo issued under Section 110, and that no order of confiscation had yet been passed by any authority.
2.1.4 It was held that a seizure under Section 110 is only an interim step, evidencing the proper officer's reasonable belief that the goods are liable to confiscation; it is not a "decision or order" of the type contemplated in Section 128 for the purpose of filing an appeal.
2.1.5 The Court observed that, after completion of investigation, a show cause notice under Section 124 is required to be issued and, thereafter, an order of confiscation or otherwise is passed under Section 125. Only such adjudication orders are amenable to the statutory appellate remedy.
2.1.6 Reliance was placed on the reasoning of a High Court decision (Jaymatajee Enterprises) where it was specifically recorded that "no appeal lies against a seizure order", which was cited in the context of examining the availability and efficacy of alternative remedy under the Act.
(c) Conclusions
2.1.7 The Court concluded that no appeal lies under Section 128 against a seizure memo issued under Section 110 of the Customs Act, 1962, and therefore the appeal before the Commissioner (Appeals), and the further appeal before the Tribunal, were not maintainable in law.
2.2 Prematurity of appellate proceedings against seizure in absence of confiscation order
(a) Legal framework
2.2.1 The Court referred to the statutory sequence under the Customs Act: seizure under Section 110; issuance of show cause notice under Section 124; adjudication and order relating to confiscation, fine, etc., under Section 125; and appeal under Section 128 against a decision or order.
(b) Interpretation and reasoning
2.2.2 The Court noted that no adjudication order under Section 125 had been passed in relation to the seized betel nuts at the time the appeal was filed before the Commissioner (Appeals).
2.2.3 The Court reasoned that, in the absence of any adjudication or confiscation order capable of being challenged, the proceedings before both the first appellate authority and the Tribunal were premature.
(c) Conclusions
2.2.4 It was held that, as no appealable adjudication order existed, the entire appellate proceedings initiated against the seizure memo were premature and could not be sustained.
2.3 Availability of provisional release under Section 110A as appropriate interim remedy
(a) Legal framework
2.3.1 The Court referred to Section 110A of the Customs Act, 1962, which provides for provisional release of seized goods pending adjudication, subject to conditions.
(b) Interpretation and reasoning
2.3.2 The Court observed that, if the person aggrieved by the seizure was suffering loss or damage on account of detention of the goods, the appropriate statutory course would have been to seek provisional release under Section 110A.
2.3.3 The Court recorded that there was nothing on record to show that any application for provisional release had been made, or that any order on such request had been passed.
(c) Conclusions
2.3.4 The Court concluded that, in the facts of the case, the remedy, if any, lay in seeking provisional release under Section 110A rather than pursuing an appeal against the seizure memo, which is not maintainable.
2.4 Overall disposition
2.4.1 On the combined reasoning that (i) no appeal lies against a seizure memo under Section 128, and (ii) no adjudication or confiscation order existed, rendering the appellate proceedings premature, the Court held that there was no merit in the appeal.
2.4.2 The appeal was dismissed.
Maintainability of appeal against the seizure memo u/s 110 of the Customs Act. Section 128 of the Customs Act - Appeal before adjudication proceedings of the confiscation - HELD THAT:- Section 110 under which seizure is made is only an Interim Order where proper officer seizes the goods for which he has reasonable belief that they are liable for confiscation. After completion of the investigation in the matter a Show Cause Notice under Section 124 is to be issued and proceedings is initiated against the concerned persons. Thereafter order for confiscation etc is passed under Section 125 of the Customs Act.
There is no provision under which this appeal could have been filed before the Commissioner (Appeals) prior to the confiscation order made in terms of Section 125 of the Customs Act. If the Appellant was aggrieved with the seizure and was suffering loss and damages on that account he could have asked for provisional release of the seized goods under Section 110A of the Customs Act. Nothing has been placed on record to show that they have approached for provisional release of the seized goods and an order on such request has been made.
In absence of any such order which could have been taken up in appeal before Commissioner (Appeals) or before this Tribunal, all this entire proceeding before the First Appellate Authority and before this Tribunal is held to be premature.
There is no merit in this appeal - appeal dismissed.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether the claimant had established ownership over the seized silver granules so as to have locus standi in the confiscation proceedings.
1.2 Whether the burden of proof under Section 123 of the Customs Act, 1962 regarding non-smuggled character and ownership of the seized silver was discharged by the claimant.
1.3 Whether a fresh claim over the same seized goods was maintainable before the Customs authorities and the Appellate Tribunal in view of the earlier appellate order under Section 128 of the Customs Act rejecting the claimant's ownership (principle of res judicata / finality of adjudication).
1.4 Whether any infirmity existed in the Customs authorities' decision to absolutely confiscate the seized silver and to reject provisional release in absence of proof of legal ownership and supporting complaint (FIR) regarding alleged loss of goods.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1 & 2: Proof of ownership and burden under Section 123 of the Customs Act, 1962
Legal framework (as discussed):
2.1 The Tribunal noted that silver is a notified item under Section 123 of the Customs Act, 1962, and reproduced the text of Section 123. Under Section 123(1)(b), where notified goods are seized and no person is found in possession, the burden to prove that the goods are not smuggled and to establish ownership lies on the person claiming to be the owner of the seized goods.
Interpretation and reasoning:
2.2 The seized silver granules were recovered within Indian territory, unclaimed at the time of seizure, and were believed to have been imported illegally from Nepal in violation of Section 7(1)(c) read with Notification No. 63/94-Cus (N.T.), as well as provisions of the Foreign Trade (Development and Regulation) Act, 1992 and Foreign Trade Policy 2015-20. The goods were held liable to confiscation under Section 111(b) and (d) of the Customs Act.
2.3 The adjudicating authority had considered the documents and explanations produced by the claimant in support of his alleged ownership and found them to be insufficient and incapable of establishing either lawful import or legal ownership, especially in light of the statutory presumption under Section 123.
2.4 The Tribunal observed that the claimant had been repeatedly summoned but neither he nor his authorised representative or manager appeared before the Customs authorities to substantiate the claim or to produce valid documents. The Tribunal noted that the adjudicating authority had already recorded a detailed finding that the claimant failed to discharge the burden of proof under Section 123 regarding ownership and non-smuggled nature of the silver.
2.5 The Tribunal further observed that the Commissioner (Appeals), in the earlier appellate proceedings under Section 128, had also rejected the claimant's case on the same ground-failure to prove ownership over the seized silver.
Conclusions:
2.6 The Tribunal held that the claimant had failed to establish his ownership over the seized silver granules and failed to discharge the statutory burden under Section 123 of the Customs Act, 1962. Consequently, the claimant had no locus standi in the confiscation proceedings.
Issue 3: Effect of prior appellate order and applicability of res judicata / finality
Interpretation and reasoning:
2.7 The Tribunal found that the claimant's initial claim and request for provisional release had been rejected by the Additional Commissioner for want of proof of ownership. Thereafter, upon directions from the High Court, the claimant availed the statutory remedy of appeal under Section 128 of the Customs Act before the Commissioner (Appeals), who, by a reasoned order, again rejected the claim to ownership for failure to prove title to the seized silver.
2.8 The Tribunal noted that there was no material on record to show that the earlier appellate order of the Commissioner (Appeals), passed under Section 128 and in compliance with the High Court's direction, had been challenged before the Tribunal or any other authority. The Tribunal therefore treated that order as having attained finality.
2.9 The Tribunal observed that the claimant, in the present proceedings arising out of the "to whomsoever it may concern" show cause notice, was again pressing the very same ownership claim on the same factual grounds which had already been adjudicated upon and rejected by the competent appellate authority.
2.10 The Tribunal held that entertaining such a repetitive claim, without challenge to the earlier appellate order, would be contrary to the principle of res judicata, which is essential for transparency and finality in judicial and quasi-judicial proceedings.
Conclusions:
2.11 The Tribunal concluded that the claimant's renewed assertion of ownership over the same seized silver was barred by the principle of res judicata / finality of adjudication, and that the earlier appellate order rejecting ownership could not be re-opened indirectly in the present appeal.
Issue 4: Validity of confiscation and rejection of provisional release in absence of supporting FIR or credible evidence
Interpretation and reasoning:
2.12 The Tribunal endorsed the findings that the seized silver had been brought into India in violation of the notified routes and statutory restrictions, rendering it liable to confiscation under Section 111(b) and (d) of the Customs Act.
2.13 The Tribunal noted that the confiscation order and the earlier rejections of provisional release were based on (i) the claimant's failure to prove ownership or lawful acquisition; (ii) the statutory presumption under Section 123; and (iii) the findings that the goods were smuggled and imported in contravention of applicable notifications and foreign trade laws.
2.14 The Tribunal further observed that even apart from the bar of res judicata, there was independently "no merit" in the renewed claim, as no proper FIR or complaint regarding loss of the alleged goods had been lodged with the competent police authorities, and no new facts or documents had been produced to substantiate the claim.
Conclusions:
2.15 The Tribunal held that the conduct of the Customs authorities in rejecting provisional release and ordering absolute confiscation of the silver granules could not be faulted. The appeal was dismissed for want of merit, and the order of absolute confiscation was sustained.
Ownership over the seized silver granules or not, so as to have locus standi in the confiscation proceedings - seizure of silver granules under a belief that the same has been smuggled into India from across the border and is liable for confiscation in terms of Section 111(b) of the Customs Act, 1962 - burden to proof u/s 123 of CA - HELD THAT:- It is observed that it is not the case that the Appellant’s ownership was not considered, however, after considering the same it was rejected. The matter went up to the Hon’ble High Court who directed taking recourse to Section 128 of the Customs Act. The claim to ownership was again rejected by the Commissioner (Appeals) in appeal filed under Section 128 of Customs Act, 1962 and direction contained in the order of the Hon’ble High Court. Nothing has been placed on record to show that the said order of the Commissioner (Appeals) has been made subject matter of any appeal or proceeding before this Tribunal or any other Authority. Hence that order rejecting the claim to ownership of the impugned goods have acquired finality.
Appellant on again making claim to the seized silver in these proceedings which have been initiated against “to whom so ever it may concern” on the same grounds which have been already rejected by the proper order of the Appellate Authority made under Section 128 as per the directions of Hon’ble High Court cannot be held to be proper and is in contravention of the earlier order of the Appellate Authority.
The claim is made without any challenge to the earlier order of Commissioner (Appeal) rejecting the claim to ownership made by the Appellant, is barred in terms of principals of res-judicata which is very essential for transparency of action and judicial proceedings.
There are no merits in the claim made and also observe that such a claim did not lie before the Customs Authority without even a proper FIR filed before the relevant Police Authority for the lost goods, the action of the Customs Authority cannot be faulted with - appeal dismissed.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether, in the facts of import under self-assessment followed by first check re-assessment by Customs, there was any collusion, wilful mis-statement or suppression of facts by the importer so as to justify imposition of penalty under Section 114A of the Customs Act, 1962.
1.2 Whether, once the ingredients for penalty under Section 114A were found absent, the extended period of limitation under Section 28(4) of the Customs Act, 1962 could nevertheless be invoked for demand of anti-dumping duty.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Requirement of collusion / wilful mis-statement / suppression for penalty under Section 114A in the context of self-assessment and first check re-assessment
Legal framework
2.1 The Tribunal noted that Section 114A of the Customs Act, 1962 provides for penalty equal to the duty or interest determined under Section 28(8), where non-levy or short-levy, etc., is "by reason of collusion or any willful mis-statement or suppression of facts".
2.2 The Tribunal also referred to the scheme of self-assessment under Section 17(1) of the Customs Act, 1962 and the first check re-assessment procedure by the proper officer.
2.3 For interpretative guidance, the Tribunal relied on the Supreme Court's exposition of Section 11A and Section 11AC of the Central Excise Act, 1944 in the decision wherein it was held that penalty under Section 11AC is attracted only where non-payment or short-payment of duty is the result of deliberate deception - "fraud, collusion or any wilful mis-statement or suppression of facts" - and that the same expressions govern both extended limitation and penalty.
Interpretation and reasoning
2.4 The original authority had held that under the trust-based self-assessment system it was the importer's responsibility to correctly assess all duties including anti-dumping duty, and that failure to do so, coupled with continued contesting of liability even after issue of show cause notice, amounted to suppression and mis-declaration with intention to evade duty, justifying invocation of extended period under Section 28(4) and penalty under Section 114A.
2.5 The Commissioner (Appeals), while examining the same facts, recorded that the Bill of Entry had been re-assessed after first check examination; at that stage the importer presents all original documents and the assessing officer, with approval of the higher authority, completes the assessment in the system, and duty challans are generated accordingly.
2.6 The Commissioner (Appeals) reasoned that in a first check re-assessment scenario, any mis-statement or suppression relevant to duty liability, including non-payment of anti-dumping duty, would normally be detected either by the automated system or by the assessing officer; in the instant case, although anti-dumping duty was in fact payable, it was neither declared by the importer nor charged at re-assessment by Customs.
2.7 It was specifically noted that there was no allegation of mis-statement or suppression regarding classification, valuation, description, country of origin, or any other substantive aspect of the goods in the Bill of Entry. The omission related only to non-levy of anti-dumping duty.
2.8 Relying on the ratio of a Tribunal decision that where the importer/CHA has made a declaration and requested first check, it is for Customs to correctly classify/assess the goods and penalty is not attracted merely for alleged mis-declaration in such circumstances, the Commissioner (Appeals) held that there was no act of collusion, wilful mis-statement or suppression of facts by the importer in relation to non-payment of anti-dumping duty.
2.9 The Commissioner (Appeals) also observed that, since the goods were re-assessed after first check, the Customs assessing authority could not disclaim responsibility for levy and collection of applicable anti-dumping duty under the notification.
Conclusions
2.10 On this reasoning, the Commissioner (Appeals) concluded that the statutory conditions for invoking Section 114A were not met and accordingly set aside the penalty imposed under Section 114A.
2.11 The Tribunal proceeded on the basis of this finding, treating it as a categorical conclusion that there was no collusion, wilful mis-statement or suppression of facts by the importer.
Issue 2 - Sustainability of extended period under Section 28(4) when ingredients for Section 114A penalty are absent
Legal framework
2.12 The Tribunal recorded that the demand of anti-dumping duty was confirmed by invoking the extended period of limitation under Section 28(4) of the Customs Act, 1962.
2.13 By referring to the Supreme Court's reasoning on Section 11A (extended period) and Section 11AC (penalty) of the Central Excise Act, 1944, the Tribunal noted that both provisions use the same expressions: "by reason of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any ... provisions ... with intent to evade payment of duty". The conditions that justify extension of the limitation period are the same as those that attract mandatory penalty.
Interpretation and reasoning
2.14 The Tribunal emphasized that, as settled by the Supreme Court, if the notice alleges, and the adjudication order validly finds, that non-payment is due to such conscious and deliberate wrongdoing, then both extended limitation and penalty apply; conversely, in the absence of such allegation or finding, (i) the limitation period remains confined to the normal period, and (ii) the penalty provision is inapplicable.
2.15 Applying this parity of conditions to the Customs provisions, the Tribunal held that the pre-requisites for invocation of extended period under Section 28(4) and for imposition of penalty under Section 114A are "identical and hold hand in hand".
2.16 The Tribunal noted that the Commissioner (Appeals), in the same impugned order, had (a) categorically held that there was no collusion, wilful mis-statement or suppression of facts and therefore penalty under Section 114A was not invocable, yet (b) still upheld the demand of anti-dumping duty by invoking the extended period under Section 28(4). This was considered internally inconsistent.
2.17 Once the Commissioner (Appeals) concluded that Section 114A was inapplicable due to absence of its statutory ingredients, that amounted, in the Tribunal's view, to an admission that the factual basis for invoking the extended period (fraud, collusion, wilful mis-statement, suppression, or like conduct with intent to evade duty) was also absent.
Conclusions
2.18 The Tribunal held that, in light of the finding that Section 114A could not be invoked, the necessary ingredients for the extended period under Section 28(4) were "amiss", and therefore the extended period could not be validly invoked for the duty demand.
2.19 The Tribunal found no merit in that part of the impugned order where the Commissioner (Appeals) had taken a view contrary to his own findings, by simultaneously disallowing Section 114A penalty yet sustaining the extended period demand.
2.20 Consequently, the appeal was allowed, and the demand of anti-dumping duty based on the extended period of limitation did not survive.
Levy of ADD on import of Injection Moulding Machine with interest and penalty - demand confirmed against the Appellant by invoking extended period of limitation as per Section 28 of the Customs Act - HELD THAT:- It is a settled law that provisions for invoking extended period of limitation as per Section 28 of Customs Act and for imposition of penalty under Section 114A are identical and hold hand in hand.
The Hon’ble Supreme Court while dealing with the provisions of Section 11A and Section 11AC of the Central Excise Act, 1944 in the case of Union of India V/s Rajasthan Spinning & Weaving Mills [2009 (5) TMI 15 - SUPREME COURT] has observed that 'it is clear that penalty under Section 11AC, as the word suggests, is punishment for an act of deliberate deception by the assessee with the intent to evade duty by adopting any of the means mentioned in the section.'
Thus, once the impugned order holds that provisions of Section 114A could not have been invoked for imposition of penalty upon the Appellant, this would amount to admission of the fact that ingredients to invoke the extended period of limitation under Section 28 are amiss. That being so extended period of limitation as per Section 28 could not have been invoked for making this demand.
There are no merits in the impugned order to this extent whereby Commissioner (Appeals) has taken a contrary view to his own findings recorded in the same order - appeal allowed.
Issues: (i) Whether the earlier orders appointing the Special Officers and Committee of Management, and the ancillary directions issued in the liquidation proceedings, were liable to be recalled and vacated on account of fraud, abuse of process, and non-compliance with the Court's directions. (ii) Whether the winding up order was required to continue or whether a permanent stay, discharge of the Special Officers and Committee of Management, and return of control to the shareholders and reconstituted board were warranted. (iii) Whether the application seeking transfer of the company petition and connected matters to the NCLT was maintainable.
Issue (i): The directions made in the liquidation proceedings were issued in the Court's supervisory jurisdiction over a company in liquidation, where the Official Liquidator is the custodian of the company's assets and the officers appointed by the Court remain answerable to it. The materials showed persistent non-compliance with the order dated 12 December 1991, failure to account for assets and funds, unilateral dealing with company property, and conduct contrary to fiduciary obligations. In such circumstances, the Court treated the earlier arrangement as having been procured and operated through fraud and abuse of process.
Conclusion: The orders dated 12 December 1991 and 28 June 1993 were recalled and vacated, and the Special Officers, the Committee of Management, and the Official Liquidator were discharged.
Issue (ii): The Court applied the principle that fraud vitiates all proceedings and that inherent powers may be exercised to prevent abuse of process and protect the integrity of judicial proceedings. It found that the prolonged continuation of the liquidation regime, without accountability and without any meaningful stakeholder benefit, had become unjustified. The assets and records were to be handed over for a fresh corporate management process through the shareholders, with rectification of the register of members and reconstitution of the board. The Court also held that post-winding-up share transfers effected through the impugned conduct could not be recognized for the purpose of the meeting and future management.
Conclusion: The winding up order was put under a permanent stay, control of the company was directed to be restored through shareholder action, and the impugned post-winding-up transfers were declared void for the stated purpose.
Issue (iii): The transfer application sought to shift the proceedings to the NCLT on the basis of an asserted assignment and alleged lack of jurisdiction. The Court rejected that request, holding that the matter involved serious allegations of fraud, manipulation of court records, and questions that remained for determination by the Company Court. The transfer plea was found to be untenable in the facts and circumstances.
Conclusion: The application for transfer to the NCLT was dismissed.
Final Conclusion: The liquidation regime was brought to an end by a permanent stay, the officers and committee that had managed the company were discharged, the earlier supervisory orders were withdrawn, and the shareholders were left to reconstitute the company and take lawful steps for its future management and recovery of assets.
Ratio Decidendi: Where officers of the Court in liquidation proceedings act in conflict of interest, fail to account for assets, and continue to exercise control without lawful authority, the Court may invoke its inherent powers to recall prior supervisory orders, prevent abuse of process, and restore corporate control to the lawful stakeholders.
Conduct of Special Officer in liquidation proceedings - Manipulation and orchestration of affairs to get exclusive and absolute control and management of the company (in liquidation) - all applications were barred by limitation and have been filed after a delay of more than 30 years - HELD THAT:- Fraud is a thing apart. It vitiates judgments, contracts and unravels all transactions. No Court will allow a person to keep an advantage which he or she has obtained by fraud. Fraud avoids all judicial acts, ecclesiastical or temporal. Any judgment or decree obtained by playing fraud on the Court is a nullity and non est in the eye of the law or decree and can be challenged in any Court even in collateral proceedings.
Since fraud affects the solemnity, regularity and orderliness of proceedings of the Court and also amounts to an abuse of the process, all Courts are bestowed with inherent powers to set aside an order obtained by fraud practiced upon Court. No judgment of a Court, no order can be allowed to stand if it has been obtained by fraud. This power is necessary for the orderly administration of the Court's business. All Courts especially of superior jurisdiction have inherent powers to enable them to maintain their dignity, secure obedience to its process and rules, protect its officers from indignity and to punish unseemly behaviour. If this were otherwise, the entire foundation of the system would be shaken.
The company was put into liquidation. Thereafter, the Official Liquidator was side-lined after having taken practically no steps for close to a decade. Subsequently, Special Officers were appointed and there was a stay of the winding up order. Arun Kumar Agarwala was an interested party and had a direct interest in the affairs and management of the company. His multiple roles as a legal heir of Late Ramanand Agarwala (who was a shareholder and director of the company) as well as guarantor per se disentitled him from acting as a Special Officer. This fact was suppressed from Court which in effect, permitted Arun Kumar Agarwala to operate solely and exclusively for decades unchecked. During the interregnum as Special Officer, the said Arun Kumar Agarwala has surreptitiously and in a clandestine manner purported to become both the single largest creditor and majority shareholder of the company (in liquidation).
In view of the considerable long passage of time and the fact that no creditor (secured or unsecured) nor employee nor any third party having approached this Court, there is no question of the company continuing in liquidation. As stated above, the company has sufficient assets all of which were concealed from Court. It is well settled that winding up should be resorted to as the last resort after exhausting all remedies. In this context, on a combined reading of the Reports dated 15 November 2022, 25 November 2022 and 20 December 2022 filed by the Officer Liquidator and the order dated 12 December 1991, there were admittedly immoveable properties which belonged to the company (in liquidation). These are sound reasons as to why the company should no longer be treated to be winding up and the assets and properties which are left or can be traced should potentially benefit the company. All these facts have been concealed from Court at the contemporaneous point of time and do not also find any mention in the order dated 5 November 1979.
The prayer for transfer of this proceeding to NCLT is equally mischievous - application disposed off.
Issues: (i) Whether the National Company Law Tribunal retained jurisdiction to entertain an application under Section 213 of the Companies Act, 2013 after passing an earlier order in the company petition; (ii) whether the material on record, including the Observer reports, disclosed good reasons and prima facie circumstances warranting investigation into the affairs of the company under Section 213 of the Companies Act, 2013; (iii) whether the pendency of proceedings before the Reserve Bank of India barred invocation of Section 213 of the Companies Act, 2013.
Issue (i): Whether the National Company Law Tribunal retained jurisdiction to entertain an application under Section 213 of the Companies Act, 2013 after passing an earlier order in the company petition.
Analysis: The earlier order in the company petition was not treated as having finally exhausted the Tribunal's seisin over all connected matters. The later order of the Supreme Court expressly permitted the parties to move appropriate applications before the National Company Law Tribunal or the National Company Law Appellate Tribunal and directed that the pending proceedings could continue. On that basis, the Tribunal was not regarded as functus officio for the limited purpose of considering the request for investigation.
Conclusion: The jurisdiction objection was rejected and the application was held maintainable.
Issue (ii): Whether the material on record, including the Observer reports, disclosed good reasons and prima facie circumstances warranting investigation into the affairs of the company under Section 213 of the Companies Act, 2013.
Analysis: Section 213 was treated as requiring the Tribunal to satisfy itself that there are good reasons and circumstances suggesting the need for investigation, without insisting on conclusive proof at that stage. The threshold was applied to all applicants, including members falling under clause (a). The reports of the Observer, together with the pleaded allegations of related-party lending, unsecured and concessional loans, suspected siphoning of funds, questionable purchase of luxury vehicles, and alleged fabrication of records, were treated as adequate material to justify a deeper probe. The Tribunal held that the stage was one of prima facie satisfaction, not final adjudication of guilt.
Conclusion: The order directing investigation was upheld as being supported by sufficient material and satisfying the statutory threshold.
Issue (iii): Whether the pendency of proceedings before the Reserve Bank of India barred invocation of Section 213 of the Companies Act, 2013.
Analysis: The Tribunal distinguished regulatory supervision under the Reserve Bank of India Act, 1934 from investigation into corporate fraud under the Companies Act, 2013. It held that the RBI's role in regulating non-banking financial companies did not oust the Tribunal's power to order investigation where allegations concerned fraud, siphoning of funds, and potential prosecution under the Companies Act. The RBI's own affidavit stating that it was not the appropriate authority to investigate siphoning allegations was treated as supporting this distinction.
Conclusion: The RBI proceedings were held not to bar investigation under Section 213 of the Companies Act, 2013.
Final Conclusion: The appeal failed on all material grounds, and the direction for investigation into the company's affairs was sustained.
Ratio Decidendi: An investigation under Section 213 of the Companies Act, 2013 may be ordered on the basis of prima facie material and the Tribunal's subjective satisfaction that good reasons exist to investigate alleged fraud, and such power is not displaced by parallel RBI regulatory proceedings concerning the same corporate entity.
Seeking investigation qua the affairs of the Appellant, requesting to pass an order directing investigation into the affairs of the company by the Serious Fraud Investigation Office - Section 241-242 read with Section 244 of the Companies Act, 2013 - HELD THAT:- In Capt. Valdamantti Jayapushpkumar [2022 (4) TMI 81 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, CHENNAI] a coordinate Bench of this Tribunal in paragraph no. 46, 47, 48, 49 and 50 held that an investigation into the companies’ affairs cannot be initiated simply on the basis of allegations made by a shareholder and merely because a shareholder feels aggrieved about the manner in which the business of the company is being carried on. It was emphasized that an investigation into the affairs of a company could only be ordered when public interest is involved or the management of the company is conducted to the detriment to the member’s interest. It is also highlighted that the tribunal on the basis of material placed before it must be satisfied that a deeper probe into the companies affair is desirable - it is fully agreed with the opinion of a coordinate Bench of this Tribunal. Certainly the investigation as contemplated under Section 213 of the Companies Act cannot be directed without being satisfied of the necessity of it, having regard to the quality of material produced in support of the allegations.
In Rohtas Industries, [1968 (12) TMI 50 - SUPREME COURT] relied by the appellants in context of Section 235, 236 and 237 of the Companies Act, 1956, it is opined that the similar power given to the Central Government by virtue of Section 237 of the Companies Act, 1956 could only be exercised when the Central Government has formed an opinion that there are circumstances suggesting that the business of the company is being conducted with the intent to defraud its creditors, members or any other persons or for a fraudulent or unlawful purpose or in a manner oppressive to any member or for any other unlawful purpose.
Thus, at the stage of making a subjective opinion with regard to taking a decision of investigation under section 213 of the Companies Act, the tribunal is required to take into consideration the material/evidence placed before it in right perspective and to apply its mind in order to satisfy itself that there are not only 'good reasons' but also to record its subjective satisfaction with regard to the necessity of desired investigation.
Three reports dated 1st July 2024, 2nd December 2024, and 18th March 2025 have been submitted by Ld. Observer wherein various allegations of the nature that the Board of Appellant No. 1 are engaged in fraudulent transactions, detrimental to the interests of its members and creditors have been levelled. In paragraph No. 29 of the impugned judgment Observer Report No.1 has been noticed wherein certain Data Gaps were highlighted by the Observer in the information provided by the Appellants - No doubt reply with regard to these reports have been filed by the appellants but we prima facie do not find any element of bias in these reports submitted by Ld. Observer, who is a former judge of the High Court. There are also allegations of siphoning of funds from the Company. It is to be recalled that to order an investigation under 213 of the Companies Act conclusive proof with regard to the allegations is not required. It would be sufficient if the Tribunal, on the basis of taking into consideration the material/evidence produced on record, may form an opinion subjectively to satisfy itself that there are good grounds and reasons and prima facie case to order such investigation and such satisfaction must also be reflected in the order.
Thus, in the impugned order sufficient satisfaction and reasons are shown by the tribunal with regard to the material/evidence considered by it and the same was sufficient to order the investigation as contemplated under section 213 of the Companies Act. After all the allegations are yet to be investigated by the Inspector(s) and the truthfulness of the same could only be verified/surfaced during the investigation. It is clarified that it is consciously not discussed the material/evidence relied on by the Tribunal with regard to its evidentiary value, as our satisfaction or dissatisfaction with regard to the same may tilt the investigation either way, but it is a fit case where the investigation, into the affairs of Appellant no.1, should have been directed. Thus, there are no good grounds to interfere in the impugned Judgment.
Appeal dismissed.
Issues: Whether the appellant was entitled to relief in the appeal on account of the alleged trading-terminal connectivity glitch and whether a claim for monetary loss could be granted in this proceeding.
Analysis: The record showed that the regulator had examined the complaints and found that the technical glitch lasted for 29 minutes, with corrective measures taken and the affected gateways recovering, one of them by manual restart. The appellant had also signed the risk disclosure declaration under the relevant master circular and was therefore taken to have accepted the risks associated with electronic trading, including system or network congestion. The prayer, in substance, sought recovery of damages for the alleged loss of Rs. 53.13 lakhs, which required proper adjudication on evidence in a competent forum and could not be granted in this summary appellate proceeding.
Conclusion: The appellant was not entitled to relief in this appeal, and the claim for monetary loss was left to be pursued before an appropriate forum.
Seeking refund - Restitution for trading losses - technical glitch on the stock exchange trading system - declare it as a ‘disaster’ -effect of Master Circular on risk disclosure and the declaration - HELD THAT:- It is not in dispute that the appellant has indulged in securities market after signing the declaration as per the master circular. He claims to be in the securities market for a decade. Therefore, it is reasonable to infer that he was well aware of the risks involved in trading on the electronic platform. SEBI, as a regulator has examined the complaints and given a finding that the glitch was for 29 minutes; that four out of five gateways recovered within 2 mins and one gateway was manually restarted.
Appellant’s contention is that as per broker’s version the glitch was for two hours. This needs to be proved. Shri Rai is right in his contention that the main prayer sought in this appeal is for damages of Rs. 53.13 Lakhs. He is also right in his contending that damages can be awarded in a court of competent jurisdiction dealing with tort claims after proper adjudication of the lis based on the evidence on record. The said relief cannot be granted in this proceeding. Therefore, this appeal is meritless and liable to dismissed.
Issues: Whether the penalty imposed for alleged violations relating to certification requirements, agreement compliance, inward processing, delay in processing investor requests, and maintenance of destruction records called for interference and reduction.
Analysis: The appellant's director had not obtained the requisite certification during the inspection period, but the explanation that the default occurred in difficult circumstances was found plausible. The other lapses, including defects in agreements, inward processing, delays in issuing duplicate certificates, transmission requests, change of address requests, bank account detail changes, and maintenance of destruction records, were assessed in the backdrop of the COVID period and the surrounding operational difficulties. The record did not justify retaining the original monetary penalty in full, and the ends of justice were considered better served by reducing the penalty.
Conclusion: The appeal succeeded only to the extent of reduction of penalty, and the appellant obtained partial relief.
Imposition and mitigation of penalty under Section 15HB of the SEBI Act - Requirement of NISM certification for associated persons of RTAs - Compliance obligations of Registrars to an Issue and Share Transfer Agents under SEBI RTA, LODR and related circulars - Timelines for processing investor requests and effect of SEBI circulars on reckoning of delay - Maintenance of register for destroyed share certificates as mandated by SEBI circulars - Consideration of Covid-19 related operational disruptions as mitigating circumstance in penalty quantification
Requirement of NISM certification for associated persons of RTAs - Compliance obligations of Registrars to an Issue and Share Transfer Agents under SEBI RTA, LODR and related circulars - Timelines for processing investor requests and effect of SEBI circulars on reckoning of delay - Maintenance of register for destroyed share certificates as mandated by SEBI circulars - Findings of contraventions by the appellant of SEBI regulations, circulars and notifications during inspection period - HELD THAT: - The Tribunal recorded that SEBI's inspection alleged eight distinct contraventions relating to absence of NISM certification for one director, omissions in agreements vis-a-vis the standard draft, deficiencies in the inward processing system, delays in issuance of duplicate share certificates and in processing transmissions, delays in processing change of address and change of bank account requests, and incomplete maintenance of the register for destroyed share certificates. The Tribunal examined the appellant's explanations (age and technical difficulty for failure to obtain NISM certificate, post-inspection amendment of agreements, operation of inward processing system, Covid-19 related staff shortages and bulk requests causing delays, and maintenance of destruction register) and noted the factual findings recorded by the adjudicating officer. While noting the appellant's contentions and some corrective steps taken after inspection, the Tribunal did not disturb the existence of the violations as found by the adjudicating officer and kept the substantive findings of contravention intact. [Paras 9]
The adjudicator's findings that the appellant committed the eight alleged violations during the inspection period are left undisturbed.
Imposition and mitigation of penalty under Section 15HB of the SEBI Act - Consideration of Covid-19 related operational disruptions as mitigating circumstance in penalty quantification - Appropriateness and quantum of monetary penalty imposed on the appellant - HELD THAT: - Having upheld the findings of contravention, the Tribunal proceeded to consider the quantum of penalty. The Tribunal accepted mitigating factors advanced by the appellant in part - specifically the plausible explanation for the director's initial failure to obtain NISM certification given his advanced age and the operational disruptions and limited staff during the Covid-19 period affecting timely processing of certain requests. In view of these mitigating circumstances and in the interests of justice, the Tribunal exercised its discretion to reduce the monetary penalty previously imposed by the adjudicating officer. [Paras 10]
Penalty imposed under Section 15HB is reduced from the amount imposed by the adjudicating officer to a monetary penalty of Rs. 2 Lakhs; the remaining portions of the adjudicating order remain undisturbed.
Final Conclusion: The appeal is partly allowed in respect of the penalty quantum: the Tribunal affirmed the findings of violations but, considering the appellant's explanations and Covid-19 related disruptions, reduced the monetary penalty to Rs. 2 Lakhs; all other aspects of the impugned order are upheld and no costs were imposed.
Issues: Whether the impugned debarment order could be sustained when the appellant was shown to have been a director only after the deemed public issue and the show-cause notice was issued after a long delay.
Analysis: The appellant's appointment as director was shown to be on 29 January 2015 and his resignation on 13 April 2016. The deemed public issue had occurred in 2012-13, before his tenure as director. The notice was issued only in 2024, resulting in a delay of about 12 years from the relevant event. On these facts, the delay in initiating proceedings was held to be inordinate and the appellant's connection with the default alleged in relation to the deemed public issue was not established for the relevant period.
Conclusion: The debarment order could not be sustained against the appellant and was quashed.
Final Conclusion: The appeal succeeded, and the impugned order was set aside insofar as it concerned the appellant.
Ratio Decidendi: An order of debarment based on conduct predating the appellant's tenure, coupled with an inordinate and unexplained delay in initiating proceedings, cannot be sustained.
Debarment - maintainability of delayed appeal - inordinate delay in issuing notice - liability of director - quashing of adjudication order
Maintainability of delayed appeal - debarment - Whether the appeal should be permitted to be prosecuted despite a delay of 142 days which exceeds the period of debarment imposed - HELD THAT: - The Tribunal noted that there was a delay of 142 days in filing the appeal and that on the last hearing the appellant was asked to state whether he desired to prosecute the appeal because the delay exceeded the period of debarment. The appellant expressed his desire to prosecute. Having considered the circumstances, including the nature of the impugned order (three months' debarment), the Tribunal found the appeal merited consideration and proceeded to decide the matter on merits. The appellant's wish to prosecute and the Tribunal's view that the substantive controversy warranted adjudication underpinned the admission of the appeal despite the delay. [Paras 1, 2, 9]
Appeal permitted to be prosecuted and considered on merits despite the delay.
Inordinate delay in issuing notice - liability of director - quashing of adjudication order - Whether the adjudicating order imposing debarment on the appellant is sustainable in view of the period when the appellant was a director and the long delay in issuance of the show cause notice - HELD THAT: - The Tribunal recorded that the Ministry of Corporate Affairs extract showed the appellant's appointment and resignation as director occurred between January 29, 2015 and April 13, 2016, which was not disputed by SEBI. The deemed public issue, however, had occurred in 2012-13, when the appellant was not a director. SEBI issued the notice in 2024, a gap of about 12 years from the deemed public issue; the Tribunal viewed such a delay in issuing the notice as inordinate in a matter of this nature. On that basis, and having regard to the appellant's noninvolvement at the time of the deemed public issue, the Tribunal held that the impugned debarment order could not be sustained. [Paras 7, 8, 9]
Impugned order imposing debarment quashed and appeal allowed qua the appellant.
Final Conclusion: The appeal is allowed in favour of the appellant; the impugned order of debarment is quashed and pending interlocutory applications are disposed of; no costs.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether an appeal is maintainable before the Tribunal when no order, judgment, or direction of any authority is impugned and only a general mandamus/direction is sought against the respondents.
1.2 Whether the appellant is entitled to directions compelling the respondents to (a) provide details of certain demat accounts, and (b) refund the alleged value of missing shares claimed to have been entrusted to a depository participant.
1.3 Whether the exchange is obliged or empowered to conduct an investigation into the alleged disappearance of shares from the appellant's demat account.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Maintainability of appeal in absence of any impugned order
Interpretation and reasoning
2.1 The Tribunal recorded the appellant's express statement in the appeal that he was not challenging any order or judgment but was only seeking directions against the respondents to decide his representation and to grant reliefs such as refund of money and disclosure of account details.
2.2 The Tribunal accepted the respondents' objection that, in such circumstances, the appeal was not maintainable as there was no impugned order of the regulator, intermediary, or exchange placed before it for appellate scrutiny.
Conclusions
2.3 The appeal, being in the nature of a request for mandamus without any underlying impugned order, was held to be not maintainable on merits before the Tribunal.
Issue 2 - Entitlement to directions for disclosure of account-holder details and refund of alleged value of missing shares
Interpretation and reasoning
2.4 The appellant's case, as per his email and appeal, was that he had entrusted the safety of his allotted shares to a particular depository participant, and upon return after several years, he found certain shares missing from his demat account.
2.5 The communication from the exchange indicated that the appellant's client code and PAN were not available in the "unique client code" database pertaining to the concerned intermediary, implying that there were no shares in the demat account with that intermediary.
2.6 The acquirer of the depository participant business submitted, and it stood on record, that as per its records the appellant's shares had already been transferred in the names of two individuals, one of whom was stated to be a family member of the appellant; thereafter the appellant did not pursue any enquiry regarding that family member's demat account.
2.7 On these facts, the Tribunal noted that the appellant had not established that shares continued to be held in his demat account with the intermediary acquired by the respondent, nor was there material to show subsisting liability of respondents to refund the amount claimed.
Conclusions
2.8 The Tribunal found no basis to direct the respondents to provide further account-holder details or to order refund of Rs. 36,41,790/-, as the appellant failed to show existing holdings or wrongful withholding of his shares or funds by the respondents.
2.9 No direction as sought by the appellant for payment of the value of shares or disclosure of account details was issued.
Issue 3 - Obligation or jurisdiction of the exchange to investigate alleged disappearance of shares
Interpretation and reasoning
2.10 The exchange submitted that the appellant's request for an investigation into the disappearance of his shares was beyond its jurisdiction.
2.11 The Tribunal recorded this stand and, in light of the absence of material showing any contrary legal obligation on the exchange and given the overall factual matrix (including the transfer of shares to third-party accounts), did not find any ground to compel the exchange to conduct such an investigation.
Conclusions
2.12 The Tribunal did not issue any direction to the exchange to conduct an investigation, thereby accepting that no such enforceable obligation had been made out in the present proceedings.
2.13 Consequently, the appeal was dismissed with no order as to costs.
Maintainability of appeal in absence of any impugned order - Beyond the jurisdiction of the NSE - refund of the value of shares - disappearance of shares - HELD THAT:- Since no order is under challenge in this appeal, this appeal is not maintainable on merits. It is not in dispute that appellant had entrusted his shares to Karvy. IIFL has acquired Karvy’s depository participant business. IIFL has already informed the appellant that the shares had stood transferred in the name of third parties and one of them appears to be appellant’s relatives. Thus, we find no ground to interfere or to issue any direction as prayed for.
In the result, the appeal is dismissed.
1. ISSUES PRESENTED AND CONSIDERED
(1) Whether, on the retirement of a bank employee, there came into existence Unpublished Price Sensitive Information consisting of a "high probability of detection" of fraudulent Letters of Undertaking issued to a listed company, so as to qualify as UPSI under the PIT Regulations.
(2) Whether the appellant fell within the definition of "connected person" under Regulation 2(1)(d)(i) of the PIT Regulations in relation to the listed company.
(3) Whether any UPSI regarding fraudulent LOUs and their likely detection was communicated by the alleged tipper (a promoter of the listed company) to the appellant.
(4) Whether the appellant's trades in the shares of the listed company in December 2017 were carried out while in possession of, and guided by, such UPSI.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (1): Characterisation and existence of UPSI based on "high probability of detection of fraud" from the bank employee's retirement
Legal framework (as discussed): The PIT Regulations define "unpublished price sensitive information" as information that is not generally available and which, upon becoming generally available, is likely to materially affect the price of securities. The Tribunal referred to the term "information" and its ordinary meaning (Cambridge and Merriam-Webster dictionaries) and to Principle 1 of Schedule A of the PIT Regulations, which requires "credible" and "concrete" information for insider trading controls. The Tribunal also noted that the Structured Digital Database (SDD) requirements under Regulation 5C oblige recording of UPSI by the company.
Interpretation and reasoning: The Tribunal noted that the Whole Time Member had treated "high probability of detection of fraudulent transactions involving LOUs issued by PNB" after the retirement of the concerned bank officer as the UPSI and fixed May 31, 2017 as the commencement of the UPSI period. The Tribunal held that a mere "probability" about occurrence or detection of an uncertain future event is a subjective notion and does not amount to "information" in the sense of definite facts, data, news, or knowledge. A scenario of possible detection upon a future contingency cannot be considered "concrete or credible" information. The Tribunal further reasoned that the probability of detection of the fraud was not uniquely tied to the retirement date: such probability was equally present due to possibilities of transfer of the officer, regular audits, vigilance inspections in public sector banks, or continuation of the same practice by his successor. The company had also not recorded any such "probability of detection" as UPSI in its SDD, and no violation was alleged against the company on that count, suggesting that even the regulator did not treat it as UPSI. On these premises, treating "high probability of detection" on retirement as UPSI was found unsustainable.
Conclusion: The Tribunal held that a presumption of "high probability of detection of fraud" consequent upon the bank officer's retirement does not constitute "information" for the purposes of the PIT Regulations and therefore cannot be treated as UPSI. The issue was decided in the negative.
Issue (2): Whether the appellant was a "connected person" with the listed company under Regulation 2(1)(d)(i) PIT Regulations
Legal framework (as discussed): Regulation 2(1)(d)(i) defines "connected person" as any person who is or has, during the six months prior to the concerned act, been associated with a company directly or indirectly in any capacity (including frequent communication, contractual, fiduciary, employment, professional or business relationship) that allows or is reasonably expected to allow access to UPSI. The Note clarifies that a connected person is one whose connection is expected to put him in possession of UPSI.
Interpretation and reasoning: The WTM had relied on: (i) alleged frequent communication between the promoter and the appellant; (ii) their association through shareholding in a group company (JTPL); and (iii) transfer of Rs. 12.35 crores via a subsidiary of the listed company and another entity for funding the appellant's warrant subscription. The Tribunal observed that: (a) the appellant is a Belgium resident and no concrete evidence of "frequent communication" was produced; (b) the alleged loan of Rs. 12.35 crores was doubted by the WTM but no adverse legal consequence was drawn, and in any event the appellant had invested a much larger amount (Rs. 37.03 crores) from his own funds; (c) both sides had only a limited "business connection" through a failed real estate transaction routed through JTPL, with the appellant neither being a director nor a partner in the core diamond/jewellery export business for which the LOUs were issued; and (d) the appellant merely held about 5.75% shareholding in the listed company, without any role in its management. The Tribunal reasoned that such limited business connection, particularly with parties in different jurisdictions, is not sufficient to create a relationship reasonably expected to give access to UPSI regarding a concealed bank fraud. The Tribunal also found no rational basis for the promoter to share a highly sensitive fraudulent LOU scheme with an unrelated foreign investor, given the risk of exposure and legal consequences.
Conclusion: The Tribunal held that although there was some business relationship, it was not of a nature reasonably expected to allow access to UPSI. The appellant could not be treated as a "connected person" under Regulation 2(1)(d)(i). The issue was decided in the negative.
Issue (3): Whether UPSI was communicated by the promoter (Noticee No. 1) to the appellant (Noticee No. 2)
Legal framework (as discussed): The WTM had alleged violation of Regulation 3(1) of the PIT Regulations, which prohibits communication of UPSI by any insider except for legitimate purposes, performance of duties or discharge of legal obligations. The Tribunal also referred to the concept of an "insider" under Regulation 2(1)(g)(ii), which includes any person in receipt of UPSI in the course of business, fiduciary or employment relationship.
Interpretation and reasoning: The WTM inferred communication of UPSI from the appellant's trading pattern and asserted that the promoter shared UPSI regarding "high probability of detection of fraud" to help the appellant avoid losses. The Tribunal noted that the promoter, despite allegedly possessing the UPSI and being the primary architect of the fraud, did not offload his own 26.09% shareholding (including pledged shares) during the alleged UPSI period. It held that it was commercially irrational for the promoter to risk exposing the fraud by tipping a significant outside shareholder whose mass selling could depress the share price, harming the promoter's own interests. Further, the Tribunal accepted the submission that the appellant's group company continued to invest in the promoter's real estate project (Tatva Project through LIDL) in January 2018, which was inconsistent with the appellant already being informed of a major bank fraud. Most significantly, the Tribunal found that there was no evidence, direct or circumstantial beyond mere trading pattern, to show any actual communication of UPSI by the promoter to the appellant. On the balance of probabilities, such communication was held not to be reasonably inferable.
Conclusion: The Tribunal held that there was no reliable basis to conclude that any UPSI was communicated by the promoter to the appellant. Consequently, the appellant could not be treated as an insider under Regulation 2(1)(g)(ii) on that ground. The issue was decided in the negative.
Issue (4): Whether the appellant's trades in the shares of the listed company were guided by UPSI
Interpretation and reasoning: The WTM had concluded that, being a connected person, the appellant had access to UPSI and that the December 2017 trades were therefore guided by UPSI, relying mainly on: (i) the fact that the appellant opened the trading account a day before selling; and (ii) absence of other trades by the appellant in the relevant period. The Tribunal held that these factors alone, without any prior history of regular trading by the appellant in Indian markets, have no real evidentiary value. The appellant, being a Belgium national and essentially a one-time investor, could not be presumed to have a pattern of trading merely because he did not trade in other scrips. The Tribunal also accepted the appellant's contention that other preferential allottees and investors traded in the scrip during December 2017-January 2018 and that the appellant's sales coincided with a price rise, yielding a modest profit of about 3.88%, indicating opportunistic profit-taking rather than loss avoidance based on secret negative information. The Tribunal further noted the appellant's continued exposure to the promoter's projects through LIDL in January 2018 as being inconsistent with prior knowledge of impending exposure of a major fraud. Since the foundational premises (existence of UPSI, connected person status, and actual communication of UPSI) were themselves found unsustainable, the inference that the trades were "guided by UPSI" necessarily failed.
Conclusion: The Tribunal held that there was no merit in the allegation that the appellant's trading in December 2017 was undertaken while in possession of or guided by UPSI. This issue was decided in the negative.
Overall Disposition
The Tribunal, having answered all framed issues against the regulator, set aside the findings of insider trading, allowed the appeal, and vacated the directions of disgorgement, market restraint, scrip-specific restraint and monetary penalty. No order as to costs was made.
Unpublished Price Sensitive Information - Information based on probability is not UPSI - connected person - access to UPSI / expected access - communication of UPSI (tipper-tippee) - trading guided by UPSI - SEBI (Prohibition of Insider Trading) Regulations, 2015
Unpublished Price Sensitive Information - Information based on probability is not UPSI - SEBI (Prohibition of Insider Trading) Regulations, 2015 - Whether the scenario of a high probability of detection of fraudulent LOUs on the retirement of a bank employee constituted UPSI. - HELD THAT: - The Tribunal held that the WTM erred in treating a mere probability of detection consequent upon the retirement of the bank employee as concrete or credible information amounting to UPSI. Dictionaries and the regulatory scheme were invoked to emphasize that 'information' requires a level of certainty or factual basis; a speculative probability about future detection does not satisfy the requirement. The Tribunal further observed that the risk of detection could have been equally high prior to the retirement (due to transfers, audits, successor officials, surveillance), and the company had not recorded any such information in the Structured Digital Database as required. For these reasons, the presumption that the UPSI commenced on the date of retirement was rejected and the question was answered in the negative. [Paras 6]
The probability of detection of fraud on the employee's retirement did not constitute UPSI; the question is answered in the negative.
Connected person - access to UPSI / expected access - SEBI (Prohibition of Insider Trading) Regulations, 2015 - Whether the appellant was a 'connected person' with GGL within the meaning of the PIT Regulations. - HELD THAT: - The Tribunal examined the WTM's findings of frequent communication, business association (common shareholding in JTPL) and an alleged loan/transfer as grounds for connection. It noted absence of evidence of frequent communication, that the appellant is a Belgium resident and not involved in GGL's core business, and that substantial payment for warrants came from the appellant's own funds. While there was a limited business relationship and shareholding in JTPL, the Tribunal found this insufficient to conclude that the appellant's connection was such as to be reasonably expected to put him in possession of UPSI. Thus the appellant could not be treated as a 'connected person' under the Regulation. [Paras 7]
The appellant was not a 'connected person' with GGL; the question is answered in the negative.
Communication of UPSI (tipper-tippee) - access to UPSI / expected access - Whether there was any communication of the alleged UPSI by Noticee No.1 to the appellant. - HELD THAT: - The Tribunal found no evidence that Noticee No.1 communicated UPSI to the appellant. It observed that the alleged tipper did not dispose of his own significant shareholding, and that it would have been against his interest to spur large sales by the appellant. The Tribunal also noted conduct inconsistent with possession of the UPSI (the appellant's group making further investments after the alleged tip). On the preponderance of probabilities and for lack of documentary evidence of any communication, the finding of communication was rejected. [Paras 8]
There was no credible evidence of communication of UPSI by Noticee No.1 to the appellant; the question is answered in the negative.
Trading guided by UPSI - access to UPSI / expected access - Whether the appellant's trading in GGL shares in December 2017 was guided by access to UPSI. - HELD THAT: - The Tribunal rejected the WTM's reliance on trading pattern and timing as sole indicators that trading was guided by UPSI. It noted the absence of evidence of regular trading in India by the appellant, the existence of similar sales by other investors, that the appellant realized a modest profit, and that certain contemporaneous conduct (subsequent investments and transactions) was inconsistent with knowledge of fraud. Given the Tribunal's negative conclusions on UPSI and connection, and the lack of probative evidence that trading was guided by UPSI, the allegation that the appellant's sales were driven by UPSI was not sustained. [Paras 9]
The appellant's trading was not guided by access to UPSI; the question is answered in the negative.
Final Conclusion: The Tribunal allowed the appeal, concluded that the information relied upon was not UPSI, that the appellant was not a 'connected person', that no communication of UPSI to the appellant was shown, and that the trading was not guided by UPSI; the impugned WTM order is set aside and the appeal is allowed (no costs).
1. ISSUES PRESENTED AND CONSIDERED
(1) Whether an application under Section 7 of the Insolvency and Bankruptcy Code, 2016, supported by a defective affidavit, is liable to be treated as non est and rejected at the threshold.
(2) Whether compliance with Rule 28 of the National Company Law Tribunal Rules, 2016, and issuance of a consolidated/general notice by the Registry, satisfies the mandatory requirement of notice under the proviso to Section 7(5)(b) of the Insolvency and Bankruptcy Code, 2016, before rejection of a Section 7 application as incomplete.
(3) Whether the National Company Law Appellate Tribunal was justified in restoring the Section 7 application and remanding the matter for decision on merits without first directing cure of the defective affidavit.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (1): Nature and effect of a defective affidavit supporting a Section 7 IBC application
Legal framework: The application was filed under Section 7 of the Insolvency and Bankruptcy Code, 2016, in Form 1 as required by Rule 4(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. Form 1 and Rule 4(1) do not require an affidavit. The requirement of verification by affidavit arises from Rule 34(4) of the National Company Law Tribunal Rules, 2016, which mandates that every petition or application shall be verified by an affidavit in Form NCLT-6.
Interpretation and reasoning: The Court noted that the affidavit requirement stems from the procedural NCLT Rules and not from the substantive scheme of Section 7 or the IBC Application Rules. The objection of the corporate debtor itself characterised the petition as "defective" and not "non est", and the argument that the petition was non est was raised only later in appeal. The Court held that filing a defective affidavit is a procedural defect, neither fundamental nor incurable. Relying on precedents that rules of procedure are meant to further, not hinder, the cause of justice, and that curable procedural defects should not defeat substantive rights, the Court rejected the contention that a defective supporting affidavit renders the Section 7 application void or non est.
Conclusions: A defective affidavit supporting a Section 7 application under the IBC does not render the application non est or liable to outright rejection. It is a curable procedural defect, and the application cannot be dismissed at the threshold solely on that ground.
Issue (2): Compliance with the proviso to Section 7(5)(b) IBC and effect of Rule 28 NCLT Rules process
Legal framework: Section 7(5)(b) of the IBC empowers the Adjudicating Authority to reject an incomplete Section 7 application, but its proviso mandates that, before such rejection, a notice must be given to the applicant to rectify the defect within seven days of receipt of that notice. Rule 28 of the NCLT Rules provides for scrutiny of petitions/applications, communication of defects, return for rectification and, in default, refusal to register. Rule 38(5) of the NCLT Rules allows service of notices and processes on an authorised representative of a party, such service being deemed proper.
Interpretation and reasoning: The scrutiny section and the Joint Registrar of the NCLT issued consolidated notices and orders under Rule 28 in relation to multiple defective petitions/applications, including the Section 7 application in question, and published them on the website and notice board. These communications did not advert to the proviso to Section 7(5)(b) IBC, nor were they shown to be specific notices addressed to the applicant itself as required by the proviso. The Court relied on the interpretation in Dena Bank v. C. Shivakumar Reddy that the proviso obliges the Adjudicating Authority to give notice to the applicant to rectify the defect, and that while the seven-day period is directory, the obligation to give such notice is mandatory. The Court held that compliance with the NCLT Rules' scrutiny procedure, including consolidated/general notices and Registrar's orders, cannot substitute for, or dispense with, the specific statutory notice mandated under the proviso to Section 7(5)(b) IBC. The IBC, as the substantive legislation governing the application, requires its own notice requirement to be satisfied.
Conclusions: The consolidated notice and subsequent order issued under Rule 28 of the NCLT Rules did not amount to compliance with the mandatory requirement of notice under the proviso to Section 7(5)(b) of the IBC. In the absence of such statutory notice to the applicant to rectify defects, rejection/refusal to register the Section 7 application on the ground of incompleteness was unsustainable. The NCLAT correctly held that the proviso to Section 7(5)(b) had not been complied with.
Issue (3): Propriety of the NCLAT's direction restoring the petition without curing the defective affidavit
Legal framework: Section 7(5)(b) of the IBC (with proviso as interpreted in Dena Bank) permits curing of defects in Section 7 applications. Rule 63 of the NCLT Rules provides for an appeal against scrutiny decisions of the Registrar, and the decision on such appeal is final at that stage.
Interpretation and reasoning: The NCLAT correctly held that a Section 7 application filed with a defective affidavit is not non est and that such a defect is curable. However, having recognised the defect and the curable nature thereof, the NCLAT proceeded to restore the company petition and remand it to the NCLT for decision on merits without insisting on rectification of the defective affidavit. The Court held that, while the NCLAT was right in setting aside the rejection which was contrary to the proviso to Section 7(5)(b), it erred in ignoring the admitted procedural defect in the affidavit and in not directing its cure before the matter proceeded on merits.
Conclusions: The NCLAT was correct in holding that the rejection of the Section 7 application could not be sustained for non-compliance with the proviso to Section 7(5)(b) IBC and that the defect in the affidavit was curable. However, it erred in straightaway restoring the petition and remanding it for decision on merits without directing rectification of the defective affidavit. The proper course is to allow curing of defects and thereafter proceed on merits.
Final operative directions
The Court directed the financial creditor to cure all defects in the Section 7 application, including the defective affidavit, within seven days, whereupon the National Company Law Tribunal, Ahmedabad Bench, shall take up the matter for hearing in accordance with law and due procedure. Each party was directed to bear its own costs.
Rejection of application u/s 7 of the Insolvency and Bankruptcy Code, 2016, verified on 26.07.2023 but supported by an affidavit deposed to on 17.07.2023 - HELD THAT:- There was no mention either in the notice dated 10.09.2023 or the order dated 18.10.2023 of the proviso to Section 7(5)(b) of the IBC. Pertinently, the proviso to Section 7(5)(b) of the IBC requires the notice thereunder to be given to the applicant itself to rectify the defect in the application within seven days of the receipt of such notice. In this regard, Rule 38 of the NCLT Rules, titled ‘Service of notices and processes’ assumes significance as Rule 38(5) therein provides that notice or process may also be served on an authorised representative of the applicant or the respondent, as the case may be, in any proceeding or on any person authorised to accept a notice or a process, and such service on the authorised representative shall be deemed to be proper service. Rule 38(5), thus, permits service of notice on the authorized representative of the applicant or the respondent, as the case may be.
Issuance of a notice to an authorized representative of the respondent-bank was not enough to satisfy the mandate of the proviso to Section 7(5)(b) of the IBC. The IBC, being the substantive legislation relating to the application filed by the respondent-bank under Section 7 thereof, the notice to cure the defects therein necessarily had to be given under the said provision and compliance with the Rules, independently framed for the National Company Law Tribunal, was not sufficient.
Thus, even though the Registry of the NCLT issued process under Rule 28 of the NCLT Rules, the same was insufficient as there was no communication of a notice under the proviso to Section 7(5)(b) of the IBC at any time - thus no error having been committed by the NCLAT in holding to this effect. However, the NCLAT ought to have asked the respondent-bank to cure the defective affidavit at least at that stage instead of ignoring the same and directing the NCLT to proceed to hear the company petition on merits and in accordance with law. To that extent, the NCLAT was in error.
Appeal disposed off.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether a compromise order passed in a company petition under the insolvency framework attains finality equivalent to a decree, requiring enforcement only through execution proceedings under Section 424 of the Companies Act.
1.2 Whether non-compliance with the terms of a compromise/settlement order can be a valid ground to seek recall or restoration of a finally disposed company petition by invoking Rule 11 of the NCLT Rules, 2016 (inherent powers).
1.3 Whether a company petition dismissed as withdrawn on the basis of a joint memo of compromise, with liberty "to approach afresh on the same cause of action", permits revival/recall of the earlier petition, or only permits initiation of fresh proceedings.
1.4 Whether repeated applications for recall/restoration of a company petition, on the ground of successive breaches of compromise terms, constitute an abuse of process and are maintainable in law.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Nature and legal effect of compromise orders disposing of company petitions
Legal framework (as discussed): The Court referred to Section 424 of the Companies Act, 2013, which governs procedure and execution of orders of the Tribunal, and to the general civil law concept that both adjudicatory decrees on merits and compromise decrees attain finality and are executable.
Interpretation and reasoning: The Court held that an order passed in a company petition, even when based on compromise/settlement, determines rights inter se between the parties and attaches finality to the lis. Such an order, prescribing monetary liabilities and terms of payment, "takes the shape of a decree" and falls within the class of orders that are to be executed in accordance with law in case of non-compliance. A compromise order deciding the rights and obligations of the parties is, therefore, a final adjudication for purposes of enforcement.
Conclusions: A compromise order passed in a company petition under the I&B Code is a final order akin to a decree, and any violation of its terms must be addressed through execution proceedings in terms of Section 424 of the Companies Act, not by reopening or recalling the disposed petition.
Issue 2: Maintainability of recall/restoration under Rule 11 of NCLT Rules for enforcement of compromise orders
Legal framework (as discussed): The Court considered Rule 11 of the NCLT Rules, 2016 (inherent powers of the Tribunal) in conjunction with Section 424 of the Companies Act, 2013, which provides the mechanism for execution of Tribunal orders.
Interpretation and reasoning: The Court held that: (a) Substantial and procedural law under corporate legislation must be strictly construed and followed; (b) Section 424 provides the specific procedure and forum for execution of Tribunal orders, including compromise orders; (c) Inherent powers under Rule 11 cannot be used to create an alternative mechanism to bypass the statutorily prescribed execution procedure; (d) The concept of "recall" is confined to situations where an order is passed due to an inadvertent error of the Tribunal, or due to some mistake attributable to the Tribunal or parties (e.g., orders passed ex parte or by oversight). It does not extend to recalling final consent or compromise orders merely because the terms are later breached; (e) A compromise order induced at the behest of a party, accepted by it and having attained finality, cannot be brought within the ambit of recall on the sole ground of non-compliance of its terms.
The Court emphasised that the recall sought by the appellant was, in substance, an attempt to enforce the compromise order of 25.09.2018 (and later of 10.12.2019) without resorting to execution. Using Rule 11 for such enforcement would amount to abuse of inherent powers and an attempt to avoid the "regular procedural law" for execution under Section 424.
Conclusions: Non-compliance with a compromise order disposing of a company petition cannot justify recall or restoration of that petition under Rule 11 of the NCLT Rules. Inherent powers cannot be invoked as an alternative to execution proceedings, and recall in such circumstances is not maintainable.
Issue 3: Scope of liberty granted in the order dismissing the company petition as withdrawn on 10.12.2019
Legal framework (as discussed): The Court referred to the text of the order dated 10.12.2019, which dismissed the petition as withdrawn in view of a joint memo of compromise, having regard to Rule 8 of the I&B (Application to Adjudicating Authority) Rules, 2016.
Interpretation and reasoning: The order dated 10.12.2019 recorded that: (a) the petition was dismissed as withdrawn based on a joint memo of compromise, where post-dated cheques were issued by the corporate debtor; (b) the joint memo of compromise contained a clause contemplating revival of the company petition in case of default; (c) however, the Tribunal, in its operative direction, expressly granted only liberty "to approach this Tribunal on the same cause of action afresh if the claim ... is not adhered [to]".
The Court specifically noted that the Tribunal did not grant liberty to "revive" or "recall" the same company petition in case of default. The allowance was limited to approaching the Tribunal afresh on the same cause of action by filing a fresh claim/petition. Thus, the contractual terms of the compromise (stating that the petition could be revived) could not override or enlarge the scope of the liberty actually granted in the judicial order.
Conclusions: The order dated 10.12.2019 did not confer any right to recall or revive the earlier company petition in case of default. It only permitted the appellant to initiate fresh proceedings on the same cause of action. Consequently, an application seeking recall of the order dated 10.12.2019 and revival of the petition was not maintainable and was rightly rejected.
Issue 4: Repeated recall/restoration applications based on successive compromises and their non-compliance - abuse of process
Interpretation and reasoning: The Court traced the sequence: (a) First compromise order dated 25.09.2018, where the petition was closed on agreed payment terms; (b) Non-compliance led to a first recall application (MA No. 67/2019), improperly invoking Rule 11, which nevertheless resulted in restoration and a second compromise order dated 10.12.2019; (c) Upon alleged breach of the second compromise, a second recall application (IA(IBC) No. 612/CHE/2022) was filed seeking recall of the order dated 10.12.2019 and revival of the company petition.
The Court held that: (a) Filing recurring recall applications every time there is non-compliance with compromise terms converts Rule 11 into a device for continuous revival of finally disposed proceedings, contrary to the finality attached to such orders; (b) Such use of inherent powers is clearly beyond their permissible scope and amounts to abuse of process; (c) The appropriate remedy for non-compliance with compromise terms is execution of the compromise order, not perpetual revival of insolvency proceedings.
Conclusions: Successive recall/restoration applications, founded only on non-compliance with compromise terms in final orders, are not maintainable and constitute abuse of process. The Tribunal correctly rejected the second recall application, and the appellate challenge to that rejection was devoid of merit and liable to be dismissed.
Procedure for execution of the orders passed by the Tribunal - whether an exception could be carved out to file an application for recall in a decided petition, to enforce an order, in a manner to avoid filing of an execution proceedings as against the order passed by the Tribunal in favour of the recall applicant? - HELD THAT:- When the conditions enshrined and settled in the order of 25.09.2018 were not complied, the Appellant for the first time had invoked Rule 11 of the NCLT Rules, by filing an MA No. 67/2019, seeking a restoration of the CP No. 605/IB/2018. The grounds, which were agitated therein for recalling and the restoration of the Company Petition was merely on the basis of non-compliance of the compromise order dated 25.09.2018.
The concept of recall is only available when an order, which has been sought to be recalled has been inadvertently passed because of the error of the Court or Tribunal or because of some inadvertent error of the Counsel or the parties to the proceedings. No order, which has been passed or solicited to be passed on the basis of a consent, which is of a final nature could be brought within an ambit of recall, as it will not take the shape of being an order, which has been passed because of any inadvertent mistake either of the parties to the proceedings or by the Court. Thus, the recall infact will not be the process available to the Appellant, for reviving of the proceedings of the Company Petition in which the decision has been taken finally on merits by an order of 25.09.2018 and that when it was order induced to be passed at the behest of the Appellant, and was accept him, having attained finality.
The conditions as settled for withdrawal of the Company petition was as the Corporate Debtor had issued post dated cheques, as regards to the claim, which was settled by the earlier order of 25.09.2018. The decision, which was rendered on 10.12.2019, was yet again on merits on the basis of a compromise which was incited by the Appellant.
Thus, even if the second terms of compromise had raised a pleading, though not granted, that a recall could be filed that in itself will not make the recall maintainable particularly when the same was not left open to be resorted to, by the order of 10.12.2019.
In that eventuality, the instant Company Appeal happens to be nothing but a pure abuse of process of law. The same cannot be entertained and is accordingly dismissed.
Issues: (i) whether debt and default existed so as to justify admission of the Section 7 application; (ii) whether the plea of contrived default arising from NHAI's conduct in relation to the escrow account and suspension of the concession could defeat insolvency admission; (iii) whether termination of the concession agreement altered the corporate debtor's liability in the insolvency proceedings; and (iv) whether the adjudicating authority was required to investigate inter se contractual disputes before admitting the petition.
Issue (i): whether debt and default existed so as to justify admission of the Section 7 application
Analysis: The record showed repeated restructuring, persistent overdue interest, recall of the facility, classification of the account as NPA, authenticated information utility entries, balance sheets, auditor's reports, and account statements evidencing non-payment. The governing scheme of Section 7 permits the adjudicating authority to ascertain default from the information utility or other evidence, and once satisfied that default has occurred, admission follows. The existence of debt was not in dispute, and the material on record established continuing default by the corporate debtor.
Conclusion: The existence of debt and default was established, and admission of the Section 7 application was justified.
Issue (ii): whether the plea of contrived default arising from NHAI's conduct in relation to the escrow account and suspension of the concession could defeat insolvency admission
Analysis: The alleged inducement or causation of default by NHAI, including disputes over suspension, escrow control, deferred premium, extension of time, and project completion, was held to be outside the limited inquiry in Section 7 proceedings. The adjudicating authority is concerned with the existence of default, not with probing why the default occurred. The court also found that the financial creditor could not be held responsible for NHAI's alleged breaches or for disputes under the concession agreement, which were contractual matters to be pursued separately.
Conclusion: The plea of contrived default was rejected and did not displace the finding of default.
Issue (iii): whether termination of the concession agreement altered the corporate debtor's liability in the insolvency proceedings
Analysis: The termination notice and claimed termination payment arose from the concession arrangement between the corporate debtor and NHAI, whereas the financial creditor's claim arose under the loan agreement. The asserted termination payment was contingent, disputed by NHAI, and dependent on separate proceedings. Such contingent or disputed contractual claims could not override an established financial default owed to the lender or bar admission under Section 7.
Conclusion: Termination of the concession agreement did not extinguish the corporate debtor's liability to the financial creditor or bar insolvency proceedings.
Issue (iv): whether the adjudicating authority was required to investigate inter se contractual disputes before admitting the petition
Analysis: The statutory framework and binding precedent confine Section 7 inquiry to whether a financial debt exists and whether default has occurred. The adjudicating authority is not a forum for adjudicating the merits of disputes between the corporate debtor and third parties, including arbitration-bound disputes under the concession agreement. The court reiterated that it could not sit in equity or examine the causation of default once the statutory ingredients were satisfied.
Conclusion: The adjudicating authority was not required to investigate the contractual disputes before admitting the petition.
Final Conclusion: The insolvency admission was upheld, the corporate insolvency resolution process was allowed to continue, and the appeal failed.
Ratio Decidendi: In Section 7 proceedings, the adjudicating authority must confine itself to whether a financial debt is due and default has occurred; it cannot refuse admission by enquiring into the cause of default or by resolving collateral contractual disputes, and a disputed or contingent claim against a third party does not negate the debtor's liability to the financial creditor.
Admission of insolvency petition filed under Section 7 of the IBC - no default exists - case of contrived default (default is contrived by NHAI and the lenders) - termination of the concession agreement terminated STPL’s liabilities, thereby barring insolvency proceedings - error in admitting the petition without investigating disputes between parties.
Whether a debt and default exist within the meaning of the IBC so as to warrant admission of the petition? - HELD THAT:- The loan agreement is an agreement between Union Bank of India-FC and CD-STPL and the CD has repayment obligations towards Union Bank of India. Since there was a default, Union Bank of India moved NCLT for initiation of Section 7 proceedings. There are no legal infirmity in the action of Union Bank of India. Any disputes which the CD-STPL was having qua NHAI are irrelevant for the Section 7 proceedings before NCLT - the argument of the appellant that the loan agreement should not be seen in isolation and the transactions have to be seen in a consolidated manner is rejected.
Appellant has raised a related argument that the “default is contrived” by the conduct of the respondents namely NHAI and financial creditors and it is a malicious and fraudulent initiation of CIR proceedings against the corporate debtor. It therefore claims that the adjudicating authority should have gone into the “causation of the default” and just not the “existence of default”. The appellant claims that the default has been created by persistent default has occurred due to the conduct NHAI and also lenders. The judicial precedents are very clear in this regard. It is noted that the Adjudicating Authority is not entitled to examine the reason for commission of financial default under Section 7 of the Code, when the requirement of ‘debt’ and ‘default’ have clearly been established.
In Suresh Reddy [2023 (5) TMI 570 - SUPREME COURT] it was held that once NCLT is satisfied that the default has occurred, there is hardly a discretion left with NCLT to refuse admission of the application under Section 7. Even the non- payment of a part of debt when it becomes due and payable will amount to default on the part of a corporate debtor. In such a case, an order of admission under Section 7 IBC must follow. If NCLT finds that there is a debt, but it has not become due and payable the application under Section 7 can be rejected. Otherwise, there is no ground available to reject application.
It is thus found that not only the Code but the above judgments support the case of the financial creditor and thus the claim of the appellant that the Adjudicating Authority should have gone into the causation of default cannot be accepted. The adjudicating authority cannot enter into the contractual context and so called “induced default”, which falls outside the domain of the insolvency proceedings and needs to be settled between the Appellant and the NHAI at an appropriate forum. Adjudicating authority has to only verify existence of debt and default and not probe into disputes - there are no infirmity at the level of adjudicating authority on this count.
Impact of the termination of the concession agreement on STPL’s insolvency liability - HELD THAT:- The disputes between the Corporate Debtor and NHAI under the Concession Agreement and certain lenders not disbursing their commitment are contractual disputes which have no bearing on the Corporate Debtor’s obligations to the Respondent No. 1-UBI under the Loan Agreement between the Corporate Debtor and the Respondent No. 1. It is found that the Respondent No. 1 had in its capacity as a lender, has not committed any breach of contract i.e. the Common Loan Agreement and had disbursed the loans according to the terms of the Common Loan Agreement. The existence of ‘debt’ and ‘default’ has been established in the present case.
The contention of the Appellant that the NCLT’s reliance on the record of default as per the NeSL to establish default on part of the Corporate Debtor is insufficient to justify the admission of the Corporate Debtor under CIRP, is baseless - further, it is settled that ‘when the record of Information Utility shows debt in default, the Adjudicating Authority or Appellate Authority are not required to further examine the record maintained by the Information Utility, especially when the record is deemed authenticated and no dispute or refutation has been done by the corporate debtor earlier’
It is thus found that the contention of the Appellant that the NCLT’s reliance on the record of default as per the NeSL to establish default on part of the Corporate Debtor is insufficient to justify the admission of the Corporate Debtor under CIRP, is baseless. Therefore, all such documentary proofs of default and cannot be wished away and above contentions of the Appellants are rejected. In the above backdrop, there are no infirmity in the conclusions of the AA on bases the records of the information utility and the financial statements of the CD, when apart from these documents so much evidence is on record.
Thus, while noting that all the pre-requisites of the petition under Section 7 were satisfied in the present case, the Adjudicating Authority has rightly admitted the Section 7 Petition vide the Impugned Order - the present case is a fit case for admission as there is a clear existence of 'debt' and 'default' The dispute sought to be relied upon by the Corporate Debtor is inter-se the Corporate Debtor and the NHAI and it would not have any impact on the Section 7 Petition filed by the Respondent No. 1 in exercise of its statutory right. Further assuming that the termination is given effect to, the quantum of the termination payment and when such payment will be received by the corporate Debtor is a mere contingency which cannot come in way of admission of the present petition. Even assuming that certain amount is payable by the NHAI to the Corporate Debtor, the exact quantum of such amount cannot possibly be ascertained at this stage.
The appeal is filed with mala fide intention to derail CIRP lacks merit. It is found that these are Corporate Debtor's attempt to interject arbitration proceedings to delay insolvency and thus are not legally tenable.
Conclusion - The existence of debt and default on STPL’s part stand established with ample documentary and financial records. The allegation of a contrived default due to UBI-FC’s actions is unsupported; escrow fund usage and project suspension were within contractual rights of NHAI unrelated to insolvency proceedings. Termination of the concession agreement- being unilateral and to be decided by the Arbitrator as and when appointed- is irrelevant to the existence of default under the loan agreement warranting insolvency proceedings. The adjudicating authority, therefore, rightly admitted the insolvency petition under Section 7, adhering to the mandate of the IBC and binding judicial precedents. Moreover, RP is ensuring that CD continues as a going concern and therefore the concession agreement- the main asset of the CD- continues and it survives and in case it is resolved then new PRA will take over as the new management.
There are no infirmity in the orders of the Adjudicating Authority. We hereby affirm the continuation of the Corporate Insolvency Resolution Process against Solapur Tollways Projects Limited - appeal dismissed.
1. ISSUES PRESENTED AND CONSIDERED
(1) Whether the impleadment application by the State, challenging dealing with certain land in the resolution plan, was maintainable at the appellate stage.
(2) Whether the appellant's expenditures under a court-sanctioned revival scheme conferred on it the status of a creditor (financial or operational) of the corporate debtor under the Insolvency and Bankruptcy Code, 2016, and the effect of the setting aside of the Single Bench revival order.
(3) Whether, after transfer of the winding up proceedings to the NCLT, the adjudication of the appellant's claim was to be governed exclusively by the IBC regime, and the legal effect of the Official Liquidator's prior adjudication admitting the claim in part.
(4) Whether the Resolution Professional acted correctly in rejecting the appellant's claim on grounds of delay, lack of proof and absence of contractual basis for interest, and whether the RP was bound to consider or follow the Official Liquidator's report.
(5) Whether approval of the resolution plan was vitiated by "material irregularity" or contravention of law because the appellant's claim was rejected / not admitted, and whether any prejudice arose to the appellant in view of the plan structure and CoC's commercial decision.
(6) What relief, if any, could be granted in respect of the amount of Rs. 57.68 lakhs earlier admitted by the Official Liquidator, in light of the Successful Resolution Applicant's offer to pay this amount without disturbing the resolution plan.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (1): Impleadment of the State in appeal against plan approval
Interpretation and reasoning
The Tribunal noted that the State had earlier filed an application before the Adjudicating Authority seeking rejection of the resolution plan on the ground that the subject land was only retained by, and not owned by, the corporate debtor. That application was dismissed and the order attained finality as it was not challenged. The State also did not challenge the subsequent order approving the resolution plan. The present impleadment attempt, at the appellate stage in an appeal filed by another party and on uncommon grounds, was held to be an indirect attempt to reopen settled issues and seek reliefs which could not now be claimed.
Conclusion
The impleadment application by the State was held to be devoid of merit and was dismissed.
Issue (2): Status of the appellant as creditor in light of the revival scheme and its setting aside
Legal framework discussed
The Tribunal examined: (a) the Single Bench order approving a revival scheme and inducting the appellant as "promoter" with specified rights and liabilities; (b) the Division Bench order setting aside that Single Bench order and remitting the matter to the Company Judge while directing the Official Liquidator to take possession; and (c) subsequent High Court and Supreme Court directions permitting the appellant to lodge and have its claim adjudicated in liquidation.
Interpretation and reasoning
The Adjudicating Authority had relied on the Single Bench order to hold that the appellant was only an investor-promoter and not a financial or operational creditor, and that no debt was owed to it. The Tribunal held this approach to be erroneous because the Single Bench order had been expressly "set aside" by the Division Bench and therefore no longer had legal force; it could not be used either to deny or to support creditor status.
However, the Tribunal noted that the Division Bench and later orders of the High Court and the Supreme Court recognised the factual position that the appellant had made investments/expenditures in the corporate debtor pursuant to a court-mandated revival scheme, and directed adjudication of those claims. Acting on those directions, the Official Liquidator had examined the material and admitted expenditure to the tune of Rs. 57.68 lakhs, rejecting the balance, including the interest component.
In this backdrop, the Tribunal held that the sweeping conclusion of the Adjudicating Authority-that the appellant could not, in law, have any financial or operational debt claim-was unsustainable. The fact that the revival scheme did not survive did not wipe out the fact of expenditures incurred; the question was whether and to what extent such expenditures could constitute a claim under the IBC framework.
The Tribunal also rejected the appellant's reliance on the Single Bench order to assert priority superior even to secured creditors, and distinguished the judgment relied on regarding statutory secured status, holding that such reasoning did not apply here.
Conclusions
(a) The Single Bench revival order, having been set aside, could not be relied upon either to deny or to enhance the appellant's status under IBC.
(b) The existence of expenditures incurred by the appellant on the corporate debtor, and partial admission thereof by the Official Liquidator, was recognised; the absolute denial of the possibility of a debt claim under IBC was incorrect in principle, though subject to the IBC framework and subsequent findings.
Issue (3): Effect of transfer from winding up to CIRP and role of the Official Liquidator's report
Legal framework discussed
The Tribunal referred to the Supreme Court's order transferring the company petition to NCLT under the proviso to Section 434(1)(c) of the Companies Act, directing that the Official Liquidator's report and objections be considered by the NCLT. It also considered provisions of the IBC, inter alia Section 18(b) (duty of Interim Resolution Professional to receive and collate claims), and the CIRP Regulations concerning submission and verification of claims.
Interpretation and reasoning
The Tribunal observed that, by the Supreme Court's transfer order, adjudication of the appellant's claims moved from the Companies Act (winding up) regime to the IBC regime. The Adjudicating Authority's order dated 05.10.2023 expressly held that, after commencement of CIRP and publication of Form A, it was the appellant's responsibility to file its claim afresh with the Resolution Professional in the prescribed form, irrespective of prior filing and partial admission by the Official Liquidator in liquidation. This order also recorded that, after transfer, the matter had to be dealt with under the IBC and not as a continuation of winding up. The Tribunal held that this order, not having been challenged, had attained finality and governed the manner in which the appellant's claim had to be processed.
At the same time, the Supreme Court's transfer order required that the Official Liquidator's report and the objections thereto be "considered" by the NCLT. The Tribunal emphasised that this did not exempt the Resolution Professional from examining the Official Liquidator's report. The report, after detailed scrutiny of voluminous records, had admitted expenditure of Rs. 57.86 lakhs and rejected the balance, including interest claims, with reasoning (absence of supporting delivery receipts, inconsistency and exaggeration in interest calculations, and lack of stipulation for interest in the scheme).
The Tribunal held that, while the RP had to verify and collate claims under IBC, the Official Liquidator's report-particularly its careful segregation between admissible and inadmissible components-was a relevant and reasoned material that ought to have been considered and either accepted or rejected with reasons. It could not be summarily ignored merely because it was prepared under the Companies Act regime.
Conclusions
(a) After transfer to NCLT, adjudication of the appellant's claim was required to be effected under the IBC and CIRP framework; a fresh claim in prescribed form had to be filed with the RP, independent of earlier liquidation filings.
(b) The Official Liquidator's report was not binding as such but was a material document that the RP and Adjudicating Authority were required to meaningfully consider; its outright disregard without reason was not justified.
Issue (4): Legality of the RP's rejection of the claim and treatment of interest and proof of expenditure
Legal framework discussed
The Tribunal noted the obligations of the RP under the IBC and CIRP Regulations, particularly regarding receipt, verification and collation of claims, and the need for sufficient evidentiary support (vouchers, invoices, bank statements, proof of disbursement) to substantiate a claim. It also referred to Regulation 13 of the CIRP Regulations as invoked by the appellant, and to jurisprudence recognising that an RP must exercise due diligence in verifying claims.
Interpretation and reasoning
On delay, the Tribunal recorded that CIRP had commenced in July 2022, with last date for filing claims being 01.08.2022, and that the appellant did not file a claim within that period, despite knowledge of proceedings. The appellant filed only after the Adjudicating Authority's order dated 05.10.2023 and further reminders, and had to rectify the form. The Adjudicating Authority treated this as a "considerable delay."
On substantiation, the RP's stand was that the appellant did not furnish adequate bank statements, proof of disbursement, or invoices linked to the corporate debtor; many invoices were not addressed to the corporate debtor and were allegedly frivolous or unrelated, and the interest claim (about Rs. 243 crores on Rs. 2.15 crores principal) had no contractual foundation.
The appellant countered that all originals had already been lodged with the Official Liquidator and then handed over to the RP; insisting on originals from the appellant was impossible. The Tribunal noted letters from the Official Liquidator to the RP, and an Adjudicating Authority order dated 20.03.2023 recording that all documents relating to the matter had been handed over to the RP. The Tribunal found no challenge to this order and was not persuaded by the RP's denial of receipt of original records. It considered the RP's insistence on originals from the appellant to be unreasonable in this factual context.
Crucially, however, the Tribunal placed weight on the Official Liquidator's prior detailed adjudication: acceptance of Rs. 57.86 lakhs as properly supported by vouchers/invoices, and rejection of the remaining principal and of the entire interest claim as inadequately supported, beyond scope, or exaggerated. It noted that the appellant had not successfully established any contractual or judicial basis for interest, and that earlier Supreme Court orders did not recognise or determine any interest entitlement. Hence, reliance on restitution principles in other judgments to claim a very high interest amount was held to be misplaced.
The Tribunal held that the RP ought to have clearly articulated reasons, in light of the Official Liquidator's report and the material said to be in his possession, for accepting or rejecting the respective components of the claim, instead of treating the entire claim as unsubstantiated. At least to the extent of Rs. 57.68 lakhs already examined and admitted by the Official Liquidator, the report was found reasonable and deserving of cognisance.
Conclusions
(a) The RP was entitled to require substantiation of the claim and to reject unsupported or frivolous components, particularly as to interest and unproved invoices.
(b) However, in the factual context-especially with the Official Liquidator's reasoned admission of Rs. 57.68 lakhs and transfer of originals to the RP-the RP ought to have considered and dealt specifically with the Official Liquidator's findings rather than disregarding them wholesale.
(c) The interest claim was rightly liable to rejection; there was no contract or judicial order granting interest and the Official Liquidator had already found the interest component untenable.
Issue (5): Effect of rejection/non-admission of the claim on validity of the resolution plan; material irregularity, prejudice, and CoC's commercial wisdom
Legal framework discussed
The Tribunal considered:
* Section 30(2)(b) of the IBC (minimum payment of liquidation value to operational creditors);
* Regulation 38 of the CIRP Regulations (treatment of stakeholders and timing of payments to operational creditors);
* Section 53 IBC (waterfall mechanism, referred to as being followed in plan design);
* Section 61(3) IBC (limited grounds of appeal against approval of a resolution plan, including contravention of law and material irregularity by the RP);
* Supreme Court jurisprudence affirming the primacy and non-justiciability of CoC's "commercial wisdom," and limiting judicial interference to violations of Section 30(2) or Section 61(3).
Interpretation and reasoning
The appellant argued that the Adjudicating Authority could not lawfully approve the resolution plan without first adjudicating the challenge to the RP's rejection of its claim, and that this failure constituted material irregularity undermining the CIRP's sanctity. The RP and Successful Resolution Applicant argued that admitting such belated claims post-approval would disrupt a fully implemented plan and contravene the finality sought under IBC jurisprudence.
The Tribunal examined the treatment of stakeholders in the resolution plan as recorded in Form H. The plan provided 100% payment of admitted amounts to secured financial creditors and to government operational creditors. Under the same plan, operational creditors "other than" government, employees and workmen (a category in which the appellant would fall) were allocated "Nil" in terms of amount provided, with liquidation value for them effectively treated as Nil.
On this basis, the Tribunal reasoned that, even if it were assumed that the RP had wrongly rejected the appellant's claim, the structure of the approved plan-backed by the CoC's commercial wisdom-contemplated no distribution to that class of operational creditors. Hence, even if the claim had been admitted, the appellant would not, under the plan, have been allotted any amount. The appellant, therefore, suffered no prejudice in terms of distributions under the resolution plan, and there was no violation of Section 30(2)(b), since at least liquidation value (here effectively Nil) was being given to that class.
The Tribunal reiterated that interference with the CoC's commercial decision is permitted only if a plan contravenes Section 30(2) or falls within the grounds specified in Section 61(3), such as material irregularity or non-provision for operational creditors' dues. In the present case, the plan had been approved by 100% CoC vote, all mandatory statutory requirements were complied with, and the claim structure showed no illegality or discrimination contrary to the Code. The mere dissatisfaction of the appellant as a stakeholder could not justify upsetting the plan.
The Tribunal therefore concluded that the approval of the resolution plan was not vitiated by any material irregularity on account of the treatment of the appellant's claim, especially when the CoC had consciously decided not to allocate any amount to that operational creditor category, and such decision was within its commercial domain.
Conclusions
(a) Even assuming some infirmity in the RP's rejection of the appellant's claim, no prejudice arose under the resolution plan, as the CoC-approved plan allocated Nil to that class of operational creditors consistent with the liquidation value and waterfall structure.
(b) There was no contravention of Section 30(2)(b) IBC, nor any material irregularity under Section 61(3) in the approval of the plan.
(c) The plan, having been approved with 100% CoC vote and implemented in accordance with its terms, could not be disturbed merely because the appellant's claim had been rejected.
(d) The Tribunal affirmed the approval of the resolution plan and declined to interfere with the CoC's commercial wisdom.
Issue (6): Equitable relief regarding Rs. 57.68 lakhs admitted by the Official Liquidator and the Successful Resolution Applicant's offer
Interpretation and reasoning
The Tribunal noted that, during the hearing, the Successful Resolution Applicant voluntarily offered to pay Rs. 57.68 lakhs to the appellant-corresponding to the amount earlier admitted by the Official Liquidator-without altering the total plan value or disturbing proceeds already earmarked for creditors. The offer was made on the condition that the appellant would not press further claims.
The Tribunal found the Official Liquidator's adjudication, to the extent of Rs. 57.68 lakhs, to be reasonable and deserving of recognition, and viewed the Successful Resolution Applicant's offer as a "practical suggestion" capable of bringing finality to long-standing litigation. In balancing the equities and "securing the ends of justice," the Tribunal decided to modify the impugned order partially to permit such payment while safeguarding the integrity of the resolution plan and its distribution structure.
Conclusions
(a) The affirmation of the resolution plan was maintained in full; the Successful Resolution Applicant was allowed to reimburse Rs. 57.68 lakhs to the appellant, corresponding to the amount admitted in liquidation by the Official Liquidator.
(b) This payment is to be made within 30 days from the date of the appellate order, and must not affect the overall proceeds of distribution already approved for other creditors under the plan.
(c) The payment is conditional on the appellant agreeing not to press any further claims or interest, and on such other mutually acceptable terms and conditions as the parties may agree.
(d) Other than this limited relief, the dismissal of the appellant's wider claim and the approval of the resolution plan stand confirmed.
Rejection of claims of the Appellant filed with the Resolution Professional - winding up orders issued by the Hon’ble Calcutta High Court - error in approving the resolution plan of the Corporate Debtor - HELD THAT:- It is significant to note that the litigious journey has traversed a maze of judicial proceedings including the Single Bench and Division Bench of Calcutta High Court, Hon’ble Supreme Court, NCLT and also the instrumentalities of a court appointed Administrator and an OL. More importantly, the contentious dispute between the parties has meandered its way through the regime of liquidation proceedings conducted under the provisions of Companies Act to the regime of insolvency proceedings regime under special legislative enactment of IBC.
It would suffice to note that in terms of an order of the Calcutta High Court dated 19.12.1997, the Administrator submitted a Report on the accounts of the Corporate Debtor on 17.01.1998. The Report is placed at pages 196-202 of Appeal Paper Book - On perusal of above Report of the Administrator, we notice that the Administrator recorded that copies of cash vouchers, journal vouchers, labour vouchers etc. in ten boxes were received towards accounts of the Corporate Debtor, with the originals continuing to remain part of the records of the Corporate Debtor. The Administrator further admitted that his report of accounts of Sylvan expending Rs. 2.15 cr. was submitted on the basis of “Certificate of Auditors” and the “Statement of Affairs” as submitted by the internal auditors of the Corporate Debtor.
The expenses incurred by Sylvan on the Corporate Debtor has been acknowledged up to the level of the Hon’ble Supreme Court, we do not find substance in the findings returned by the Adjudicating Authority that the Appellant cannot have right to claim financial or operational debt qua the Corporate Debtor. The emphasis laid in the impugned order on the Single Bench order of the Calcutta High Court that the amount invested was not reimbursable is misplaced as the Single Bench order had already been set aside. By the same logic that the Single Bench order was overturned, we also hasten to add that the contention of the Appellant that their status as creditor was even superior to that of a secured creditor by relying on this order is misplaced.
Submission has been pressed by the RP that CIRP of the Corporate Debtor had commenced even before the order of Adjudicating Authority dated 05.10.2023. The public announcement for claims was made on 20.07.2022 with the last date of claim being 01.08.2022. The Appellant had not filed their claim within the stipulated timeline of 01.08.2022. The Appellant filed their claim only after the Adjudicating Authority directed them to file their claim vide its order dated 05.10.2023 and that too only after being reminded by the RP on 01.11.2023 - The exaggerated nature of the claim is also evident from the fact that as against a claim made of Rs. 2.15 cr., the Appellant had added thereto an interest amount of Rs. 243.32 cr. Emphasis was also laid that the interest had been charged without any supporting contract or agreement between the Appellant and the Corporate Debtor. No proof had also been furnished to show that these payments were actually made by Sylvan against these invoices. The absence of bank statements, payment confirmations or delivery receipts also put a question mark on the evidentiary value of these invoices under the IBC framework. Thus, when the burden of substantiating claims rested on the Appellant which however remained unmet, under such circumstances, the RP could not have accepted these claims without proper verification and was obligated to seek additional information for this purpose.
Coming to the statutory construct of the IBC, Section 30(2)(b) of IBC requires every resolution plan to provide for payment of at least the liquidation value to all operational creditors. Further Regulation 38(1)(b) of the CIRP Regulations provides that liquidation value must be paid to operational creditors prior in time to all financial creditors and within thirty days of approval of resolution plan by the NCLT - Thus, as the law stands today, no exception can be taken to any such plan which provides for payment to Operational Creditor in accordance with Section 30(2)(b) of the IBC read with Regulation 38(1)(b) of the CIRP Regulations.
It is well settled that Adjudicating Authority can interfere with the commercial wisdom of CoC only when Resolution Plan violates any of the provisions of Section 30(2)(b). As long the statutory provisions of the IBC and the CIRP Regulations framed thereunder are complied with, it is the commercial wisdom of the requisite majority of the CoC which is to negotiate and accept a resolution plan. Such opinion expressed by the CoC after due deliberations in the meetings through voting is the collective business decision and constitutes an expression of the CoC’s commercial wisdom. And it is here that primacy of the commercial wisdom of the CoC comes into play.
There is neither any material irregularity nor contravention of any provisions of law by the CoC which has been justifiably substantiated by the Appellant. In the present case when no valid grounds have been made out to challenge the approval of the resolution plan, the Adjudicating Authority cannot meddle with the business decision of the CoC. Furthermore, the resolution plan having been approved by 100% of vote share by the CoC, such plan cannot be interfered with by the Adjudicating Authority merely on the grounds that the claims of the Appellant had been rejected at a time particularly so when no amount has been specified for Operational Creditors in terms of liquidation value. Once all the mandatory requirements of a plan have been duly complied with and taken care of, judicial review cannot be extended to analyse and look into the dissatisfaction evinced by any particular creditor or stakeholder.
The resolution plan as approved by the Adjudicating Authority vide impugned order is affirmed. The SRA may proceed further in terms of the approved resolution plan - appeal disposed off.
Issues: Whether confiscation of amounts under section 63 of the Foreign Exchange Regulation Act, 1973 was mandatory on proof of violation, and whether the Tribunal was justified in setting aside the confiscation order.
Analysis: Section 63 uses the word "may" in relation to confiscation, which indicates discretion and not a mandatory consequence of every breach. The provision also requires the authority to apply its mind and form a reason to believe that the amounts sought to be confiscated relate to the alleged or proved breach. Confiscation, therefore, cannot follow automatically merely because a violation of the foreign exchange law is noticed. On the facts, there was no independent application of mind, and the Tribunal held that the confiscation had been made mechanically and was not justified.
Conclusion: Confiscation under section 63 was not mandatory, and the Tribunal was justified in interfering with the confiscation order. The question of law was answered against the Revenue.
Power to order confiscation - discretionary Or mandatory - whether the Appellate Tribunal for Foreign Exchange was justified in setting aside the order of confiscation of the amounts lying in NRE/SB accounts which accounts are admittedly used for contravention/violation of provisions of FERA, 1973, without considering clause (a) to the Explanation to section 63 of the FERA, 1973 and without appreciating the expression ‘in respect of’ used in said section 63.
HELD THAT:- We find that Section 63 employs the word ‘may’ and not the word ‘shall’ when it comes to issuing an order of confiscation. Further, before any confiscation is ordered, the main Section itself requires the authority to apply its mind and have reason to believe that the confiscated amounts relate to the breach alleged or proved. Therefore, a confiscation order cannot be made as a matter of course, nor can the making of the confiscation order be regarded as automatic upon any breach of the provisions of FERA being noticed.
In this case, there does not appear to have been any independent application of mind. The Tribunal has also considered the nature of the violation and has ruled that the confiscation, which was made as a matter of course, was not justified.
Appeal does not involve any question of law as such and dismiss.
Issues: (i) Whether a bank may temporarily freeze the operations of an account on the basis of suspicious transactions without a prior requisition from a law enforcement agency or court; (ii) What safeguards and time limits govern such freezing pending verification by the competent authorities.
Issue (i): Whether a bank may temporarily freeze the operations of an account on the basis of suspicious transactions without a prior requisition from a law enforcement agency or court.
Analysis: The decision examined the RBI framework on KYC, anti-money laundering, money mule monitoring, and the bank's reporting obligations under the Prevention of Money-Laundering Act, 2002. It held that the existing directions require monitoring, enhanced due diligence, reporting of suspicious transactions, and compliance with lawful requisitions, but do not expressly spell out a complete mechanism for suspicious accounts. Reading the banking regulator's powers under Section 35A of the Banking Regulation Act, 1949 with the object of preventing financial cyber fraud, the decision concluded that banks must be able to prevent dissipation of suspected proceeds of crime and that prior notice in every case would defeat that object.
Conclusion: Yes. A bank may temporarily freeze the operations of a suspicious account without prior notice, where it has reasonable grounds for suspicion.
Issue (ii): What safeguards and time limits govern such freezing pending verification by the competent authorities.
Analysis: The decision held that the bank's power is not unbridled and must operate only as a temporary protective measure. The account holder must be informed on the date of freezing, the matter must be communicated to the competent cyber crime and other concerned authorities, and the account holder must be given an opportunity to explain the transactions. If the explanation is satisfactory, the account must be de-frozen; if no action is taken by the authorities within a reasonable period, the freeze cannot continue indefinitely. The decision fixed three months as the reasonable outer limit and directed the RBI to frame a standard operating procedure.
Conclusion: The freeze may continue only for a reasonable period, fixed at three months, and must be lifted if no authority acts within that period or if the explanation is accepted.
Final Conclusion: The petitions were disposed of with operational directions to the bank and a direction to the RBI to formulate clear guidelines for handling suspicious accounts, while recognizing a limited bank power to impose temporary debit freeze in suspected fraud cases.
Ratio Decidendi: Where a bank has reasonable grounds to suspect that an account is being used for financial fraud or laundering, it may temporarily freeze the account to preserve the suspected proceeds of crime, but the measure must be time-bound, supported by prompt intimation, and subject to prompt review and action by the competent authorities.
Power of banks to freeze accounts on suspicion - Temporary debit freeze without prior notice for a reasonable period - Three-month limit for continued freezing in absence of action by law-enforcement agencies - Requirement to notify Account Holder and jurisdictional Cyber Crime Police Authority - Section 35A of the Banking Regulation Act - RBI power to issue directions - Obligations of reporting entities under the PMLA and enhanced due diligence - Appropriate action under RBI guidelines includes temporary freezing until verification - Right to property under Article 300A in relation to freezing of bank accounts
Power of banks to freeze accounts on suspicion - Appropriate action under RBI guidelines includes temporary freezing until verification - Banks have the power to effect temporary debit freezing of customer accounts when they have reasonable grounds for suspicion, even in the absence of a requisition from lawenforcement agencies. - HELD THAT: - The Court reviewed RBI circulars and PMLA obligations and found that while the extant RBI master directions and KYC/AML circulars mandate monitoring, reporting of suspicious transactions and enhanced due diligence, they do not explicitly authorise the precise course of action to be taken by banks when suspicious activities are detected. Reading the regulatory scheme and the object of preventing largescale financial cybercrime together with banks' duties as reporting entities under the PMLA, the Court held that the term "appropriate action" in the RBI directions necessarily includes the power to temporarily freeze (debit freeze) suspicious accounts to prevent dissipation of proceeds and to enable lawenforcement verification. This power is to be exercised only when the bank has reasonable grounds for suspicion and is necessary to achieve the object of the PMLA and the RBI guidelines. The Court emphasised that this conclusion follows from the banks' duty to prevent misuse of accounts and the wide supervisory remit of the RBI under Section 35A of the Banking Regulation Act. [Paras 16, 25, 26]
Banks may effect a temporary debit freeze of accounts on reasonable suspicion even without a requisition from lawenforcement agencies; such freezing is part of the "appropriate action" contemplated by RBI guidelines.
Temporary debit freeze without prior notice for a reasonable period - Three-month limit for continued freezing in absence of action by lawenforcement agencies - Requirement to notify Account Holder and jurisdictional Cyber Crime Police Authority - Interim procedural safeguards and time limits for a bankinitiated freeze: banks may freeze without prior notice but must follow specified notice, communication and timelimit requirements; continued freezing without action by authorities is limited to three months. - HELD THAT: - To balance banks' duty to prevent fraud and the Account Holder's rights (including Article 300A), the Court prescribed interim guidelines to be followed until RBI frames a Standard Operating Procedure. The banks are permitted to effect debit freezes without prior notice when reasonable suspicion exists, but must (a) communicate the freezing and reasons to the Account Holder by SMS and registered post on the date of freezing, (b) send detailed communication with reasons to the jurisdictional Cyber Crime Police Authority and other relevant authorities and ensure receipt, (c) consider any Explanation from the Account Holder and pass orders within one week; if explanation is satisfactory, the bank must defreeze, and (d) if no satisfactory explanation or no explanation, continue freezing only for a period of three months from last delivery of the communication to the authorities; if no action or instruction is received within the threemonth period the bank must lift the freeze and allow the Account Holder to deal with the credit balance. The Court thus confines the period of deprivation and requires prompt institutional responses. [Paras 26, 27]
Banks can freeze without prior notice but must notify the Account Holder immediately, inform relevant authorities, consider explanations within one week, and may continue freezing only up to three months absent action by authorities, after which the freeze must be lifted.
Section 35A of the Banking Regulation Act - RBI power to issue directions - Obligations of reporting entities under the PMLA and enhanced due diligence - RBI has wide powers under Section 35A to issue directions in public and banking interest, and banks as reporting entities under the PMLA must undertake enhanced due diligence and monitoring; however RBI must frame a concrete SOP to define banks' powers to freeze suspicious accounts. - HELD THAT: - The Court observed that Section 35A empowers the RBI to issue directions to banks in the public interest and that prevention of financial cybercrime falls within those powers. While banks are reporting entities under the PMLA with duties to monitor and report suspicious transactions and to undertake enhanced due diligence, the existing RBI circulars lack a clearly defined procedure for freezing suspicious accounts without defeating the objective of preventing dissipation of proceeds. The Court directed the RBI to formulate a Standard Operating Procedure delineating the powers and responsibilities of banks in freezing suspicious accounts, thereby clarifying and filling the regulatory gap. [Paras 13, 14, 24, 28]
RBI must frame a Standard Operating Procedure defining the powers of banks to freeze suspicious accounts; banks remain subject to PMLA obligations and RBI's supervisory directions under Section 35A.
Right to property under Article 300A - Requirement to balance deprivation with prompt review - Deprivation of access to funds by freezing impacts the Account Holder's property rights and must be limited and accompanied by procedural safeguards and review mechanisms. - HELD THAT: - While recognising banks' role in preventing misuse of accounts, the Court cautioned that freezing operations denies the Account Holder use of funds and engages property interests protected under Article 300A. To mitigate this, the Court imposed the procedural safeguards and strict timelines (immediate communication, oneweek consideration of explanations, maximum threemonth freeze absent action) so that deprivation is neither indefinite nor without opportunity for prompt review. The Court also left open the Account Holder's remedy to challenge a bank's rejection of an explanation in accordance with law. [Paras 15, 27]
Freezing affects Article 300A rights and therefore must be subject to immediate notice, prompt internal review and a threemonth outer limit absent action by competent authorities; judicial or other legal remedies remain available to the Account Holder.
Final Conclusion: The High Court holds that banks may temporarily freeze (debit freeze) accounts on reasonable suspicion even without requisition from lawenforcement agencies, but such freezing must follow the interim procedural safeguards and time limits prescribed by the Court (immediate notice to Account Holder, intimation to cybercrime and other authorities, oneweek consideration of explanations, and a maximum threemonth freeze absent action), directs the banks in the present petitions to comply with those steps forthwith, and directs the RBI to frame a detailed Standard Operating Procedure defining banks' powers to freeze suspicious accounts.
Issues: (i) Whether a search under Section 17 of the Prevention of Money Laundering Act, 2002 could be sustained when the prior complaint or report was not against the very person searched; (ii) Whether the order of the Appellate Tribunal confirming retention could stand in view of the statutory framework governing search, seizure and retention under the Act.
Issue (i): Whether a search under Section 17 of the Prevention of Money Laundering Act, 2002 could be sustained when the prior complaint or report was not against the very person searched.
Analysis: The statutory scheme permits search of any person who is found to be involved in money laundering, in possession of proceeds of crime, records relating to money laundering, or property related to crime. The precondition, as it then stood, was the prior institution of a complaint or forwarding of a report under the Code of Criminal Procedure, 1973, but the provision did not require that such complaint or report must necessarily be against the same person searched. The earlier complaint in the connected matter had already been filed and cognizance had been taken. The search was therefore not invalid merely because the respondent was not shown as an accused in that complaint.
Conclusion: The search under Section 17 was legally permissible and the contrary view was unsustainable.
Issue (ii): Whether the order of the Appellate Tribunal confirming retention could stand in view of the statutory framework governing search, seizure and retention under the Act.
Analysis: The Tribunal had proceeded on an erroneous understanding of the statutory preconditions and had been influenced by the absence of a prosecution complaint specifically against the respondent, although that was not the relevant test for action under Section 17. Since the relevant precondition for search stood satisfied, the impugned order could not be sustained. At the same time, the respondent was to be afforded an opportunity to raise the remaining factual and legal contentions before the Tribunal.
Conclusion: The impugned order was set aside and the matter was remanded to the Appellate Tribunal for fresh consideration in accordance with law.
Final Conclusion: The enforcement appeal succeeded, the Tribunal's order was annulled, and the dispute was sent back for a fresh decision after hearing both sides.
Money Laundering - valid search and seizure carried u/s 17 of the Prevention of Money Laundering Act, 2002 or not - respondent responded and asserted that he had no association with his alleged associates and was never involved in any such activity of money laundering - HELD THAT:- A careful perusal of impugned order would indicate that the learned Appellate Tribunal, ostensibly, got swayed away by the fact that there was no “prosecution complaint” against respondent. This was despite the fact that no such argument was even raised by the respondent in his appeal filed before the learned Appellate Tribunal - Admittedly, during the pendency of said appeal before learned Appellate Tribunal, ED did file one supplementary complaint 17.07.2018 before the Sessions Court, Mumbai. It was, however, in continuation of previous ECIR filed on 06.05.2011.
The adjudication order under Section 8 of PMLA can be passed when Adjudicating Authority receives a complaint under Section 5(5) or an application under Section 17(4) or an application under Section 18(10) of PMLA. On receipt of any such complaint or application, the Adjudicating Authority, after satisfying itself, is required to issue show cause notice to any such person and after receiving reply, if any, to such show cause notice and hearing all concerned and taking into account all the relevant material placed before it, the Adjudicating Authority is required to record findings to the effect whether the property in question is involved in money laundering or not. In case, its answer is in affirmative, it would result in confirmation of attachment made under Section 5 or under Section 17 or under Section 18 of PMLA, as the case may be - the request for retention had been made under Section 17(4) of PMLA and not under Section 5(5) of PMLA.
Section 17 of PMLA does not lay down that the search can be carried out in the premises of that person alone qua whom a complaint has been filed or report had been forwarded to the concerned Magisterial Court. The pre-condition is of ‘prior institution of complaint or forwarding of a report under Section 157 Cr.P.C’. There is no mandate that search should also be of the person shown accused in such report or complaint - A person may be in possession of proceeds of crime but still may not be accused of any scheduled offence or offence of money laundering. In a given situation, a person can be recipient of proceeds of crime, without having any criminal intent and, therefore, it is not necessary that any such person should be an accused in a prior complaint or report. Thus, search was permissible once the conditions specified under Section 17 of PMLA were satisfied.
Here, the search was conducted as the concerned officer of ED had ‘reason to believe’ that money laundering activities were still going on and ED, therefore, decided to conduct search to recover incriminating material. As per Section 17(1)(iii), the premises of any person, who is in possession of any records relating to money laundering, can also be searched - Since the precondition is clearly met, the impugned order is not sustainable.
While setting aside the impugned order dated 21.05.2019, the matter stands remanded with request to the learned Appellate Tribunal to consider the appeal afresh and to decide the same in accordance with law, after giving due opportunity of hearing to both the sides - Appeal disposed off by way of remand.
ISSUES PRESENTED AND CONSIDERED
1. Whether service tax under reverse charge for Goods Transport Agency (GTA) service is leviable where distributors/C&F agents pay freight and claim reimbursement from the principal, no consignment note is issued and no GTA service is availed by the principal.
2. Whether amounts reimbursed to distributors/C&F agents (including local delivery charges, stickering, octroi, ocean freight) fall within the value of taxable services prior to the law change of 14.05.2015 and whether exemption Notification No. 34/2004 (consignment value threshold) is available though not claimed in returns.
3. Whether a demand under the category of Management or Business Consultant Service (MBCS) can be sustained when the factual case indicates secondment/manpower supply by related overseas companies and the show cause notice did not allege or propose demand under the "Manpower Recruitment or Supply Agency" category.
4. Whether services characterized as scientific and technical consultancy are taxable where intra-group R&D/cost-sharing arrangements exist, no independent scientific institution/technocrat is shown to have provided services, and no clear service-provider/service-recipient relationship is established.
5. Whether extended period of limitation (invoking suppression) and penalties are sustainable when the appellant bona fide believed services were not taxable or were self-assessed differently and there was no deliberate concealment or failure to furnish material information in returns.
ISSUE-WISE DETAILED ANALYSIS - GTA / Reimbursements / Exemption
Legal framework: Section 65(105)(zzp) (definition of GTA service) and Section 65B(26) (definition of Goods Transport Agency) of the Finance Act; Rule 2(1)(d)(v) of the Service Tax Rules; Section 67 (value of taxable services); Notification No. 34/2004 (exemption for consignment value below specified threshold).
Precedent treatment: The Tribunal relied on coordinate authority decisions to analyze whether consignment agents/distributors fall within the ambit of persons liable for GTA service; decisions recognizing that reimbursements prior to specified judicial pronouncements are not includible in service value were noted (treated as applicable to the facts where reimbursements were not includible prior to law change).
Interpretation and reasoning: The court examined the statutory definition of GTA service which requires a service provided by a GTA and the issuance of a consignment note. Findings of fact (no consignment note, distributors/C&F agents paid freight and then claimed reimbursement) lead to the conclusion that the appellant did not avail GTA service and was not the payer of freight. Consequently, Rule 2(1)(d)(v) could not be applied to fasten reverse charge liability on the appellant. Stickering charges were found not to be transport services. Regarding value inclusion, prior judicial pronouncements pre-dating 14.05.2015 precluded inclusion of reimbursements in service value; the Tribunal accepted that position for the period in question. On exemption, relying on settled law that there is no fixed time to claim an exemption notification, the Tribunal held that denial of Notification No. 34/2004 solely because it was not claimed in returns was erroneous; benefit can be claimed at adjudication/appellate stage.
Ratio vs. Obiter: Ratio - where no GTA consignment note is issued and no GTA service is availed by the taxpayer (and the freight is paid by distributors/C&F agents who claim reimbursement), reverse charge under GTA cannot be imposed on the principal. Ratio - reimbursements for freight prior to the controlling judicial pronouncement are not includible in service value. Obiter - distinctions with certain departmental precedents were noted as fact-sensitive.
Conclusions: The demand under GTA category is unsustainable. Reimbursements claimed by distributors/C&F agents are not liable for service tax under the reverse charge in the facts presented; exemption under Notification No. 34/2004 is available even if not earlier claimed in returns.
ISSUE-WISE DETAILED ANALYSIS - Management or Business Consultant Service vs Manpower Supply
Legal framework: Section 65(65) (Management or Business Consultant Service) and Section 65(68) (Manpower Recruitment or Supply Agency) of the Finance Act; principle that a show cause notice must specify the category of service on which demand is proposed.
Precedent treatment: The Tribunal referred to authorities establishing that taxes cannot be confirmed under a service category not pleaded in the SCN; also relied on higher court elucidations distinguishing employment/service and identifying manpower supply as taxable where an overseas group supplies personnel to the local entity.
Interpretation and reasoning: The factual matrix showed secondment/placement of expatriate employees by overseas related companies with reimbursement of salaries to the overseas entities. The Tribunal applied controlling law that such arrangements, in substance, amount to manpower supply services rather than generic management consultancy. Crucially, the show cause notice did not allege or propose demand under the manpower supply category; confirmation under a different category (MBCS) was therefore procedurally and legally impermissible.
Ratio vs. Obiter: Ratio - demand cannot be sustained under a service head not specified in the SCN; where the arrangement is in substance manpower supply, the correct category to be invoked is Manpower Recruitment/Supply, and revenue cannot confirm demand under MBCS if SCN did not propose that head. Obiter - discussion on the nature of secondment and reimbursement as constituting taxable manpower supply rather than employment service.
Conclusions: Demand confirmed under Management or Business Consultant Service is not sustainable; authorities must confine adjudication to categories alleged in the SCN and the factual arrangement suggests manpower supply, which was neither alleged nor adjudicated.
ISSUE-WISE DETAILED ANALYSIS - Scientific and Technical Consultancy / R&D Cost Sharing
Legal framework: Section 65(105)(za) defining scientific and technical consultancy services; principle requiring a service provider (scientist/technocrat/institution) rendering consultancy to a recipient.
Precedent treatment: The Tribunal considered authorities on cost-sharing and intra-group R&D arrangements where no service provider/recipient relationship exists and prior rulings holding such cost allocations do not attract service tax when they are genuine cost-sharing without service element.
Interpretation and reasoning: The facts disclosed intra-group arrangements for research to develop products, with cost sharing among group entities. There was no finding that an independent scientist/technocrat or institution provided consultancy to the appellant; parties undertaking in-house R&D by group companies and allocating costs was held not to create a taxable scientific/technical consultancy service under the statutory definition.
Ratio vs. Obiter: Ratio - where intra-group cost-sharing/R&D contributions do not reflect a service-provider/service-recipient relationship with a scientist/technocrat/institution, such transactions are not taxable as scientific and technical consultancy. Obiter - reference made to distinguishing cases where an identifiable external technical consultancy is actually rendered.
Conclusions: The scientific and technical consultancy demand is unsustainable on the facts; absence of a distinct service provider fitting the statutory description defeats taxability under that head.
ISSUE-WISE DETAILED ANALYSIS - Limitation, Suppression and Penalties
Legal framework: Sections dealing with extended period of limitation and penalty provisions (including Section 78 and Section 80 consequences) and jurisprudence defining "suppression of facts" as deliberate concealment to evade tax.
Precedent treatment: The Tribunal relied on controlling decisions that define suppression as deliberate nondisclosure and on authorities holding that bona fide differences of opinion or self-assessment do not constitute suppression; also on precedents permitting claim of exemption at adjudication/appellate stage despite non-disclosure in returns.
Interpretation and reasoning: The appellant's consistent stance that certain services/reimbursements were not taxable, lack of fields in ST-3 to disclose secondment/cost-sharing arrangements, and absence of deliberate concealment were accepted as negating suppression. The Tribunal applied the principle that omission to disclose matters not required to be disclosed or where appellant acted on bona fide belief cannot be treated as suppression warranting extended limitation or penalty. Since the substantive demands were not tenable on merits, penalties were also found unsustainable.
Ratio vs. Obiter: Ratio - extended period of limitation and penalties based on suppression cannot be invoked where there is no deliberate concealment and where omissions arise from bona fide belief or absence of disclosure fields; penalty cannot stand where the underlying demand fails on merits. Obiter - observations on departmental responsibility to scrutinize returns under a self-assessment regime.
Conclusions: Extended limitation based on suppression and imposition of penalties are not sustainable; where demand fails on merits and no deliberate suppression exists, penalties must be set aside and extended limitation cannot be invoked.
OVERALL CONCLUSION
The Court concluded that demands confirmed under the GTA, Management/Business Consultant and Scientific & Technical Consultancy categories were unsustainable on the facts and law; extended limitation and penalties based on alleged suppression were also unsustainable. The appeal was allowed.
Levy of service tax - Goods Transport Agency Service - Management or Business Consultant Service - scientific and Technical Consultancy Service - demand with interest and penalty - Suppression of facts or not - time limitation.
Goods Transport Agency Service - HELD THAT:- Since no service has been availed through Goods Transport Agency and no consignment has been issued, in such a conditions, considering the legal provisions, no Service Tax is payable. Section 65(105) (zzp) defines taxable service as any service provided or to be provided to any person, by a Goods Transport Agency, in relation to transport of goods by road in goods carriage Section 65b (26) defines GTA “Goods Transport Agency” means any person should provides service in relation to transport of goods by road and issue consignment note, by whatever name called. There is no any consignment note. Since appellant is not the payer of the freight, the distributor and C&F agents are paying the freight themselves - Appellant claims exemption under Notification No. 34/2004 dated 03.12.2004 whereas Lower Authorities denied the benefit on the ground that it never claimed in the ST-3 filed by appellant. Hon’ble Supreme Court in the case of Share Medical Care, [2007 (2) TMI 2 - SUPREME COURT], held that “if no time is fixed for the purpose of getting benefit under the exemption notification, it could be claimed at any time. If the notification applies, the benefit there under must be extended to the appellant. The Court held that the authorities as well as the Tribunal were not right in holding that the appellant ought to have claimed the benefit of the notification at the time of filing of classification lists and not at a subsequent stage” - the appellant is entitled to take benefit of Notification No. 34/2004 dated 03.12.2004 at any stage - regarding Goods Transport Agency (GTA) service, order of Commissioner is not sustainable.
Management or Business Consultant Services (MBCS) - HELD THAT:- Since, Show Cause Notice has not been issued under the category of “Man Power Recruitment or Supply Agency” as defined under Section 65(68) of the Finance Act, the Service Tax cannot confirmed under this category. It is a settled law, that when no demand was made under a specific category, the authorities could not have confirmed demand under the said category. Therefore, demand under Management or Business Consultant category is not sustainable.
Scientific and Technical Consultancy Services - HELD THAT:- As per Show Cause Notice, appellant incurred expenditure towards enhancing the produce (pet food) quality and manufacturing process for the service received from the abroad, whereas per the appellant, there is no service involve, as these are not rendering any service to the appellant, only allocating common expenses incurred by them and in the absence of service provider and service receiver relation, no Service Tax can be demanded.
Suppression of facts or not - time limitation - HELD THAT:- There was no field in the ST-3 returns to declare information relating to agreements entered for secondment or cost sharing agreements, or even what was the arrangement between the appellant and C&F agents/distributors. When there was no field in the returns, it could not be the case of suppression on appellant’s part - The appellant was of the bona fide belief that no Service Tax was leviable on the above. Therefore, extended period of limitation should not be invoked.
Penalties - HELD THAT:- Since, demand is not tenable both on merit and limitation, therefore, imposing of penalties also not sustainable.
Appeal allowed.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether the differential amount between the value of taxable services declared in ST-3 returns and the receipts reflected in Form 26AS/TDS statements, representing labour charges/reimbursement, could be treated as additional taxable value for levy of service tax.
1.2 Whether the extended period of limitation under Section 73 of the Finance Act, 1994 (read with Section 174 of the CGST Act, 2017) was validly invoked for demanding service tax, interest and penalties when the assessee had been regularly filing ST-3 returns and the demand was based on third-party income-tax data and audit findings.
1.3 Whether penalties imposed under Sections 78 and 77 of the Finance Act, 1994 (read with Section 174 of the CGST Act, 2017) were sustainable when the principal demand itself was held to be unsustainable.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Taxability of differential amount based on Form 26AS/TDS
Interpretation and reasoning
2.1 The Tribunal noted that the entire demand arose only from the difference between the gross receipts declared in the ST-3 returns and the higher receipts reflected in Form 26AS/TDS data obtained from the Income Tax Department.
2.2 On examination of the Profit & Loss Account for the relevant financial year, the Tribunal found that the amount of Rs. 3,55,934/- was shown as labour charges on the credit side and an equivalent amount was also shown as labour charges on the debit side, indicating a corresponding outgo.
2.3 The Tribunal held that these accounting entries were clear and did not warrant any adverse inference so as to treat the said amount as additional taxable value merely because it appeared in Form 26AS/TDS data.
Conclusions
2.4 The Tribunal concluded that the assessee had correctly discharged service tax liability and that the differential amount of Rs. 3,55,934/-, being in the nature of labour charges/reimbursement, could not be automatically treated as taxable value on the sole basis of Form 26AS/TDS statements. The appeal was allowed on merits.
Issue 2 - Validity of invoking extended period of limitation under Section 73
Legal framework (as discussed)
2.5 The Tribunal referred to the statutory scheme under Sections 70, 72 and 73 of the Finance Act, 1994, as analysed in an earlier Division Bench decision, to emphasize: (i) self-assessment by the assessee and filing of ST-3 returns; (ii) the power and responsibility of the Central Excise Officer under Section 72 for best judgment assessment where the assessee fails to correctly assess tax; and (iii) the conditions for invoking the extended period of limitation under Section 73, requiring proof of fraud, collusion, wilful misstatement, suppression of facts or contravention with intent to evade.
2.6 The Tribunal, relying on the Division Bench decision, also noted that CBEC's own instructions and the Manual for Scrutiny of Service Tax Returns affirm that scrutiny and correct assessment of returns is the primary statutory responsibility of departmental officers, even under a self-assessment regime.
Interpretation and reasoning
2.7 The Tribunal observed that the assessee had been regularly filing ST-3 returns and that the department had not demonstrated any evidence of fraud, collusion, wilful misstatement or suppression of facts with intent to evade payment of tax.
2.8 It was emphasized, following the Division Bench precedent, that mere operation under self-assessment and any alleged incorrect or incomplete self-assessment cannot, by itself, constitute "suppression of facts" or intention to evade so as to justify the extended period.
2.9 The Tribunal further held, in line with the earlier ruling, that the fact that the alleged short payment or discrepancy came to light only through audit or from income-tax data does not satisfy the statutory requirements for invoking the extended period, especially when the assessee's returns were on record and could have been scrutinized by the proper officer within the normal period.
2.10 The Tribunal considered the ratio that it is the responsibility of the Central Excise Officer to scrutinize the returns and, if required, to make best judgment assessment under Section 72 and issue a show cause notice within the normal limitation period, and that failure to do so cannot be converted into a ground to invoke the extended period under Section 73.
Conclusions
2.11 The Tribunal held that the case was squarely covered by the Division Bench decision and that the extended period of limitation had been wrongly invoked. Accordingly, the demand of service tax amounting to Rs. 53,390/- raised by invoking the extended period under Section 73 was held to be unsustainable and liable to be set aside on limitation.
Issue 3 - Sustainability of penalties under Sections 78 and 77
Interpretation and reasoning
2.12 The Tribunal held that once the principal demand itself is set aside both on merits (nature of receipts/reimbursement) and on limitation (invalid invocation of extended period), the foundation for imposition of penalties under Sections 78 and 77 automatically fails.
Conclusions
2.13 The penalties imposed under Section 78 (equal to the tax demand) and under Section 77 (Rs. 10,000/-) were set aside as consequential to the setting aside of the demand. The appeal was allowed with consequential relief as per law.
Demand of service tax on differential value with interest and penalty - entire demand has been raised on the basis of difference in the figures as shown in the ST-3 returns and the data received from the Income Tax Department on the basis of Form-26AS / TDS Statements - HELD THAT:- A similar matter of limitation had come up for consideration before the Division Bench of this Tribunal in the case of G. D. Goenka Pvt. Ltd., [2023 (8) TMI 995 - CESTAT NEW DELHI]. In the said case also, the demand had been raised consequent to the audit. The extended period of limitation was invoked on the ground that under self assessment, the Appellant assessee was required to assess its own tax due on the services provided by it and file returns under Section 70. By claiming the wrong Cenvat credit, the Appellant willfully and deliberately suppressed the facts from the Department.
The Division Bench referred to the decision of the Hon’ble Supreme Court in the case of Pushpam Pharmaceuticals Company Vs. CCE, Mumbai [1995 (3) TMI 100 - SUPREME COURT] and made detailed observation for holding that extended period of limitation could not have been invoked.
The Appellant’s case on limitation is squarely covered by the aforesaid judgement - the demand of service tax amounting to Rs.53,390/- could not have been raised by invoking extended period of limitation, hence liable to be set aside. As the demand itself is being set aside, the penalties imposed under Section 78 as well as under Section 77 are also set aside.
The appeal filed by the Appellant is allowed on merits as well as on limitation.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether margins/mark-ups earned from purchase and sale of cargo space (ocean and air) on a principal-to-principal basis are classifiable and taxable as "Business Auxiliary Service" or "Business Support Service" for the period prior to and after 01.07.2012.
1.2 Whether amounts received from, and cost/margin sharing with, overseas group entities constitute consideration for taxable services (including under reverse charge) or are in the nature of non-taxable cost-sharing/trading transactions.
1.3 Consequentially, whether the confirmatory demand of service tax, interest and penalties, raised by invoking the extended period, is sustainable.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Taxability of margins on purchase and sale of cargo space as BAS/BSS
Legal framework (as discussed in the judgment)
2.1 The Court examined the definitions and charging provisions under the Finance Act, 1994, as applicable during the disputed period, namely:
(a) Section 65(19) - "business auxiliary service".
(b) Section 65(104c) - "support services of business or commerce".
(c) Section 65(105)(zzb) - taxable service in relation to BAS.
(d) Section 65(105)(zzzq) - taxable service in relation to BSS.
(e) Section 65A - classification of taxable services.
(f) Section 67 - valuation of taxable services.
(g) Section 65B(44) (post 01.07.2012) - definition of "service".
(h) Place of Provision of Services Rules, 2012 (in particular Rules 3, 8, 10 and 14).
2.2 The Court also relied upon CBEC Circular No. 197/7/2016-ST dated 12.08.2016, clarifying the tax position of freight forwarders acting either:
(a) as agents/intermediaries of airlines/shipping lines; or
(b) as principals assuming responsibility and risks of transportation and negotiating freight on own account.
2.3 Judicial precedents considered included decisions holding that procurement and trading of cargo space on a principal-to-principal basis is not liable to service tax under BAS/BSS, and that such activity constitutes independent principal-to-principal transactions (including decisions in which the Tribunal's view was affirmed by the High Court and the Supreme Court or where departmental appeals were dismissed).
Interpretation and reasoning
2.4 The factual pattern found by the Court was:
(a) The appellants negotiate and purchase cargo space (ocean/air) in bulk from shipping/airlines on a principal-to-principal basis at agreed prices.
(b) The appellants thereafter sell such space to their customers, issuing their own House Bill of Lading/House Air Waybill, undertaking contractual and legal responsibility for carriage vis-à-vis their customers.
(c) Shipping/airlines issue Master Bill of Lading/Master Air Waybill and invoices to the appellants for the procured space, while the appellants raise independent invoices to their customers for the space sold (FCL/LCL/ULD, etc.).
2.5 On examination of agreements and documents, the Court held that:
(a) The relationship between the appellants and the shipping/airlines is principal-to-principal and not of agent/commission agent.
(b) The appellants are not engaged in promotion or marketing of the services of shipping/airlines, nor providing customer care or ancillary services on their behalf.
(c) The surplus/margin arises from purchase and sale of space and not from any activity of promoting or marketing a client's goods or services or providing support services "to a client".
2.6 Applying Section 65(19) and Section 65(104c), the Court reasoned that:
(a) The "means" and "includes" parts of BAS/BSS definitions cover activities such as promotion, marketing, sale of goods, promotion/marketing of services, customer care, procurement of inputs for a client, production/processing for or on behalf of a client, provision of service on behalf of a client, and incidental/ancillary services thereof.
(b) The activity of trading in cargo/container/aircraft space on own account is not specifically covered in any limb of BAS or BSS and does not fit the character of services rendered as a commission agent or as support services "for" a client's business.
(c) In the present transactions, there are two independent flows of consideration: freight (or space price) paid by the appellants to carriers, and freight/charges collected by the appellants from their customers; these are distinct principal-to-principal transactions and do not constitute "services" rendered to shipping/airlines.
2.7 Considering the CBEC Circular, the Court held that the appellants fall within the category of freight forwarders acting as principals:
(a) They negotiate freight terms with carriers and separately with exporters/importers.
(b) They raise invoices on customers and assume contractual and legal liability for transportation, including risks of non-usage of booked space.
(c) Under paragraph 3 of the Circular, such principal freight forwarders, when providing transportation of goods from India to outside India on their own account, are not liable to service tax as intermediaries; this reinforces that the activity is not to be classified and taxed as BAS/BSS.
2.8 The Court followed previous decisions which had already held, on similar facts, that:
(a) "Trading" in space/slots on vessels/aircraft is a principal-to-principal activity; and
(b) Notional surplus/margins on such trading do not fall within the scope of BAS/BSS, and shipping lines/airlines do not qualify as "clients" whose service is promoted or marketed.
Conclusions
2.9 The Court held that:
(a) The appellants' activity of purchasing and selling cargo/container/aircraft space on a principal-to-principal basis does not fall within the statutory definitions of "business auxiliary service" (Section 65(19)) or "support services of business or commerce" (Section 65(104c)).
(b) Margins/mark-ups earned on such transactions are not liable to service tax under Section 65(105)(zzb) or Section 65(105)(zzzq), either in the pre-negative list regime or, in substance, under the post-01.07.2012 framework.
(c) The classification and valuation adopted in the impugned order, treating such margins as taxable BAS/BSS, are legally unsustainable.
Issue 2 - Taxability of reimbursements, shared costs and margins involving overseas group entities (including reverse charge)
Legal framework (as discussed in the judgment)
2.10 The Court examined Section 65B(44) defining "service" as an activity carried out by a person for another for consideration, and referred to Section 66A for reverse charge in respect of services received from abroad (as invoked by the department), in the context of:
(a) Cost-sharing/reimbursement arrangements with overseas group entities; and
(b) Margin-sharing/commission on freight income allegedly taxable as BAS/BSS (including under reverse charge).
2.11 The Court relied upon the judgment of the Supreme Court which held that pure cost-sharing in a joint arrangement, where each party bears agreed expenses, does not amount to provision of a "service" by one to the other and is not exigible to service tax.
Interpretation and reasoning
2.12 On the evidence and submissions, the Court accepted that:
(a) Amounts received from overseas group companies reflected sharing/reimbursement of expenditure on a cost-to-cost basis, along with allocated service charges as per internal arrangements.
(b) There was no independent, identifiable activity performed by the appellants "for" the overseas entities that could be characterized as a taxable service; rather, the arrangement was structured as allocation of common costs in a group network.
2.13 Applying the Supreme Court's ratio on cost-sharing, the Court held that:
(a) Sharing of expenditure under a joint arrangement does not, by itself, evidence a service provider-service recipient relationship.
(b) Payments representing a party's share of common expenses cannot be treated as consideration for "services" unless a distinct service is established.
2.14 In respect of margins derived where international freight was procured from overseas group entities and resold to Indian customers, the Court accepted the appellant's contention that:
(a) The margin is in the nature of trading profit on freight, arising from principal-to-principal purchase and sale of space.
(b) Such activity cannot be recharacterized as BAS rendered to the overseas group or to the carriers, whether domestically or on reverse charge basis.
Conclusions
2.15 The Court concluded that:
(a) Cost-sharing and reimbursements between the appellants and their overseas group entities, as established on record, do not constitute taxable services and cannot be subjected to service tax, whether directly or under reverse charge.
(b) Margin-sharing or commission-like allocations, viewed in the overall structure, represent trading margins on freight/space and not consideration for BAS/BSS rendered to overseas entities.
(c) Consequently, the demands of service tax on such amounts, including under Section 66A, are unsustainable.
Issue 3 - Sustainability of overall demand, interest, penalties and extended period
Interpretation and reasoning
2.16 Having held that:
(a) The main activities in dispute are not classifiable as taxable BAS/BSS; and
(b) Cost-sharing/reimbursement/margin-sharing with overseas affiliates does not amount to provision of taxable services,
the Court examined the impugned order in the light of binding precedents of the Tribunal, the High Court and the Supreme Court, which had already resolved identical issues in favour of similarly placed freight forwarders and cost-sharing entities.
2.17 In view of these findings on the merits of classification and taxability, the foundational basis for invoking Section 73(1)/73(1A), demanding service tax with interest and imposing penalties under Sections 76, 77 and 78, stood vitiated.
Conclusions
2.18 The Court held that:
(a) The confirmation of service tax demands under BAS/BSS, including under reverse charge, together with interest and penalties, is contrary to the statutory definitions, CBEC's own clarifications and binding judicial precedents.
(b) The impugned order does not withstand legal scrutiny and is liable to be set aside in toto.
(c) All adjudged demands of service tax, interest and penalties are set aside, and the appeal is allowed.
Classification of services - Business Auxiliary Service or Business Support Service? - margins/mark-ups earned from purchase and sale of cargo space (ocean and air) on a principal-to-principal basis - HELD THAT:- For the period prior to 01.07.2012, it transpires that in order to categorize a particular activity as a ‘service’ and to charge service tax thereon, it should be covered under the specific category of taxable services as per defined scope of coverage under tax net, inasmuch as each of the taxable services are defined separately under clause (105) of Section 65 of the Finance Act, 1994. The definition of taxable services under the category of ‘Business Auxiliary Services’ (BAS) covered specifically under the taxable clause (zzb) of Section 65(105) ibid include any service provided to a client in relation to BAS. Thus, the definition provided for the phrase ‘Business Auxiliary Services’ under Section 65(19) ibid holds the determining test to see, whether the activity of purchase of cargo space in ship/vessels/air crafts in bulk, which is available with a particular shipping line/airline, in advance for an agreed price paid by appellants and subsequently selling the same to different customers is covered under the scope of such definition so as to make it liable to be tax under the service tax net as per Section 65(105)(zzb) ibid.
From the nature of transactions entered into by the appellants with the shipping line/airline, it is found to be on principalto- principal basis. Though the actual transportation of goods during ocean voyage/air voyage is undertaken by the shipping/air lines, the appellants are not marketing or acting as agents for the shipping/air lines, but are engaged in sale of such space of container/cargo in ship’s ocean voyage/ aircrafts voyage. Thus, there is no element of BAS found to be existent in these transactions.
The documents placed on record, indicate that the appellants are issuing separate invoice for the sale of space either as Full Container Load (FCL) or Less-than full Container Load (LCL) or part/full Unit Load Device (ULD) to their customers as well as Bill of Lading for the ocean voyage or Air waybill for air transportation. The shipping/air lines are charging separately on the appellants for the cargo space/container/aircraft space of the ship/airlines booked by them. Hence, it is found that the transaction of the appellants is on principal-to principal basis has been clearly brought out with supporting evidence. Further, it is also evident from these records that the appellants are neither agents of the shipping line/airline nor they are promoting, marketing the services of the shipping line/ airline - the activities undertaken by the appellants in sale of cargo/container space/ aircraft space as explained above does not get covered under the definition of Section 65(19) ibid as Business Auxiliary Services’ (BAS) or under the definition of Section 65(104c) ibid as Business Support Services’ (BSS), as the case may be.
It is found that in the case of Greenwich Meridian Logistics (I) Pvt. Ltd. [2016 (4) TMI 547 - CESTAT MUMBAI], the Co-ordinate Bench of the Tribunal has held that the services provided in connection with sale of space of cargo and the notional surplus earned thereby arises from purchase and sale of space and not by acting for a client who has space or slot on a vessel. Therefore, it was held that the same is not liable to service tax.
Further, the Co-ordinate Bench of the Tribunal in the case of EMU Lines Private Limited [2023 (6) TMI 64 - CESTAT MUMBAI] have held that the service of procurement of space on the vessel would not amount to Business Auxiliary Service for levy of service tax.
The Hon’ble Supreme Court in the case of Gujarat State Fertilizers & Chemicals Limited [2016 (12) TMI 103 - SUPREME COURT] have held that the sharing of expenditure under an agreement by no stretch of imagination be treated as common service provided among the two parties and there is no question of levy of service tax on such activity.
The adjudged demands along with interest and imposition of penalty on the appellants, in impugned orders is not legally sustainable and thus is liable to be set aside - Appeal allowed.
1. ISSUES PRESENTED AND CONSIDERED
(1) Whether the Tribunal has jurisdiction to entertain an appeal involving refund claims governed by Section 142(3) of the Central Goods and Services Tax Act, 2017.
(2) Whether refund in cash of input/CENVAT credit arising from service tax paid under reverse charge mechanism is admissible under Section 142(3) of the Central Goods and Services Tax Act, 2017 read with Section 11B of the Central Excise Act, 1944.
(3) Whether the bar against refund of unutilised CENVAT credit, as laid down in the judgment in Gauri Plasticulture, applies to refund claims arising under Section 142(3) of the Central Goods and Services Tax Act, 2017.
2. ISSUE-WISE DETAILED ANALYSIS
Issue (1): Tribunal's jurisdiction in matters under Section 142(3) of the CGST Act, 2017
Interpretation and reasoning
The Tribunal noted the submission that a Larger Bench has already settled that disputes relating to refund under Section 142(3) of the CGST Act are within the Tribunal's jurisdiction. Proceeding to examine the refund claim on merits without recording any contrary view, the Tribunal implicitly accepted its competence to adjudicate such appeals.
Conclusion
The Tribunal assumed and exercised jurisdiction over the appeal concerning refund governed by Section 142(3) of the CGST Act, 2017.
Issue (2): Refund of service tax paid under reverse charge as input/CENVAT credit under Section 142(3) read with Section 11B
Legal framework
The Tribunal examined Section 142(3) of the CGST Act, 2017, which provides that every claim for refund of any amount of CENVAT credit, duty, tax, interest or any other amount paid under the existing law, filed before, on or after the appointed day, shall be disposed of in accordance with the provisions of the existing law, and that any amount eventually accruing shall be paid in cash, notwithstanding anything contrary in the existing law other than Section 11B(2) of the Central Excise Act, 1944. The provisos to Section 142(3) regarding lapse of rejected CENVAT credit and bar where credit has been carried forward were also noted. Section 11B of the Central Excise Act, 1944, as made applicable to service tax by Section 83 of the Finance Act, 1994, including clause (d) of the proviso to Section 11B(2) concerning refund in cash where incidence has not been passed on, was invoked.
Interpretation and reasoning
(a) The Tribunal recorded that the appellant had paid service tax on reverse charge on imported services, initially to the extent disclosed, and subsequently, on discovering under-reporting as per transfer pricing regulations, paid additional service tax by GAR Challan. Such tax, though eligible as input service credit, could not be transitioned into the GST regime via TRAN-1; hence refund was claimed under Section 11B read with Section 142(3).
(b) Referring to its own earlier decision in NSSL Private Limited, the Tribunal reiterated that where no assessment/adjudication order determining tax liability under the erstwhile law exists, the case falls under Section 142(3), not Section 142(8)(a). Section 142(3) explicitly permits refund of CENVAT credit after the appointed day, to be processed under the erstwhile law, with the eventual amount to be paid in cash.
(c) It was noted that the authorities below had not disputed the entitlement of the appellant to CENVAT credit under the erstwhile regime; the rejection was solely on the ground that refund of such credit was not permissible under Section 11B. The Tribunal, following its prior reasoning, held that refund claims of this nature merit consideration under Section 142(3), entitling the claimant to refund of the service tax paid.
(d) The Tribunal accepted the appellant's contention that the incidence of tax had not been passed on, as the tax was paid on reverse charge by the appellant itself, and that a Chartered Accountant's certificate had been produced showing that the amount was not carried forward as transitional credit. This brought the case within clause (d) of the proviso to Section 11B(2), permitting refund in cash where unjust enrichment is not attracted.
(e) The Tribunal relied extensively on the judgment of the High Court in Combitic Global Caplet, which interpreted Section 142(3) as widely worded, covering "CENVAT credit" and "any other amount paid", and held that any amount eventually accruing must be refunded in cash, even for voluntary deposits, and that the Government cannot retain amounts without authority of law. The High Court had directed that the refundable duty be paid in cash, notwithstanding contrary provisions of the existing law except Section 11B(2).
(f) The Tribunal also took note that in earlier similar matters decided by it (including NSSL Private Limited and Lupin Limited), where identical issues of refund of credit/service tax under Section 142(3) were decided in favour of the assessees, the department had accepted those decisions and not preferred appeals, as confirmed by communications from jurisdictional Commissioners. This consistent departmental acceptance reinforced the Tribunal's view that the issue was settled.
Conclusion
The Tribunal held that refund of the amount of service tax paid under reverse charge, representing eligible CENVAT credit that could not be transitioned into GST, is admissible in cash under Section 142(3) of the CGST Act, 2017, read with Section 11B of the Central Excise Act, 1944. The impugned order rejecting the refund was set aside, and the appeal was allowed with consequential relief.
Issue (3): Applicability of the bar on refund of unutilised CENVAT credit as per Gauri Plasticulture
Interpretation and reasoning
The Revenue relied on the High Court judgment in Gauri Plasticulture to contend that there is no provision for refund of CENVAT credit under Section 11B. The Tribunal, referring to its earlier analysis in Lupin Limited, noted that Gauri Plasticulture dealt with refund of unutilised CENVAT credit in the context of the erstwhile law, not with transitional refund claims under Section 142(3) of the CGST Act. In contrast, both the Tribunal's prior decisions and the later High Court judgment in Combitic Global Caplet specifically addressed Section 142(3) and mandated cash refund of amounts eventually accruing, notwithstanding contrary provisions of the existing law other than Section 11B(2). On this basis, the Tribunal treated Gauri Plasticulture as distinguishable and not a bar to refund in transitional situations governed by Section 142(3).
Conclusion
The restriction on refund of unutilised CENVAT credit in Gauri Plasticulture was held inapplicable to refund claims arising under Section 142(3) of the CGST Act, 2017. The assessee's claim for cash refund of the service tax/CENVAT credit in question was therefore maintainable and liable to be sanctioned.
Permissibility of refund of input credit/CENVAT credit of the amount of service tax paid on RCM basis u/s 142(3) of the CGST Act, 2017 read with Section 11B of the Central Excise Act, 1944 - HELD THAT;- When the matter had come up for hearing before this Bench on 25.07.2025, upon considering the fact that the disputed issue herein has already been addressed in detail by this Tribunal in a number of cases and that the Hon’ble High Court of Bombay in the case of Combitic Global Caplet Private Limited [2024 (6) TMI 498 - BOMBAY HIGH COURT] had also delivered the judgement in favour of the appellant, the learned AR was asked to specifically find out whether the Final Orders of the Tribunal dated 03.08.2021 and 09.09.2024 passed by this Bench of the Tribunal, in the case of NSSL Private Limited [2021 (8) TMI 239 - CESTAT MUMBAI] and Lupin Limited [2024 (9) TMI 919 - CESTAT MUMBAI] have been appealed against or have been accepted by the department.
Further, Hon’ble Bombay High Court had an occasion to examine an identical issue to the present issue in dispute, in a similar matter before them, in the case of Combitic Global Caplet Pvt. Ltd. [2024 (6) TMI 498 - BOMBAY HIGH COURT]. In the judgement, the Hon’ble Bombay High Court have held that Sub-section (3) of Section 142 of the CGST Act, 2017 very clearly says that any amount eventually accruing shall be paid in cash and directed the departmental authorities/sanctioning authority for refunding the amount of duty refundable to the petitioner in cash instead of credit in CENVAT account.
There are no merits in the impugned order passed by the learned Commissioner (Appeals-I), Pune and the same is liable to be set aside. Thus, the impugned order dated 24.09.2020 is set aside, as it does not stand the scrutiny of law - Appeal allowed.
1. ISSUES PRESENTED AND CONSIDERED
- Whether demand of service tax could be confirmed by classifying the impugned services under "Management or Business Consultants Service" when such classification was not proposed in the Show Cause Notice, which had alleged liability under "Business Auxiliary Service".
- Whether invocation of the extended period of limitation under the proviso to Section 73(1) of the Finance Act, 1994, for demanding service tax under reverse charge mechanism, was valid in the absence of any finding or evidence of fraud, collusion, wilful mis-statement, suppression of facts or contravention with intent to evade payment of service tax, particularly when all relevant transactions were duly recorded in the books of accounts and detected only during audit.
- Consequentially, whether levy of interest and imposition of penalties, including penalty under Section 78 of the Finance Act, 1994, were sustainable when the principal demand itself was not legally sustainable on grounds of misclassification and limitation.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Demand based on a service category not proposed in the Show Cause Notice
Legal framework (as discussed): The Tribunal noted that the Show Cause Notice had proceeded on the basis that the impugned services fell under "Business Auxiliary Service". The Adjudicating Authority accepted that the services covered by the two invoices in question were not covered under "Business Auxiliary Service" but still confirmed demand under reverse charge. The Commissioner (Appeals) further reclassified the same services under "Management or Business Consultants Service", which was not proposed in the Show Cause Notice, and confirmed the demand on that basis. The Tribunal referred to the ruling of the High Court of Karnataka in Mahakoshal Beverages Pvt. Ltd., holding that service tax cannot be demanded under a category not proposed in the Show Cause Notice.
Interpretation and reasoning: The Tribunal observed that the Show Cause Notice never proposed classification of the impugned services as "Management or Business Consultants Service". The Adjudicating Authority had already admitted that the services as per the two invoices were not covered under "Business Auxiliary Service". Despite this, the Commissioner (Appeals) proceeded to confirm the demand by reclassifying them under "Management or Business Consultants Service". The Tribunal held that confirming demand under a new category not alleged in the Show Cause Notice amounted to travelling beyond the scope of the Show Cause Notice, which is impermissible in law, particularly in light of the binding precedent that tax cannot be demanded under a category not proposed in the notice.
Conclusions: The Tribunal concluded that the demand of service tax on 'consultancy service' under the head "Management or Business Consultants Service", not proposed in the Show Cause Notice, is not sustainable in law. Consequently, to that extent, the demand, together with related interest and penalties, is liable to be quashed and set aside.
Issue 2: Validity of invoking the extended period of limitation under Section 73(1) proviso
Legal framework (as discussed): The Tribunal considered the proviso to Section 73(1) of the Finance Act, 1994, which allows demand for an extended period (five years during the relevant time; normal period being 18 months, later extended to 30 months by Finance Act, 2016 w.e.f. 14.05.2016) only when non-payment is by reason of fraud, collusion, wilful mis-statement, suppression of facts or contravention of provisions with intent to evade tax. The Show Cause Notice and orders covered a period prior to introduction of the 30-month limitation.
Interpretation and reasoning: The Tribunal noted that: (i) the demand arose entirely from audit of recorded transactions, not from detection of any unrecorded or suppressed activity; (ii) all relevant transactions were duly recorded in the appellant's books of accounts and were produced for audit; (iii) the Adjudicating Authority did not record any finding that the appellant had indulged in fraud, collusion, wilful mis-statement, suppression of facts or contravention with intent to evade payment of service tax; and (iv) despite this absence of findings, the extended period was invoked. The Tribunal held that, in the absence of explicit findings and supporting evidence on any of the statutory grounds specified in the proviso to Section 73(1), recourse to the extended limitation period is legally impermissible. The Commissioner (Appeals) had merely assumed that extended period was correctly invoked, without dealing with the lack of adverse findings and without rebutting the fact that the transactions were reflected in the audited books.
Conclusions: The Tribunal held that the demand of service tax beyond the normal period of 18 months is barred by limitation, as the statutory preconditions for invoking the extended period under the proviso to Section 73(1) were not satisfied. Accordingly, the portion of the demand raised beyond the normal limitation period, and all consequential interest and penalties relatable thereto, are not sustainable and are liable to be set aside.
Issue 3: Sustainability of interest and penalties, including under Section 78
Legal framework (as discussed): The adjudicating authority had imposed interest under Section 75 and penalties under Sections 77(1)(a), 77(2) and 78 of the Finance Act, 1994, and dropped penalty under Section 76. The Commissioner (Appeals) upheld the penalties and demand (with some relief for post-01.10.2014 period). The appellant contended, inter alia, that in a situation of revenue neutrality (availability of Cenvat credit) there was no intent to evade tax, and that imposition of mandatory penalty under Section 78 and invocation of the extended period were not justified.
Interpretation and reasoning: Having held that the principal demand to the extent arising (i) from classification under an unproposed category, and (ii) from invocation of the extended period, was unsustainable, the Tribunal reasoned that corresponding interest and penalties cannot survive. The Tribunal also emphasized that there was no finding of fraud, collusion, wilful mis-statement or suppression with intent to evade, which are necessary preconditions for invoking extended period as well as for imposing penalty under Section 78.
Conclusions: The Tribunal concluded that, since the underlying tax demands to the extent discussed are unsustainable on grounds of both misclassification beyond the Show Cause Notice and limitation, the levy of interest under Section 75 and imposition of penalties, including under Section 78, to that extent are also not sustainable and must be quashed. The appeal was allowed in these terms.
Scope of SCN surpassed - Demand of service tax on ‘consultancy service’ under a category ‘Management or Business Consultants Service’ that is not proposed in the Show Cause Notice - wilful suppression of facts or not - time limitation - HELD THAT:- In Order-in-Original, learned Adjudicating Authority has admitted that the service covered by the two invoices was not covered under the category of "Business Auxiliary Service". However, he confirmed the demand of service tax on these invoices on the ground that it would still be liable to service tax under Reverse Charge Mechanism. It is also pertinent to note here that demand was made pursuant to audit of recorded transactions and not on account of any suppressed material. Adjudicating Authority was required to examine the issue of invocation of extended period in terms of proviso to Section 73 (1) of Finance Act, 1994 and further, there is no proof of fraud or collusion or wilful mis-statement or suppression of facts or contravention of any provisions or rules with intent to evade payment of service tax. The Adjudicating Authority had not given any findings on how the service tax can be demanded by invoking extended period of limitation of five years as against normal period of 18 months, applicable to the period covered by the Show Cause Notice. It was only with introduction of Finance Act, 2016 which came into effect from 14.05.2016 onwards, that period of 30 months was introduced.
It is also pertinent to note here that appellant’s contention that consultancy service cannot be classified under Business Auxiliary Service was duly accepted by learned Commissioner (Appeals). He held that this service is required to be classified under "Management or Business Consultants Service" which is not proposed in the Show Cause Notice and on this basis, he confirmed the demand. The Commissioner (Appeals), in the absence of findings by adjudicating authority on the point of time bar, held that Show Cause Notice had correctly invoked extended period, without paying regard to the fact that the entire transactions which gave rise to the demand of service tax, were duly recorded in the books maintained by appellant that were presented for audit.
It is also pertinent to mention here that Hon'ble High Court of Karnataka has held in the case of Mahakoshal Beverages Pvt. Limited [2014 (5) TMI 460 - KARNATAKA HIGH COURT], that service tax cannot be demanded under a category that is not proposed in the Show Cause Notice.
The impugned order passed by learned Commissioner (Appeals) and the Order-in-Original passed by learned Adjudicating Authority is not sustainable and liable to be quashed to the extent of demanding of service tax beyond 18 months as the learned Adjudicating Authority has not found any fraud or collusion or wilful mis-statement or suppression of facts or contravention of any provision or rules with intent to evade payment of service tax and the learned Commissioner (Appeals) has not rebutted the basic fact that all transactions were duly recorded in the books of accounts presented for audit - the demand of service tax under ‘Management or Business Consultants Service’ which was not even proposed in the Show Cause Notice, is not sustainable. Therefore, levy of interest and imposition of penalty to this extent is also not sustainable and liable to be quashed and set-aside.
Appeal allowed.
Issues: (i) whether the activity of bullet proofing vehicles with supply of goods was classifiable as Works Contract Service or Business Auxiliary Service; (ii) whether service tax could be demanded for the post-negative list period by invoking pre-negative list provisions; (iii) whether the impugned order could travel beyond the show cause notice and the Order-in-Original; and (iv) whether the extended period of limitation was invocable.
Issue (i): whether the activity of bullet proofing vehicles with supply of goods was classifiable as Works Contract Service or Business Auxiliary Service.
Analysis: The activity involved fitting bulletproof steel sheets, glass and other protective materials into vehicles, with transfer of property in goods as well as provision of service. VAT had been paid on the goods component. The dispute had already been decided in the assessee's own case for an earlier period, and that decision had attained finality. The composite nature of the activity brought it within the scope of works contract rather than business auxiliary service.
Conclusion: The activity was correctly classifiable as Works Contract Service and not Business Auxiliary Service, in favour of the assessee.
Issue (ii): whether service tax could be demanded for the post-negative list period by invoking pre-negative list provisions.
Analysis: The period in dispute was post-negative list, whereas the demand had been confirmed with reference to provisions applicable to the pre-negative list regime. The earlier authorities relied on by the assessee supported the position that such invocation of inapplicable provisions was impermissible.
Conclusion: The demand could not be sustained on the basis of pre-negative list provisions for a post-negative list period, in favour of the assessee.
Issue (iii): whether the impugned order could travel beyond the show cause notice and the Order-in-Original.
Analysis: The show cause notice and the Order-in-Original were confined to the provision corresponding to the pre-negative list regime, but the impugned order introduced a different statutory basis. Such expansion of the case beyond the original notice and adjudication was not permissible.
Conclusion: The impugned order could not be sustained to the extent it travelled beyond the show cause notice and the Order-in-Original, in favour of the assessee.
Issue (iv): whether the extended period of limitation was invocable.
Analysis: The assessee had been regularly filing ST-3 returns and there was no suppression of material facts. A substantial part of the demand was time-barred, and the earlier decision in the assessee's own case also weighed against invocation of the extended period for the subsequent period.
Conclusion: The extended period of limitation was not invocable, in favour of the assessee.
Final Conclusion: The demand and related adverse findings were unsustainable on classification, temporal applicability, scope of notice, and limitation, and the assessee was entitled to relief.
Ratio Decidendi: A composite activity involving transfer of goods and service, with tax already paid on the goods portion, is to be classified according to its true character; demand for a later regime cannot rest on repealed or inapplicable provisions, cannot extend beyond the show cause notice, and cannot invoke the extended limitation period absent suppression of facts.
Classification of service - activity of bullet proofing of vehicles - classifiable under Business Auxiliary Service as defined under Section 65(19) of the Finance Act or under Works Contract Service as per Section 67 of the Finance Act read with Rule 2A of the Service Tax (Determination of Value) Rules, 2006? - scope of SCN - invocation of extended period of limitation - HELD THAT:- An identical issue for the earlier period in the appellant’s own case, [2020 (1) TMI 942 - CESTAT CHANDIGARH], has been settled in favour of the appellant. It is further noted that the department has not filed appeal against the said order, therefore, the order of the Tribunal in the said case has attained finality; accordingly, the issue involved in the present case is no more res integra and hence, the impugned order case is not sustainable in law.
Further, it is found that the activity of the appellant falls more appropriately under the ‘Works Contract’ rather than ‘Business Auxiliary Service’ and the appellant has also discharged the VAT on the goods portion used in the provisions of service - it is also found that the period involved in the present case is post negative list but the provisions invoked for confirming the service tax liability are under pre negative list; the same cannot be done.
Scope of SCN - Extended period of limitation - HELD THAT:- It is found that the show cause notice and the Order-in- Original have confined to Section 65(19)(v) of the Act, which relates to the pre negative list regime, whereas the impugned order has traversed beyond the show cause notice and Order-in-Original by mentioning the Section 66B of the Act; which is not permissible in law - Similarly, the substantial part of the demand is beyond the limitation as prescribed under law because the appellant has not suppressed any material facts from the department and was regularly filing the ST-3 returns. Moreover, the issue for earlier period has been decided in favour of the appellant, therefore, the extended period of limitation cannot be invoked for proceedings of subsequent period.
The impugned order is not sustainable, therefore, set aside - appeal allowed.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether services of erection, commissioning, installation, civil works and maintenance relating to a windmill used to generate electricity adjusted against electricity consumed in the factory qualify as "input service" under Rule 2(l) of the Cenvat Credit Rules, 2004, so as to entitle the manufacturer to Cenvat credit under Rule 3.
1.2 Whether Cenvat credit of service tax paid on such windmill-related services can be denied solely on the grounds that (a) the windmill is located outside the factory premises and (b) electricity generated is not an excisable product.
1.3 Whether the Cenvat Credit Rules, 2004 require that input services be received at, or confined "within", the factory premises of the manufacturer for credit admissibility.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Qualification of windmill-related services as "input service" under Rule 2(l)
Legal framework
2.1 The Court referred to section 65(29) and 65(39a) of the Finance Act, 1994 defining "commissioning and installation agency" and "erection, commissioning or installation".
2.2 The Court extracted Rule 2(l) of the Cenvat Credit Rules, 2004 defining "input service" as any service used by a provider of taxable service for providing an output service, or by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products from the place of removal, including services used in relation to, inter alia, setting up, modernization, renovation or repairs of a factory or premises related to such factory, and activities relating to business.
2.3 Rule 4(1) regarding conditions for allowing Cenvat credit was noticed, which provides that Cenvat credit in respect of inputs may be taken on receipt in the factory of the manufacturer; read with Rules 3 and 4 as interpreted in binding precedents for input services.
Interpretation and reasoning
2.4 The Court noted that electricity generated by the windmill was supplied into the State grid and, based on certificates and adjustment mechanism, an equivalent quantity of electricity was allowed and utilised in the appellant's manufacturing unit, without separate electricity charges for such equivalent units, thereby establishing a direct nexus between the electricity generated by the windmill and the manufacturing activity.
2.5 The Court held that services of installation, erection, and maintenance of the windmill were "exclusively used in relation to manufacturing activity" because the electricity generated was adjusted against electricity consumption in the factory for manufacture of dutiable final products.
2.6 Relying on the width of Rule 2(l), the Court held that "management, maintenance and repair of windmills installed by the appellant would fall within 'input service'", since Rule 2(l) covers services used directly or indirectly "in or in relation to the manufacture of final products" and also covers "activities relating to business".
2.7 The Court adopted and applied the reasoning of the Bombay High Court in Endurance Technology Pvt. Ltd. and of the Madras High Court in Ashok Leyland Ltd., which held that management, maintenance and repair of windmills used to generate electricity adjusted against factory consumption constitute "input service" and that Rule 3 and Rule 4 allow credit on any input service received by the manufacturer of final products.
2.8 The Court further relied on its own decision in Excel Crop Care Ltd., which interpreted Rule 2(l) broadly to hold that services (there, mobile telephony) used in relation to the assessee's business and for providing taxable output service/manufacturing activity qualify as "input service", and rejected denial of credit on the ground that such services were not confined to the factory premises.
Conclusions
2.9 Services of erection, commissioning, installation, civil work, management, maintenance and repair of the windmill, whose generated power is adjusted against electricity used in manufacture of final products, qualify as "input service" within Rule 2(l) of the Cenvat Credit Rules, 2004.
2.10 Cenvat credit of the service tax paid on such services is admissible to the manufacturer under Rules 3 and 4.
Issue 2: Effect of windmill location outside factory and non-excisability of electricity on Cenvat credit
Legal framework
2.11 The Court contrasted Rule 2(k) (definition of "input" as it stood prior to 1-4-2011), which specifically used the expression "within the factory of production", with Rule 2(l) defining "input service", in which such words are absent.
2.12 The Court referred to precedents (Excel Crop Care Ltd., Endurance Technology Pvt. Ltd., Ashok Leyland Ltd., Ultratech Cement, Deepak Fertilizers) which held that Rule 2(l) is to be given a broad construction and that Rule 3/Rule 4 do not require input services to be received at the factory premises.
Interpretation and reasoning
2.13 The Court held that there is "no provision in the Rules which stipulates that input services received by the manufacturer must be received by the manufacturer at the factory premises". The only stipulation under Rule 3/Rule 4 is that the input service be "received by the manufacturer of the final product".
2.14 By emphasising the deliberate omission of the words "within the factory of production" in Rule 2(l), the Court inferred that input services are not geographically restricted to the factory premises, unlike inputs defined in Rule 2(k).
2.15 Adopting the reasoning of the Bombay and Madras High Courts, the Court held that the fact that the windmill is located far from the factory does not break the nexus between the services used for the windmill and the manufacturing process, since the electricity generated is admittedly adjusted against the factory's consumption.
2.16 The Court accepted the position that the definition of "input service" is wider than that of "input" and encompasses services used in relation to the business of manufacturing the final product; geographic location of the service use is not decisive where functional nexus with manufacture is established.
2.17 On the contention that electricity is not an excisable product, the Court, following Endurance Technology Pvt. Ltd. and Ashok Leyland Ltd., treated this as irrelevant to the availability of Cenvat credit on input services, since the relevant question is the relation of the services to manufacture of dutiable final products, not the excisability of the intermediate electricity itself.
Conclusions
2.18 Cenvat credit cannot be denied merely because the windmill is situated outside the factory premises, so long as the services relating to the windmill have a direct or indirect nexus with manufacture of dutiable final products and the input service is received by the manufacturer.
2.19 The non-excisability of the electricity generated at the windmill site does not bar Cenvat credit on the associated input services where such electricity is effectively and demonstrably used (through grid adjustment) in manufacture of excisable final products.
2.20 Denial of Cenvat credit by the authorities and the Tribunal on the grounds of location of the windmill and non-excisability of electricity was contrary to the Cenvat Credit Rules and binding judicial precedents; the questions of law are answered in favour of the assessee and against the Revenue, and the appeal is allowed.
Substantial error of law in holding that CENVAT Credit of service tax paid on services, like installation, commissioning and civil works as well as maintenance for a windmill comes within the purview of Rule 3 of CCR, 2004, or not - substantial error of law or not, in denying the CENVAT credit of service tax paid on services, like installation and commissioning as well as civil works and maintenance of a windmill only because the windmill was located at a place other than the factory premises and electricity generated at the site of windmill was not excisable.
HELD THAT:- The issue on hand has already been decided by this Court by order of even date in Tax Appeal No.1037 of 2008 [2025 (11) TMI 1439 - GUJARAT HIGH COURT], wherein it has been held that 'in absence of words "within the factory of production" in Rule 2(l) which defines “input service” which would mean that any service used by a provider of taxable service for providing an output service or used by the manufacturer whether directly or indirectly, or in relation to the manufacture of final product and clearance of final product from the place of removal, the definition of ‘input service’ has to be widely construed and therefore, the appellant would be entitled to the credit of service tax paid on inputs or capital goods or services received for Windmills for goods manufactured in the factory because only stipulation is that the input service should be received by the manufacturer of products.'
The questions of law answered in favour of the appellant assessee and against the Revenue - appeal allowed.
ISSUES PRESENTED AND CONSIDERED
1. Whether exporters who paid excise duty on goods exported notwithstanding an exemption notification are entitled to rebate/refund under Section 11B read with Rule 18 of the Central Excise Rules.
2. Whether, in the wake of GST transition, a refund/rebate determined to be payable should be refunded in cash rather than credited to the CENVAT/Electronic Credit Ledger.
3. The correct date from which interest under Section 11BB of the Central Excise Act accrues on delayed refunds brought under Section 11B(1) - whether from expiry of three months from receipt of the refund application or from the date of the refund order.
4. Whether interest is payable on amounts deposited/credited to a CENVAT credit account as part of the refund mechanism post GST implementation.
ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Entitlement to rebate/refund where duty was paid despite existing exemption
Legal framework: Rebate of excise duty on exported goods is governed by Section 11B of the Central Excise Act read with Rule 18 of the Central Excise Rules; Rule 19 provides an option to export without payment of duty. Exemption notifications may exempt goods from duty; alternative notifications may afford different treatments.
Precedent Treatment: The Coordinate Bench relied on prior Division Bench and Supreme Court authorities that held an exporter who paid duty on exported goods despite an exemption is not to be denied rebate - the substantive entitlement prevails over a technical denial. Earlier decisions recognized the exporter's option under Rules 18-19 and refused to allow subordinate instruments to nullify that option.
Interpretation and reasoning: The Court treated the issue as no longer res integra. It accepted that where an exporter, though entitled to absolute exemption under an exemption notification, had nonetheless paid duty (including via concessional notification), and had reversed CENVAT credit on inputs, denial of rebate was a technical approach lacking rationale. Rule 18 provides a complete code for rebate; Rule 19 expressly grants an option to exporters to export without payment of duty or to use inputs procured without payment of duty. A notification cannot, by condition, nullify rights conferred by the Rules or strip the exporter's option or the Commissioner's discretion.
Ratio vs. Obiter: Ratio - exporters who paid duty on exported goods despite an applicable exemption are entitled to rebate under Section 11B/Rule 18; subordinate notifications cannot curtail the option conferred by Rules 18-19. Observations about administrative practice and other cases are supportive but ancillary.
Conclusions: The rebate/refund claims must be allowed; impugned orders refusing rebate are quashed and set aside and respondents directed to grant rebate as claimed, subject to calculation of interest as applicable.
Issue 2 - Mode of refund post-GST: cash v. CENVAT/Electronic Credit Ledger
Legal framework: GST transition provisions (including Section 142(3) of the GST Act and related transitional rules) govern treatment of pre-GST credits and refunds. Post-appointed day (1.7.2017), balances of pre-existing credit accounts and the mechanism for refund/credit require application of transition law.
Precedent Treatment: Division Bench authority held where duty was refundable to an exporter and no CENVAT credit account exists post 01.07.2017, the refund should be paid in cash rather than credited to a CENVAT account. Prior decisions directed refund in cash in comparable circumstances.
Interpretation and reasoning: The Court reasoned that Section 142(3) of the GST Act mandates that claims for refund filed before, on or after the appointed day must be disposed under existing law but that any amount eventually accruing should be paid in cash (i.e., in place of CENVAT credit where no transitional credit mechanism exists). Given absence of a CENVAT account with effect from 01.07.2017, crediting an Electronic Credit Ledger would be otiose; cash refund is the practical and lawful remedy.
Ratio vs. Obiter: Ratio - where no CENVAT/Electronic Credit Ledger credit account exists post-GST appointed day, refunds payable for pre-GST duty shall be refunded in cash rather than credited to a non-existent CENVAT account. Ancillary remarks on transition practice are obiter supportive.
Conclusions: Refundable amounts (other than amounts agreed to be left in CENVAT by petitioners) must be refunded in cash; respondents are directed to pay refundable duty in cash within the stipulated period.
Issue 3 - Commencement of interest under Section 11BB on delayed refunds
Legal framework: Section 11BB prescribes interest on delayed refunds under Section 11B(1) of the Central Excise Act; statutory wording and judicial interpretation determine accrual date.
Precedent Treatment: The Court followed settled precedent (including Supreme Court interpretation) holding that interest under Section 11BB accrues from expiry of three months from the date of receipt of the refund application under Section 11B(1), not from the date of the refund order.
Interpretation and reasoning: The Court reiterated binding authority that the Revenue's liability to pay interest begins upon expiry of the three-month period from receipt of the refund application. Judicially imposed timetables for decision by authorities (e.g., directions by writ courts) do not truncate or postpone the statutorily prescribed period for accrual of interest. The Court emphasized the binding nature of Supreme Court interpretation and that administrative reluctance to follow such interpretation is untenable.
Ratio vs. Obiter: Ratio - interest under Section 11BB is payable from expiry of three months from receipt of the refund application under Section 11B(1); periods imposed by courts for disposal do not alter this statutory commencement.
Conclusions: Petitioners are entitled to interest computed from the expiry of three months from receipt of their refund applications; respondents must sanction and pay such interest in accordance with law within the directed timeframe.
Issue 4 - Interest on amounts credited to/remaining in CENVAT credit accounts
Legal framework: Section 11BB interest provisions and GST transition provisions (affecting CENVAT/Electronic Credit Ledger) interact to determine whether interest is payable on amounts deposited/credited to CENVAT accounts.
Precedent Treatment: The petitioners in these matters expressly disclaimed any claim to interest on amounts deposited in CENVAT credit accounts. Coordinate Bench rulings and other authorities directed cash refunds where CENVAT accounts no longer exist and treated deposited amounts differently as per transitional regime.
Interpretation and reasoning: Given the petitioners' concession that no interest is claimed on amounts deposited in CENVAT accounts, and given the absence of a CENVAT account post-appointed day, the Court clarified that deposited CENVAT amounts shall not carry interest. Interest is payable only on the remaining refundable amount to be paid in cash in accordance with the law regarding Section 11BB.
Ratio vs. Obiter: Ratio - where claimants forgo interest on amounts in CENVAT accounts (and where such accounts do not exist post-transition), interest need not be paid on those credited amounts; interest is due only on remaining refundable sums payable in cash. Remarks about claim waivers are case-specific (not general precedent).
Conclusions: No interest shall be paid on amounts deposited in CENVAT credit accounts as conceded by claimants; interest on the balance refundable amount shall be paid in cash in accordance with Section 11BB.
Remedial Directions and Timeframe (cross-reference to Issues 1-4)
All impugned orders refusing rebate/refund are quashed and set aside. Respondent authorities are directed to (a) grant the rebate/refund as claimed, (b) compute and pay interest in accordance with Section 11BB (accruing from expiry of three months from receipt of refund applications), (c) refund amounts in cash where CENVAT/Electronic Credit Ledger accounts do not exist post-GST, and (d) exclude payment of interest on amounts deposited in CENVAT credits where claimants have disclaimed such interest. The Court fixed a period for compliance (twelve weeks) for payment of interest/refund in cash.
Export of exempted goods - Entitlement for rebate/refund under Section 11B read with Rule 18 of the Central Excise Rules - Relevant date for calculation of interest u/s 11BB of the Central Excise Act, 1944 - date commences from the date of expiry of three months from the date of receipt of the refund application under Section 11B(1) of the said Act or not.
Entitlement for rebate/refund under Section 11B read with Rule 18 of the Central Excise Rules - HELD THAT:- It is not in dispute and is fairly admitted by the learned advocates appearing for the respective parties, that the issue raised in the present petitions is no longer res integra and stands concluded by the judgment dated 21.09.2023 passed in Special Civil Application No.3631 of 2013 and allied matters, wherein the Coordinate Bench has placed reliance upon the judgment of this Court in the case of Arvind Limited Vs. Union of India, [2014 (5) TMI 171 - GUJARAT HIGH COURT] which has been affirmed by the Supreme Court in the case of Union of India Vs. Arvind Limited [2016 (3) TMI 1267 - SC ORDER] - the Coordinate Bench, after setting aside the action of the respondents, ultimately directed the respondents to refund the amount payable to the petitioners with interest in cash, instead of crediting the same to the Electronic Credit Ledger account, since no CENVAT credit account existed with effect from 01.07.2017.
Relevant date for calculation of interest u/s 11BB of the Central Excise Act, 1944 - date commences from the date of expiry of three months from the date of receipt of the refund application under Section 11B(1) of the said Act or not - HELD THAT:- The Coordinate Bench has directed the respondents to grant to the petitioners the rebate, as claimed, after calculating the interest, as may be applicable in accordance with law, within a period of twelve weeks from the date of receipt of a copy of the order - it would be apposite to refer to the observations made by this Court in the case of Kamakshi Tradexim (India) Private Limited [2017 (4) TMI 223 - GUJARAT HIGH COURT], wherein the Coordinate Bench, after examining the provisions of Section 11BB of the Central Excise Act, 1944 which pertains to interest on delayed refunds under sub-section (2) of Section 11B of the Act, held that 'on a plain reading of the provisions of Section 11BB of the Act, the petitioners would be entitled to interest under the said provision from the date of expiry of three months from the date of receipt of the application for refund under Section 11B(1) of the Act, and not merely from the date on which the order of refund is made.'
Accordingly, the present writ petitions are disposed of with a clarification that the petitioners shall be entitled to payment of interest in terms of the judgment of the Coordinate Bench of this Court in the case of Kamakshi Tradexim (India) Private Limited.
ISSUES PRESENTED AND CONSIDERED
1. Whether services in respect of operation, maintenance, erection, commissioning and installation of a windmill plant situated away from the factory qualify as "input service" under Rule 2(l) of the Cenvat Credit Rules, 2004 and thus entitle the manufacturer to Cenvat credit.
2. Whether an input service must be "received in the factory of production" (i.e., at the factory premises) to qualify for Cenvat credit under the Rules.
3. Whether services relating to generation of electricity used (directly or indirectly) in or in relation to manufacture of dutiable products are ineligible for Cenvat credit because electricity itself is non-excisable or because generation occurs at a location separate from the factory.
ISSUE-WISE DETAILED ANALYSIS
Issue 1 - Whether windmill-related services located off-site constitute "input service" under Rule 2(l)
Legal framework: Rule 2(l) of the Cenvat Credit Rules, 2004 defines "input service" as any service (i) used by a provider of taxable service for providing an output service, or (ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products from the place of removal, and includes an illustrative list of services (e.g., setting up, modernization, maintenance of a factory or premises).
Precedent treatment: The Court considered several authorities addressing the scope of "input service": decisions treating the definition as wide (e.g., High Courts of Bombay and Madras and Tribunal Larger Bench decisions) and Tribunal decisions (Rajhans) denying credit where generation and manufacture were separate activities. The Court followed the reasoning of authorities that construe Rule 2(l) broadly (referred to in the judgment as Excel Crop Care, Endurance Technologies, Ashok Leyland and related decisions) and treated the contrary Tribunal line (Rajhans and similar) as not determinative for the present appeal.
Interpretation and reasoning: The Court emphasized the express language of Rule 2(l) and noted that the definition covers services "used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products." Management, maintenance and repair services for windmills installed by the manufacturer fall within that language. The Court rejected an overly narrow reading that confines input services to those received at the factory premises, observing that the inclusive list in Rule 2(l) illustrates categories but does not limit the first, wide limb of the definition. The Court found that where electricity generated by the windmills is adjusted/credited against factory consumption (via the grid/utility mechanism), the services enabling generation are used in relation to manufacture even though physically located elsewhere.
Ratio vs. Obiter: Ratio - the definition of "input service" in Rule 2(l) is wide enough to include services relating to off-site windmill erection, commissioning and maintenance when such services are used, directly or indirectly, in relation to manufacture; thus such services can qualify as input services for Cenvat credit. Obiter - discussion of every precedent in detail beyond those essential to establish the breadth of Rule 2(l) (e.g., extended commentary on other factual permutations) is ancillary.
Conclusion: Services in relation to erection, commissioning, installation and maintenance of windmill plants situated away from the factory qualify as "input service" under Rule 2(l) when the electricity generated is used in relation to manufacture; therefore Cenvat credit of service tax paid on such services is permissible.
Issue 2 - Whether receipt or utilization of the input service must occur physically "in the factory of production"
Legal framework: Rule 4 and related provisions permit Cenvat credit where inputs are taken in the factory or where input services are received by the manufacturer; Rule 2(l) does not contain the phrase "within the factory of production" that appears in the definition of "input" and thus the rules governing "input service" are to be construed on their own terms.
Precedent treatment: The Court relied on authorities (including Excel Crop Care and Endurance decisions) holding that the Rules do not prescribe a condition that services must be physically received at the factory premises to qualify as input services; it rejected the interpretation advanced by some Tribunal decisions that required physical receipt in the factory.
Interpretation and reasoning: The Court highlighted the textual absence of the words "within the factory of production" from Rule 2(l) and the presence of those words in the definition of "input" prior to amendment; this distinction indicates a deliberate legislative design that input services need not be physically received at the factory. The Court also reasoned that Rule 3 and Rule 4 permit credit where input services are received by the manufacturer, without imposing a location requirement, and that the broad expression "in or in relation to the manufacture" must be given effect.
Ratio vs. Obiter: Ratio - there is no requirement under the Cenvat Credit Rules that input services be physically received at the factory for entitlement to Cenvat credit; the only stipulation is that such services be received by the manufacturer and used in or in relation to manufacture. Obiter - observations on policy or on hypothetical distinctions not present on the facts.
Conclusion: Cenvat credit cannot be denied solely because the input service was provided at an off-site location; physical receipt in the factory is not a statutory condition for input services under Rule 2(l).
Issue 3 - Whether services relating to generation of electricity are ineligible for Cenvat credit because electricity is non-excisable or due to separate supply via the grid
Legal framework: Rule 2(l) focuses on the purpose/use of a service in relation to manufacture; the excisability of the product (electricity) is not determinative of whether services enabling its generation can be input services. The Finance Act definitions (e.g., "erection, commissioning or installation") identify erection and commissioning services as taxable services for service tax purposes.
Precedent treatment: The Court adopted earlier high court and tribunal decisions (Endurance, Ashok Leyland, Excel Crop Care) which held that services enabling generation and supply of electricity to the manufacturer via the grid - where the manufacturer obtains and uses equivalent units - suffice to establish nexus with manufacturing and permit credit. The Tribunal decisions denying credit on the basis that electricity is supplied to the board and is not excisable were not followed.
Interpretation and reasoning: The Court examined the factual matrix where the manufacturer had an arrangement with the State utility such that units generated by the windmill were credited/adjusted against the factory's consumption (after wheeling charges), and certificates were issued documenting the units available for factory use. Given these arrangements, the services in question were shown to be exclusively used in relation to manufacture. The Court held that the non-excisability of electricity itself is irrelevant to whether the service used to produce that electricity qualifies as input service for manufacture of excisable goods.
Ratio vs. Obiter: Ratio - where electricity generated off-site is credited/adjusted for use in the manufacturer's factory and the services enabling generation are used in relation to manufacture, such services are eligible for Cenvat credit; the non-excisability of electricity or delivery via the grid does not, by itself, preclude credit. Obiter - hypotheticals where no adjustment/credit takes place or where the generated electricity is used for unrelated purposes.
Conclusion: Services relating to generation of electricity at off-site windmills are eligible for Cenvat credit if the manufacturer demonstrates that the electricity so generated is utilized (via adjustment/credit mechanisms) in relation to manufacture; mere fact of supply to the grid or non-excisability of electricity does not disqualify the service.
Cross-reference and final outcome
Applying the above principles to the facts (presence of contractual/utility adjustment mechanism, issuance of certificates documenting units available for factory use, and use of generated units in manufacture), the Court held that the contested cenvat denial was unsustainable and allowed the appeal - concluding the windmill-related services constituted input services and that Cenvat credit of service tax paid on those services was admissible.
CENVAT Credit - services received in respect of operation, maintenance, erection, commissioning and installation of captive wind mill plant - rejection of appeal of the appellant on the ground that in order to qualify under the definition of input service - services received in respect of generation of electricity which is used in or in relation to the manufacture of dutiable products - HELD THAT:- The issue on hand has already been decided by this Court by order of even date in RAJHANS METALS PVT. LTD. [2025 (11) TMI 1439 - GUJARAT HIGH COURT], wherein it has been held that 'In view of above settled legal position and in absence of words "within the factory of production" in Rule 2(l) which defines “input service” which would mean that any service used by a provider of taxable service for providing an output service or used by the manufacturer whether directly or indirectly, or in relation to the manufacture of final product and clearance of final product from the place of removal, the definition of ‘input service’ has to be widely construed and therefore, the appellant would be entitled to the credit of service tax paid on inputs or capital goods or services received for Windmills for goods manufactured in the factory because only stipulation is that the input service should be received by the manufacturer of products.'
The questions of law allowed in favour of the appellant assessee and against the Revenue - appeal allowed.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether CENVAT credit is admissible on service tax paid on "Construction Services" availed during the period January 2010 to December 2011.
1.2 Whether CENVAT credit is admissible on service tax paid on "Outward Transportation (GTA) Services" availed during the period June 2011 to March 2014.
2. ISSUE-WISE DETAILED ANALYSIS
2.1 CENVAT credit on Construction Services (January 2010 to December 2011)
(a) Legal framework (as discussed)
2.1.1 The Court examined Rule 2(l) of the CENVAT Credit Rules, 2004, as amended with effect from 01.04.2011. Post-amendment, the definition of "input service" contains a specific exclusion for "the service portion in the execution of a works contract and construction services" involving construction of a building or a civil structure or part thereof.
(b) Interpretation and reasoning
2.1.2 The Court referred to the assessee's own Annexure I to the reply to the show cause notice, which set out, in tabular form, the nature of "construction services" on which credit was taken, both prior to and after 01.04.2011. These included construction of compound wall, conveyor pits, main foundry and structural works, roof sheeting works, security watch tower, fettling shop expansion, administrative building, internal roads, sand storage shed, RCC foundations for machinery, new machine shop, and new melting shop, among others.
2.1.3 The Court found that the activities described in Annexure I clearly related to "construction" of buildings, civil structures, or parts thereof. It specifically noted that Rule 2(l), as applicable from 01.04.2011, contains an exclusion for "service portion in the execution of a works contract and construction services" in respect of such construction.
2.1.4 The Court held that it was not open to interpret the provision in a manner that would render the legislative exclusion nugatory. From a plain reading, any construction of a building or civil structure or part thereof is hit by the exclusion clause in Rule 2(l) post 01.04.2011.
2.1.5 On this basis, the Court found no defect or infirmity in the Commissioner's reasoning that credit on such "construction services" was inadmissible.
(c) Conclusions
2.1.6 CENVAT credit on "construction services" involving construction of buildings, civil structures, or parts thereof, as reflected in Annexure I, is not admissible in view of the exclusion in Rule 2(l) of the CENVAT Credit Rules, 2004 (post 01.04.2011).
2.1.7 The denial of CENVAT credit on the impugned construction services by the adjudicating authority is upheld, and the appeal is dismissed to this extent.
2.2 CENVAT credit on Outward Transportation (GTA) Services (June 2011 to March 2014)
(a) Legal framework (as discussed)
2.2.1 The Court proceeded on the basis of Rule 2(l) of the CENVAT Credit Rules, 2004, which permits credit on input services used up to the "place of removal". The assessee had contended that, under FOR destination contracts, the place of removal is the customer's premises, and relied on CBEC Circular No. 1065/4/2018-CX dated 08.06.2018 and the Larger Bench decision in The Ramco Cements v. CCE, Pondicherry.
(b) Interpretation and reasoning
2.2.2 The Court noted that, for an earlier period, the very same Bench, in the assessee's own case, had allowed CENVAT credit on outward GTA services by following the Larger Bench decision in The Ramco Cements v. CCE, Pondicherry.
2.2.3 Relying on the said Larger Bench ruling, and the earlier final order in the assessee's own case, the Court held that the denial of credit on GTA outward transportation, as made in the impugned order, was contrary to the settled legal position.
(c) Conclusions
2.2.4 The disallowance of CENVAT credit on service tax paid on outward GTA services during June 2011 to March 2014 is held to be bad in law and is set aside.
2.2.5 The appeal is allowed to the extent of eligibility of CENVAT credit on outward transportation (GTA) services, with consequential benefits as per law.
CENVAT Credit - eligible input services or not - construction service for the period from January 2010 to December 2011 - outward transportation service during the period June 2011 to March 2014.
Construction service - HELD THAT:- The relevant clause of Rule 2(l) ibid as applicable from 01.04.2011 is perused. There is specific exclusion clause of the “service portion in the execution of a works contract and construction services”.
It is not here the role to interpret the said provision in any manner that would render the very purpose of the provision otiose and hence, it is clear from the plain reading that as long as the construction of a building or a civil structure or a part thereof is involved, the same is hit by the exclusion clause in Rule 2 (l) ibid. Hence, to this extent, there are no lacuna in the denial of cenvat credit insofar as the construction service is concerned, by the Commissioner. Accordingly, there are no merit in the Appeal insofar as the grounds relating to ‘construction service’ and they are accordingly dismissed.
GTA service - HELD THAT:- The very Chennai Bench in the Appellant’s own case for an earlier period has ruled in favour of the Appellant wherein the judgment of Larger Bench of the Tribunal in the case of The Ramco Cements Vs. CCE Pondicherry [2023 (12) TMI 1332 - CESTAT CHENNAI-LB] is followed. In view of the above, the impugned order to the extent of denial of credit for service tax on the payment of GTA outward transportation service is held to be bad in law. The same is accordingly set aside and the Appeal of the Appellant to this extent stands allowed.
Appeal allowed in part.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether reimbursement of incentive/grant of VAT/CST received from the State Government under an industrial promotion policy is liable to be included in the assessable value under Section 4 of the Central Excise Act, 1944.
1.2 Whether the extended period of limitation under Section 11A of the Central Excise Act, 1944 was invocable on the ground of suppression of facts with intent to evade duty in relation to non-inclusion of such VAT/CST incentives in the assessable value.
2. ISSUE-WISE DETAILED ANALYSIS
2.1 Inclusion of VAT/CST reimbursement in assessable value under Section 4
Legal framework (as discussed)
2.1.1 The demand was raised by including the amount of incentive/grant of VAT/CST reimbursed by the State Government in the assessable value under Section 4 of the Central Excise Act, 1944, treating it as additional consideration.
Interpretation and reasoning
2.1.2 The Tribunal noted that the core issue was identical to that considered by a three-Member Bench in the decision concerning subsidy under a promotion policy, where it was held that such subsidy:
(a) does not reduce the selling price,
(b) is not an additional consideration,
(c) does not affect the selling price of the goods, and
(d) is therefore not includible in the assessable value.
2.1.3 Relying on that decision, the Tribunal held that subsidy/incentive granted under an industrial promotion policy is in the nature of a grant and not a component of the price or consideration for sale of the manufactured goods.
2.1.4 The Tribunal further relied on the decision which held that where VAT/sales tax is actually payable and paid (or assessed as paid by the Sales Tax Department), subsequent remission or reimbursement by the State as an incentive or capital subsidy does not convert the tax amount into additional consideration and such tax remains excludible from the "transaction value" under Section 4(3)(d) of the Central Excise Act, 1944.
2.1.5 It was observed that remission under the State VAT law is distinct from exemption: in remission, tax is actually payable and stands paid, and is later remitted/refunded as an incentive; in such a situation, the VAT/CST paid and later remitted cannot form part of the transaction value for excise assessment.
2.1.6 The Tribunal noted that a coordinate Bench had, in the context of a similar VAT/CST subsidy scheme, already held that there was no justification for inclusion of VAT amounts in the assessable value.
2.1.7 The Tribunal distinguished the Supreme Court-based line of decisions (including those following Super Synotex (India) Ltd.) relied upon by the Department, noting that these had already been specifically held inapplicable to such subsidy schemes by the three-Member Bench decision, and thus could not govern the present case.
2.1.8 The Tribunal also distinguished the decision where part of the sales tax collected was retained by the assessee and not paid to the Government exchequer, whereas in the present case the scheme involved reimbursement of a portion of VAT/CST already paid to the Government, which could then be used for payment of tax in the next financial year; hence the factual and legal matrices were different.
2.1.9 The Tribunal took note that, in respect of another unit of the same assessee, the Adjudicating Authority had already dropped a similar demand on the identical issue of reimbursement of VAT/CST grant by the same State Government, reinforcing the conclusion that such reimbursement was not part of assessable value.
Conclusions
2.1.10 The Tribunal concluded that reimbursement of incentive/grant of VAT/CST by the State Government under the industrial promotion policy is not an additional consideration, does not affect or form part of the selling price, and is therefore not liable to be included in the assessable value under Section 4 of the Central Excise Act, 1944.
2.2 Invocation of extended period and allegation of suppression
Legal framework (as discussed)
2.2.1 The demand was raised under Section 11A(10) of the Central Excise Act, 1944 for the period 2009-10 to 2012-13, with the Show Cause Notice issued on 27.01.2016, invoking the extended period on the allegation that the assessee had not included the incentive amount in assessable value, had not declared it in ER-1 returns, and had suppressed facts with intent to evade duty.
Interpretation and reasoning
2.2.2 Having held that the incentive/grant amount is not legally includible in assessable value, the Tribunal reasoned that non-inclusion of such amount cannot constitute suppression of facts with intent to evade payment of duty.
2.2.3 The Tribunal thus held that, since the very basis of the demand (inclusion of incentive in assessable value) fails on merits, the allegation of willful suppression to justify the extended period also fails.
Conclusions
2.2.4 The Tribunal held that there was no suppression of facts and the extended period under Section 11A was not invocable; the demand was barred by limitation.
2.2.5 The appeal was allowed both on merits (non-includibility of VAT/CST reimbursement in assessable value) and on limitation, and the demand of duty, interest and penalty was set aside.
Calculation of Excise duty - inclusion of VAT/CST reimbursed by the Andhra Pradesh State Government from the appellant - the said amount received by the Appellant is liable to be included in the assessable value under Section 4 of the Central Excise Act, 1944 or not - HELD THAT:- Principal Bench CEATAT New Delhi in the case of M/s Harit Polytech Pvt Ltd. [2023 (7) TMI 1547 - CESTAT, DELHI], decided by three member bench held that, amount of subsidy under the promotion policy is not an additional consideration and also held that the subsidy amount under the promotion policy does not affect the selling price of the goods.
The Tribunal Mumbai, in the case of M/s Welspun Corporation Ltd., [2017 (5) TMI 177 - CESTAT MUMBAI], the VAT which was payable was actually paid the same is required to be excluded from the transaction value. The sales tax remitted by the Government towards incentive of Capital investment cannot be a part of the transaction value.
Thus, the reimbursement of incentive / grant of VAT / CST by Andhra Pradesh State Government to the appellant is not liable to be included in the assessable value under Section 4 of the Central Excise Act - Since, the amount of incentive / grant is not liable to be included in the assessable value. Therefore, no any suppression of fact.
The appeal is liable to be allowed on merit as well as on the ground of limitation both.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether Peanut Butter is a "similar edible preparation" to Margarine and thereby excluded from exemption under Notification No. 03/2006-CE, making the product dutiable and permitting availment and utilization of Cenvat credit of CVD paid on imports.
1.2 Whether the Tribunal is bound to take into account an earlier unchallenged appellate order in the same assessee's case, holding Peanut Butter to be similar to Margarine and the demand unsustainable on grounds including revenue neutrality.
1.3 Whether the stand taken by the assessee under another statute (Food Safety and Standards Regulations) that Peanut Butter is neither butter nor Margarine precludes it from claiming, for central excise purposes, that Peanut Butter is "similar" to Margarine.
1.4 Whether Cenvat credit is reversible under Rule 3(5B) of the Cenvat Credit Rules, 2004 on inputs written off in the books or cleared as rejected material at zero value.
2. ISSUE-WISE DETAILED ANALYSIS
2.1 Exemption under Notification No. 03/2006-CE - "similar edible preparation" and dutiability of Peanut Butter
Legal framework (as discussed)
2.1.1 The Tribunal noted that, by virtue of Chapter Note 5 to Chapter 15, the process of relabelling and repacking of imported Peanut Butter amounted to "manufacture", thereby attracting central excise duty on clearance from the factory.
2.1.2 Notification No. 03/2006-CE exempts specified goods, including Margarine. The central controversy was whether Peanut Butter is covered within the expression "similar edible preparations" in relation to Margarine and therefore excluded from the benefit of exemption.
Interpretation and reasoning
2.1.3 The Tribunal examined whether Peanut Butter and Margarine could be regarded as "similar edible preparations" and held that the term "similar" is expansive and cannot be given a restrictive meaning, relying on the established interpretation that "similar" requires general likeness and resemblance rather than identity.
2.1.4 On comparative analysis of both products, the Tribunal found that Peanut Butter and Margarine are both edible preparations directly fit for human consumption; they share similarity in fat content, origin, and general usage as spreads.
2.1.5 The Tribunal noted that a principal functional difference pointed out was that Margarine, besides being a table spread, can be used for baking, whereas Peanut Butter is essentially used as a table spread (e.g., in sandwiches) and not for baking. This difference was considered non-decisive for denying similarity, as the core nature and use as edible spreads remained comparable.
2.1.6 Independently of precedent, the Tribunal, on its own evaluation of properties and end-use, concluded that Peanut Butter is covered within the expression "similar edible preparations" vis-à-vis Margarine.
Conclusions
2.1.7 Peanut Butter is a "similar edible preparation" to Margarine for purposes of Notification No. 03/2006-CE and is, therefore, excluded from the exemption granted to Margarine.
2.1.8 As the product is not exempt, levy of central excise duty on the repacked and relabelled Peanut Butter is proper, and Cenvat credit of CVD paid on imports and utilized for payment of such duty cannot be denied on the ground of exemption under the said notification.
2.1.9 Consequently, the demand for reversal and recovery of Cenvat credit of Rs. 1,35,98,208/-, along with equal penalty, was held to be unsustainable and set aside on merits.
2.2 Effect of earlier unchallenged appellate order in the same assessee's case
Legal framework (as discussed)
2.2.1 The Tribunal considered the Department's reliance on the decision holding that Tribunals are not bound by orders of Commissioners, particularly in context of discretionary imposition of redemption fine, and examined its relevance to the present dispute relating to classification/exemption and Cenvat entitlement.
Interpretation and reasoning
2.2.2 The Tribunal referred to a prior Order-in-Appeal in the same assessee's case for a subsequent period, wherein the Commissioner (Appeals) had (a) treated Peanut Butter as similar to Margarine and hence excluded from exemption, and (b) allowed the assessee's appeal, inter alia, on the ground of revenue neutrality, while at the same time upholding demand of Cenvat credit on written-off inputs under Rule 3(5B) of the Cenvat Credit Rules.
2.2.3 It was specifically noted that the Department had not challenged the said Order-in-Appeal and no reasons were furnished for not doing so.
2.2.4 The Tribunal distinguished the earlier High Court judgment relied on by the Department (relating to redemption fine), observing that the question of discretionary redemption fine did not arise in the present case. For classification and exemption issues, an unchallenged appellate order in the same factual context carries persuasive weight and should be taken into consideration, especially absent any contrary reasoning by the Department.
2.2.5 The Tribunal held that once the Department itself has, in the earlier unchallenged order, accepted that the demand is not sustainable on revenue-neutrality and on similarity to Margarine, it cannot, on the same factual matrix and issue, successfully maintain a contrary stand to sustain recovery of Cenvat credit on CVD utilized towards payment of duty on relabelled Peanut Butter.
Conclusions
2.2.6 The unchallenged prior appellate order in the same assessee's case, holding Peanut Butter to be similar to Margarine and the demand unsustainable, was treated as representing the Department's accepted position.
2.2.7 In the absence of any cogent justification from the Department for deviating from that position, the Tribunal declined to sustain the present demand for reversal of Cenvat credit on CVD of Rs. 1,35,98,208/- and the corresponding penalty.
2.3 Relevance of the assessee's stand under Food Safety legislation to excise "similarity"
Legal framework (as discussed)
2.3.1 The Tribunal considered the Department's argument that in proceedings under another statute (a writ petition under State/VAT/food law context), the assessee had contended that Peanut Butter is neither butter nor Margarine, relying on the definition of Peanut Butter in the Food Safety and Standards (Food Products Standards and Food Additives) Seventh Amendment Regulations, 2016.
2.3.2 The Tribunal relied on the principle, as affirmed by the Supreme Court, that the definition in one statute having a different object, purpose and scheme cannot be mechanically imported into another statute for classification or levy of excise duty.
Interpretation and reasoning
2.3.3 The Tribunal noted that the object of the Central Excise law and the Tariff is revenue generation through classification and rate of duty, whereas the Food Safety legislation is concerned with standards, quality control, and food safety requirements.
2.3.4 It found force in the submission that technical definitions and regulatory standards under food safety law cannot govern the understanding of expressions such as "similar edible preparations" in an exemption notification issued under central excise, whose interpretative context and purpose are distinct.
2.3.5 Accordingly, the assessee's stand under food safety regulations that Peanut Butter is neither butter nor Margarine could not be used to estop or bar the assessee from contending, for excise purposes, that Peanut Butter is "similar" to Margarine for construing the scope of the exemption notification.
Conclusions
2.3.6 The stand taken under Food Safety legislation is not determinative for central excise classification or exemption, and cannot be imported mechanically to deny the assessee's claim that Peanut Butter is "similar" to Margarine under the excise notification.
2.3.7 The Tribunal upheld the assessee's entitlement to argue similarity for excise purposes notwithstanding its submissions made under a different statute.
2.4 Reversal of Cenvat credit on written-off or rejected inputs under Rule 3(5B) of the Cenvat Credit Rules, 2004
Legal framework (as discussed)
2.4.1 Rule 3(5B) of the Cenvat Credit Rules, 2004 mandates that where the value of any input or capital goods, on which Cenvat credit has been taken, is written off fully or partially before being used in the manufacture of final products, or such goods are cleared as waste, the manufacturer shall pay an amount equivalent to the Cenvat credit taken.
Interpretation and reasoning
2.4.2 It was not in dispute that the assessee had taken credit amounting to Rs. 4,51,157/- on inputs which were either not received, written off in the books of account, or sold as rejected material at zero value.
2.4.3 The assessee accepted the demand to the extent of non-receipt of inputs but contended that, for inputs written off in the books, Rule 3(5B) did not require reversal of credit.
2.4.4 The Department argued that under Rule 3(5B), once inputs on which credit has been taken are written off or cleared as rejected at zero value, an amount equivalent to the credit taken is payable.
2.4.5 The Tribunal agreed with the Department's interpretation, aligning with the prior unchallenged Order-in-Appeal in the assessee's own case, wherein demand of Cenvat credit on written-off inputs under Rule 3(5B) had been upheld.
Conclusions
2.4.6 Cenvat credit is liable to be reversed under Rule 3(5B) of the Cenvat Credit Rules, 2004 in respect of inputs written off in the books of account or cleared as rejected material at zero value.
2.4.7 The demand of Rs. 4,51,157/- of Cenvat credit on such inputs and the penalty thereon, as confirmed in the impugned order, was upheld.
2.4.8 The appeal was thus allowed partly: the major demand and equal penalty relating to Rs. 1,35,98,208/- were set aside, while the smaller demand of Rs. 4,51,157/- and penalty thereon were sustained.
Recovery of CENVAT Credit with interest and equal penalty - goods cleared were unconditionally exempted by virtue of Rule 11 of Notification No. 03/2006-CE dated 01.03.2006 - case of the Department is that the exemption notification exempted Peanut Butter - whether Peanut Butter can be considered as similar to Margarine or otherwise, because if they are similar edible preparation as Margarine then they will not be exempted and if they are not similar then they are exempted? - revenue neutrality - extended period of limitation - penalty - HELD THAT:- It is found that appellant’s reliance in their own case on the order of the Commissioner (Appeals) dated 22.11.2013, where, the Commissioner (Appeals) has clearly held that demand is not sustainable on the ground of revenue neutrality as well as holding that the impugned goods were similar to Margarine and therefore clearly excluded from the exemption notification. However, he has upheld the demand of Cenvat Credit on inputs written off in terms of provisions under Rule 3 (5B) of CCR - apparently, Department has not challenged this order and therefore, the view of the Commissioner (Appeals) has to be considered as the view of the Department. Therefore, when the Department itself has decided that demand is not sustainable in the given factual matrix, both on grounds of revenue neutrality as well as on account of its being similar edible preparation to Margarine, then now the demand raised on the similar issue cannot sustain to the extent of recovery of credit taken in respect of CVD utilized towards payment of duty on re-labelled Peanut Butter. However, the demand for recovery of irregular Cenvat Credit on the written off input or rejected input would stand, keeping in view the provisions of Rule 3 (5B) of CCR. Even otherwise also, it is seen that the expression used is similar and therefore it cannot be given a restrictive meaning. It is found that both Margarine and Peanut Butter are edible preparations, which are directly fit for human consumption and even in terms of fat content, origin and usage etc. they are quite similar.
The issue is not that of imposition of redemption fine and this ratio, as such, is not applicable in the present appeal. The imposition of redemption fine is a discretionary provision and may not have any binding precedence in so far manner of computation of same is concerned. However, when the issue is that of classification and entitlement of notification or otherwise, a decision given by the Commissioner (Appeals), which has not been contested by the Department, has to be taken into consideration by the Tribunal, unless any concrete reasons are cited by the Department as to why the said order has not been challenged. We do not find any such argument in the present appeal. In any case, apart from making observations on this point, it is already held that even on independent evaluation of the properties of both the items, including its end use, it would be covered within the expression “similar edible preparation” similar to Margarine.
The demand to the extent of Rs. 1,35,98,208/- and equal penalty thereon is not sustainable and therefore is set aside - the demand of Cenvat Credit of Rs. 4,51,157/- and penalty thereon in the impugned order is upheld - appeal allowed in part.
Issues: (i) Whether the amount of sales tax retained under the Haryana deferment scheme was includible in the assessable value for central excise duty; (ii) Whether the demand was barred by limitation and the extended period could be invoked; (iii) Whether interest and penalty could survive, including the question of duplicated penalty.
Issue (i): Whether the amount of sales tax retained under the Haryana deferment scheme was includible in the assessable value for central excise duty.
Analysis: The retained amount arose from a State tax concession scheme under which the assessee was permitted to retain part of the tax collected from customers. The dispute concerned the effect of that scheme on the definition of transaction value under central excise law. The Tribunal noted that the issue on merits had already been considered in earlier decisions and, following that line of authority, held that the retained tax amount was liable to be included in the assessable value.
Conclusion: The issue was decided against the assessee on merits.
Issue (ii): Whether the demand was barred by limitation and the extended period could be invoked.
Analysis: The show cause notice was issued for an earlier period on the basis of audit, while the department relied on suppression and intent to evade duty. The Tribunal held that the relevant facts were reflected in the invoices and books, that the controversy was one of legal interpretation, and that no positive evidence of suppression had been shown. In these circumstances, the extended period of limitation was held to be unavailable.
Conclusion: The demand for the extended period was held to be time-barred and the finding was in favour of the assessee.
Issue (iii): Whether interest and penalty could survive, including the question of duplicated penalty.
Analysis: Once the demand itself was held to be barred by limitation, the consequential levy of interest and penalty could not survive. The Tribunal also noted that penalty had been imposed twice in the impugned orders in respect of the same matter arising from the same show cause notice.
Conclusion: Interest and penalty were set aside in favour of the assessee.
Final Conclusion: The appeals succeeded because the entire demand, along with the consequential interest and penalty, was held to be unsustainable on limitation.
Ratio Decidendi: A demand based on audit and involving a bona fide interpretational dispute cannot be sustained under the extended period absent proved suppression with intent to evade duty, and consequential interest and penalty fall when the demand itself is time-barred.
Calculation of Excise duty - amount of 50% of sales tax retained by the Appellant under the deferment scheme, forms part of the assessable value in terms of Transactional Value provided u/s 4(3)(d) of Central Excise Act or not - time limitation - HELD THAT:- The identical issue, which is involved in the present case, has been decided by this Tribunal in the case of Johnson Matthey India Pvt Ltd [2025 (2) TMI 258 - CESTAT CHANDIGARH] wherein the Tribunal, on merits, has held against the assessee, but on limitation, has dropped the duty demand as well as penalty by relying upon the judgment of Hon’ble Apex Court in the case of CCE, Delhi-III vs. Maruti Suzuki India Ltd [2014 (9) TMI 229 - SUPREME COURT] - though on merits, the issue is against the Appellant, but on limitation, the Appellant is entitled to the benefits because the entire demand is barred by limitation as the SCN was issued on 31.12.2007 whereas the period of dispute is from 01.04.2001 to 31.03.2005. Moreover, the department has failed to bring on record any evidence to show that the Appellant had suppressed the material facts from the department with intent to evade payment of duty - It is also found that the SCN was issued on the basis of audit and it is a settled principle of law that extended period of limitation cannot be invoked when the demand proposed is arising out of the audit proceedings. Further, the issue involved in the present case relates to interpretation of nature, therefore, invoking extended period is not justified in the present case.
Demand of interest and penalty - HELD THAT:- When the demand itself is not sustainable, the question of interest and penalty does not arise.
Appeal allowed.
1. ISSUES PRESENTED AND CONSIDERED
1. Whether a demand for central excise duty for alleged clandestine manufacture and clearance can be sustained solely on the basis of input-output ratios declared in statutory returns, in the absence of corroborative or direct evidence.
2. Whether the adjudicating authority's computation of alleged suppressed production is factually and legally sustainable where it ignored production of/by-products (sinter and pig iron skull) and where input consumption included iron ore fines used for captive sinter production.
3. Whether invocation of the extended period of limitation is permissible where the demand is premised on audit observations and statutory returns, and the show cause notice was issued more than three years after the audit/spot-memo.
4. Consequential issue: Whether interest and penalty survive when the underlying duty demand is held unsustainable.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Reliance solely on input-output ratio to sustain clandestine manufacture/clearance demand
Legal framework: Allegations of clandestine manufacture and clearance are serious and demand proof on preponderance of probability; Revenue bears the initial onus to establish clandestine activity by cogent, affirmative evidence rather than mere inference from returns.
Precedent treatment: The Court follows a consistent line of authority holding that demands based only on input-output ratios or internal records, without corroborative evidence (e.g., evidence of excess raw material purchases, transportation/dispatch particulars, discovery outside factory, statements of buyers/transporters, unusual electricity consumption, receipt of sale proceeds), are unsustainable. The Tribunal and High Court decisions cited were applied to support this principle.
Interpretation and reasoning: The adjudicating authority in the present matter derived estimated excess production by applying a previous year's input-output ratio to current year consumption figures. The Tribunal found no independent investigation or corroborative evidence (no statements of buyers/transporters, no examination of electricity consumption, no proof of extra raw material procurements or transportation) to substantiate clandestine removal. The Court emphasised that inferences drawn purely from statutory returns and averaging formulas do not meet the evidentiary threshold required to prove clandestine operations.
Ratio vs. Obiter: Ratio - the holding that clandestine removal cannot be established solely by input-output ratios without corroborative evidence is a central, dispositive principle applied to the facts.
Conclusion: Demand premised solely on input-output ratio is unsustainable; the allegation of clandestine manufacture/clearance must be supported by tangible corroborative evidence which was absent here.
Issue 2: Factual and computational infirmities - exclusion of sinter and pig iron skull, and application of prior year ratio
Legal framework: Estimation of production for duty demands must correctly account for all declared finished products and the nature/usage of raw materials; mechanical application of historical ratios ignores manufacturing changes and can produce erroneous estimates.
Precedent treatment: The Tribunal's prior decisions were followed to the effect that parameters other than main raw material quantity (quality of raw material, captive intermediate products, power consumption, other inputs, plant/process changes) must be considered before arriving at estimated production and demand.
Interpretation and reasoning: The adjudicating authority omitted production of pig iron skull (3,075.30 MT) and sinter (56,223.37 MT) from its comparative computation, despite these figures being disclosed in ER-1 returns, tax audit and VAT audit reports. The total iron ore consumption reported included substantial iron ore fines (certified as 73,271.19 MT) consumed in a newly commissioned sinter plant, altering the consumption pattern and rendering the prior year's ratio inapplicable. The Tribunal held the computation to be factually erroneous and mechanically arrived at without proper application of mind.
Ratio vs. Obiter: Ratio - the finding that the specific computation underpinning the demand is factually and legally untenable and thus invalidating the demand.
Conclusion: The impugned computation is flawed for ignoring declared intermediate and by-products and for misapplying an earlier input-output ratio; accordingly the demand based on that computation is unsustainable.
Issue 3: Limitation - invocation of extended period where demand arises from audit observations/statutory returns
Legal framework: Extended period of limitation is subject to statutory conditions; when a demand is founded on audit observations and statutory returns disclosed to the Department earlier, extended limitation cannot be invoked merely due to departmental delay in issuing a notice years later.
Precedent treatment: The Tribunal applied authorities holding that extended limitation cannot be invoked when the demand is based on audit observations and returns already before Revenue and where no fresh incriminating material was discovered after the statutory period.
Interpretation and reasoning: The spot audit memo was dated 13.03.2014 and the show cause notice was issued on 09.05.2017 - more than three years later. The Tribunal found the extended period inapplicable since the demand arose from audit/statutory returns and no additional independent evidence was gathered to justify extension. Reliance on recent Tribunal decisions holding similarly was expressly adopted.
Ratio vs. Obiter: Ratio - the holding that the proceedings are barred by limitation in these circumstances and that the extended period could not be validly invoked.
Conclusion: Proceedings are time-barred; the demand is unsustainable on limitation grounds as well.
Issue 4: Consequence for interest and penalty when principal demand fails
Legal framework: Interest and penalty flow from a valid duty demand; if the principal demand is set aside, consequential interest and penalty cannot survive absent independent justification.
Precedent treatment: The Tribunal followed settled practice that once duty demand is quashed for want of proof and/or limitation, interest and penalty imposed on that premise must also be set aside.
Interpretation and reasoning: Having held the duty demand unsustainable on evidentiary and limitation grounds, the Tribunal reasoned that interest and penalty, being consequential, have no independent foundation to be sustained.
Ratio vs. Obiter: Ratio - the dismissal of interest and penalty as consequential to setting aside the duty demand.
Conclusion: Interest and penalty confirmed in the impugned order are set aside along with the principal demand.
Overall Conclusion
The Court set aside the adjudicating authority's order confirming duty, interest and penalty: (a) clandestine removal could not be established by input-output ratio alone without corroborative evidence; (b) the computation was factually and legally flawed for ignoring declared by-products and changed manufacturing inputs; and (c) the proceedings were barred by limitation. Consequently, the demand, interest and penalty were quashed.
Clandestine manufacture and clearance - demand confirmed solely on the basis of the input-output ratio, in the absence of any corroborative evidence - Department has failed to discharge this burden - no investigation whatsoever has been carried out to ascertain as to how the appellant could have suppressed production - Time limitation - HELD THAT:- It is a settled legal principle that a demand based on the allegation of clandestine removal cannot be sustained solely on the basis of input–output ratios, in the absence of any corroborative or direct evidence. In the present case, it is seen from the records that the Department has failed to bring in any evidence to substantiate the allegation of clandestine clearances. The entire demand has been raised on the basis of mere assumptions and presumptions, without any corroborative evidence to substantiate the allegations of suppression or clandestine removal. It is trite law that demand of clandestine manufacture and clearance cannot be sustained purely on conjectures, surmises, assumptions or presumptions, in the absence of any positive, tangible, and cogent evidence linking the alleged goods to clandestine activity.
Reliance placed upon the decision of the Hon'ble Calcutta High Court in the case of Commissioner of C.Ex., Kolkata-III vs. Sai Sulphonate Pvt. Ltd. [2022 (2) TMI 359 - CALCUTTA HIGH COURT], wherein it has been held that the onus to establish clandestine removal with cogent evidence is on the Department and demand of central excise duty cannot be upheld merely on the basis of inference of input-output ratio - thus, the allegation of clandestine clearance made in the impugned order, which is on the basis of the input: output ratio declared by the appellant in the ER-5 returns, is not sustainable.
Regarding the demand confirmed in the impugned order on the allegation of clandestine clearance, it is found that the Ld. adjudicating authority has taken the figure of consumption of iron ore from ER-4 return, while he has ignored the corresponding figure of production of finished goods declared therein, i.e., 79626 MT which includes both 76550.42 MT of pig iron and 3075.30 MT of pig iron skull - the Ld. adjudicating authority has also failed to appreciate that the total consumption of 1,75,218 MT of iron ore included consumption of iron ore fines as well, which were utilized for manufacture of sinter in the newly installed sinter plant, which in turn was captively consumed for the production of pig iron. The details of production of such sinter using the iron ore fines is not disputed and were also disclosed in the ER-1 returns as well as the tax audit and VAT audit report of the appellant. Further, in support of its contention, the appellant has also produced invoice wise details of purchase of iron ore fines along with a certificate from a qualified Chartered Accountant certifying that the consumption of 1,75,218 MT of iron ore declared in ER-4 return includes consumption of 73271.19 MT of iron ore fines. Since, all the inputs did not comprise standard iron ore, the input output ratio of the Financial Year 2011-12 cannot be directly applied to compute the production of finished goods for the relevant period.
The entire computation forming the basis of the impugned demand is factually erroneous, legally untenable, and mechanically arrived at without proper application of mind. Accordingly, the demand of central excise duty confirmed in the impugned order is not sustainable and hence the same is liable to be set aside - Since none of the ingredients required for alleging clandestine manufacture and clearance are satisfied in this case, such an allegation against the appellants cannot be sustained, merely on the basis of assumptions and presumptions.
The demand of central excise duty confirmed in the impugned order set aside - As the demand itself does not survive, the question of demanding interest or imposing penalty against the appellant does not arise and hence the same is set aside.
Time limitation - HELD THAT:- In the present case, the Notice in the instant case was issued on 09.05.2017 while the spot audit memo was issued on 13.03.2014. It is a settled position in law that extended period of limitation cannot be invoked when the entire demand is based on the audit observations. Since, in the instant case the Notice has been served after more than three years from the date of audit, the entire proceedings are barred by limitation.
The demand of central excise duty, along with interest and penalty, confirmed by way of the impugned order, is not sustainable on the ground of limitation also - Appeal allowed.
Issues: (i) Whether the department proved clandestine removal of excisable goods by the appellants on the basis of seized bank statements, third-party diaries and statements of shroffs/ middlemen; (ii) Whether statements recorded under Section 14 (investigation) and third-party private records could be admitted and acted upon without compliance with Section 9D (examination/admissibility) and whether penalties/valuation based on such material were sustainable.
Issue (i): Whether clandestine removal was proved so as to sustain demands of central excise duty, interest and penalties against the appellants.
Analysis: The evidence consisted principally of bank-statement printouts, handwritten abbreviations, private diaries/worksheets seized from shroffs/brokers and oral statements of third parties; searches and statements of manufacturers/ directors were limited and in many matters absent or exculpatory; no independent documentary proof of excess production, excess raw-material procurement, transport documents, excess electricity/consumption or unaccounted stocks was produced; the link between deposits in shroff accounts and receipt of cash by manufacturers was not consistently established by contemporaneous, authenticated source documents; several investigatory lacunae and failure to decode or authenticate handwritten abbreviations undermined probative force of the documentary trail; case law requires clandestine removal to be proved by cogent, corroborative material and not by conjecture or mere testimonial inferences.
Conclusion: On the available record clandestine removal was not proved by the Revenue and demands/penalties premised on that charge could not be sustained in the absence of strong, corroborative evidence in favour of Revenue.
Issue (ii): Whether statements recorded during investigation and third-party private records could be relied upon without complying with Section 9D (i.e., examination of the maker before the adjudicating authority and admission in evidence) and whether penalties and valuation based on such material were valid.
Analysis: Many relied-upon statements of shroffs/brokers and some directors were not examined in chief by the adjudicating authority nor offered for cross-examination as required by Section 9D(1)(b) where clause (a) does not apply; several director statements were retracted or were exculpatory; third-party diaries/worksheets were unsigned/unauthenticated and their authorship and provenance were not established; authorities and precedent require statute-prescribed procedure for admitting investigation statements because of risk of coercion and to protect fairness; absence of adherence to Section 9D diminished the evidential value of those statements and consequently undermined reliance on the private records decoded only by those unexamined witnesses; valuation issues under Section 4A/Rule 4 were not reached once clandestine removal reliance failed.
Conclusion: Statements and third-party loose records could not supply the necessary, admissible evidentiary foundation in the absence of Section 9D compliance and authentication; penalties and valuation founded on such material were therefore unsustainable.
Final Conclusion: The departmental case on clandestine removal and attendant demands, interest and penalties failed for want of reliable, corroborative and admissible evidence; consequential relief was granted and the appeals were allowed.
Ratio Decidendi: Where allegations of clandestine removal rest primarily on unauthenticated third-party records and investigation statements recorded under Section 14, those statements and records must be admitted in evidence in accordance with Section 9D before they can form the basis for fiscal demands and penalties; absent such admissibility and independent corroboration (e.g., evidence of excess production, raw-material procurement, transport/receipt documents or authenticated financial linkage), demands for excise duty and penalty cannot be sustained on conjecture or uncorroborated testimonial inferences.
Clandestine manufacture and removal of ceramic/vitrified tiles and sanitaryware on the part of various tile manufacturers (Appellants) - entire demand is confirmed based on the statements of shroffs, angadia/middlemen, its directors without allowing cross examination of them, contrary to the specific provisions of Section 9D of the Central Excise Act, 1944 - retraction of statements by the partners/directors - demand on the basis of conjunctures and surmises - HELD THAT:- It is found that allegation of clandestine removal has to be proved by the department as burden lies on it as has been held in the matter of CCE, Coimbatore Vs. SVA Steel Re-Rolling Mills Ltd. [2018 (1) TMI 264 - MADRAS HIGH COURT] and also as it is also trite law by now. This standard of proof is the preponderance of probability but the same cannot be based merely on the suspicion or assumptions and presumptions. As suspicion however grave cannot take place of tangible evidence, as held by this bench in the matter of Chandan Steel Ltd. Vs. Commissioner of Central Excise & S.T., Vapi [2013 (11) TMI 746 - CESTAT AHMEDABAD].
Even the Larger Bench of this Tribunal in the matter of Kuber Tobacco Products Ltd vs. CCE., Delhi [2013 (9) TMI 414 - CESTAT NEW DELHI], by the decision which was given by majority after difference of opinion, held that clandestine removal is a serious accusation which has to be established by sufficient, cogent and unimpeachable, relevant and credible material evidence by applying test of prudent man’s estimate of preponderance of probability. Conclusion should be logical borne out from the records and not figments of imagination. There cannot be mere presumptions. Though mathematical precision is not warranted, revenue is not relieved altogether of burden of producing some credible evidence in respect of the facts in issue.
Again the Division Bench of this Tribunal by majority in the matter of Shreeji Aluminum Pvt. Ltd. Vs. Commissioner of Central Excise, Vapi [2012 (10) TMI 418 - CESTAT, AHMEDABAD] held that the burden of proof in clandestine removal matters is on revenue and is required to be discharged by adducing strong, sufficient and positive evidence. Assumptions and presumptions leading to doubts against the manufacturers, are not sufficient. It was also held that the standard of proof though is not beyond doubt, should have more than 50% chance that proposition is true on basis of facts and evidences available.
Whether, the charge of clandestine removal is adequately proved by the department or not? - HELD THAT:- It is an admitted position in the instant case as has been examined in the light of the department’s letter dated 03.11.2025 that out of main 56 appellants, statements of all Managing Partners or Directors were not recorded. For 11 appellants only, it is stated that the statements of the Partners or Directors of the appellants were recorded and stray statements of some buyers were recorded. As a buyer is stated to be so abbreviated by the alleged evaders that their identity could not be established. In two cases, only the premises were searched and the statements of the buyers and partners were recorded. In one case statements were recorded, premises was searched but no statements of the buyers were recorded. From the above, it is clear that the investigation was carried out in slip-shod manner and there were half hearted attempts, whatever be the reason, to complete the investigation either by conducting search or by recording statements or by approaching the buyers which a premier Investigating Agency is not expected to do.
The whole case of the department is based upon testimonial evidence only, mainly of the third party i.e. Brokers and Shroff etc. or scribbled bank statements. No receipt of excess cash was found (through purported clandestine production and clearance was done). During searches conducted, no excess stocks was found as per accounts. Statements in some cases are contradictory and are not supported by any corroboration of raw material supply, excess electricity consumption, excess labour required, excess stock found with buyers or with the manufacturing units in any manner. Infact, no stock discrepancy was found. Merely, on the basis of third party statements or its record, case cannot be proved. Therefore, case is not supported by any substantive evidence or is corroborated as is the requirement of burden of proof indicated by the case law relied upon of various High Courts.
The invocation of Section 123 of the Customs Act,1962 shifted the burden of proof, in the chain of evidence by gold biscuit and possession was itself an offence. In the instant case, no such offending goods have been seized which by itself can prove the clandestine production of the goods.
In the instant case, no transport document has even been attempted to be placed on record by the department through its investigation. The cash receipts are for clandestine removal of which dates is also not established. Various High Courts have ruled that the statements in the matter of clandestine removal need to be subjected to examinationin-chief by the Adjudicating Authority and then if found admissible, same is required to be offered for cross-examination. No such examination-in-chief was done by the Adjudicating Authority nor cross examination offered.
Thus, it can easily be made out that while various entries indicate in the Axis Bank account statement that there were cash deposits, the names were written by some authors of the recipient Shroff. The bank statement itself does not indicate any name and at the end, are hand scripted names with abbreviations, which have been reduced to in box names like Pravinbhai Shirvi, Satishkumar etc. There is nothing to indicate by any documentary or otherwise established evidence as to how PS was construable as Pravinbhai Shirvi by the department, how names scripted in Gujarati became Shatishkumar for the department - The third-party evidence which is not substantiated by any documentary evidence and the whole case which is simply based upon statements of Shroff/ Brokers as to who was likely recipient or intermediaries of the manufacturers who received such payment cannot prove the serious charge of clandestine removal of so many manufacturers at large of Morbi and around. It is well founded principle of enforcement jurisprudence that mere mentioning of name by testimonial evidence or even derived records cannot form basis for making allegations of clandestine removal.
There are substance in the defence made by the appellants in relation to charge levied against them of clandestine removal. It is found that the same is far from the truth on the basis of various submissions, made by the appellants on various aspects in isolation and collectively. After due appreciation of the various materials on record, including case laws and on proper evaluation of evidence produced before us, we find that the charge of clandestine removal is far from proved against the appellants and other co-accused. The other aspects of valuation etc. pale into insignificance, on the basis of findings that the charge of clandestine removal itself is unsustainable, same is therefore not pronounced upon.
Thus, the charge of clandestine removal not having been proved by the department, the demands are consequently not sustainable and so are the penalties etc. against the manufacturers and other accused of various nefarious activities. Penalties on them cannot be sustained.
Appeal allowed.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether clearance of Polypropylene Co-Polymer (PPCP) "as such" to moulders, with reversal of credit under Rule 3(5) of the CENVAT Credit Rules, 2004, constitutes "trading" of goods / an exempted service attracting Rule 6(3) of the CENVAT Credit Rules, 2004.
1.2 Whether, in the facts of PPCP being treated as input and credit reversed on its removal as such, the department is entitled to demand an amount under Rule 6(3)(i) of the CENVAT Credit Rules, 2004, along with interest and penalty.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1: Characterisation of PPCP clearances to moulders - "trading" versus removal of inputs as such
(a) Legal framework (as discussed)
2.1 The Court proceeded on the basis of the CENVAT Credit Rules, 2004, specifically referring to:
2.1.1 Rule 2(k) defining "input".
2.1.2 Rule 3 permitting availment of CENVAT credit on inputs and input services.
2.1.3 Rule 3(5) governing removal of inputs "as such" from the factory on reversal/payment of credit.
2.1.4 Rule 6(3)(i) concerning payment of an amount where common input services are used for dutiable goods and exempted services, including "trading".
(b) Interpretation and reasoning
2.2 It was undisputed that:
2.2.1 The appellant manufactured dutiable final products (electric storage batteries and parts) and availed CENVAT credit under Rule 3.
2.2.2 PPCP was treated by the department as an eligible "input"; there was no allegation that PPCP was not used in the manufacture of final products.
2.2.3 Whenever PPCP was cleared to moulders, the appellant reversed the CENVAT credit under Rule 3(5) of the CENVAT Credit Rules, 2004, and this was duly reflected in ER-1 returns.
2.3 The Court noted that the department's case did not challenge the eligibility of PPCP as an input, but re-characterised the clearances of PPCP to moulders as "trading" activity, claimed to be an exempted service, in order to trigger Rule 6(3)(i) liability on common input services.
2.4 Relying upon the Coordinate Bench decision in the appellant's own case, the Court recorded that once PPCP is accepted as an input and is removed from the factory with reversal of credit in terms of Rule 3(5), such removal cannot be treated as trading to invoke Rule 6(3). The earlier order had held that:
2.4.1 Proceedings to deny PPCP the status of "input" had already been dropped, accepted by the Revenue, and had attained finality.
2.4.2 If an input is cleared on reversal of CENVAT credit, invocation of Rule 6(3A)/Rule 6(3) is impermissible.
2.5 The Court further relied on another Coordinate Bench decision in respect of the appellant's Chennai unit, where on identical facts it was held that:
2.5.1 PPCP cleared to moulders is used exclusively for manufacture of battery parts (containers, lids, etc.) which are sold back to the appellant and then used in manufacture of dutiable batteries.
2.5.2 The adjudicating authority itself had accepted PPCP as "input" under Rule 2(k) and the clearance to moulders as removal of inputs "as such" with proper reversal under Rule 3(5), yet paradoxically treated the same transaction as trading.
2.5.3 There was no evidence that the appellant was in the business of trading PPCP, derived any profit therefrom, or sold PPCP in the market independent of its manufacturing operations.
2.5.4 The entire sequence of transactions revealed a single integrated manufacturing arrangement, not a trading activity, and the department could not approbate and reprobate on the same transaction.
2.6 Applying the above reasoning to the present case, the Court held that, in the factual matrix:
2.6.1 PPCP remained an "input" within the meaning of Rule 2(k);
2.6.2 Its clearance to moulders, with reversal of credit under Rule 3(5), constituted removal of inputs as such in the course of the appellant's manufacturing activity;
2.6.3 There was no independent or standalone "trading" of PPCP that could be treated as an exempted service for the purpose of Rule 6(3)(i).
(c) Conclusions
2.7 The Court concluded that:
2.7.1 Clearances of PPCP to moulders, after reversal of credit under Rule 3(5), cannot be categorised as "trading" or as exempted service.
2.7.2 Rule 6(3)(i) of the CENVAT Credit Rules, 2004 is not attracted to such clearances.
Issue 2: Validity of demand under Rule 6(3)(i), interest and penalty
(a) Interpretation and reasoning
2.8 Since PPCP clearances were held not to be trading activity or exempted service, the foundational premise for invoking Rule 6(3)(i) failed.
2.9 The Court emphasised that:
2.9.1 There is no requirement under the CENVAT Credit Rules, 2004 to reverse credit on common input services merely because inputs, on which credit is taken, are subsequently removed as such with reversal of credit under Rule 3(5).
2.9.2 On identical facts in the appellant's own cases decided by Coordinate Benches, demands under Rule 6(3) had already been set aside, and a contrary view would be impermissible.
(b) Conclusions
2.10 The Court held that:
2.10.1 The demand of an amount under Rule 6(3)(i) of the CENVAT Credit Rules, 2004, along with interest, was not legally sustainable.
2.10.2 The imposition of penalty on the same basis was equally unsustainable.
2.10.3 The impugned order confirming the demands, interest and penalties was set aside, and the appeal was allowed.
Denial of CENVAT credit on input services - common input services for manufacture of batteries as well as trading of PPCP which is liable to be paid in terms of Rule 6(3)(i) of CENVAT Credit Rules, 2004 - HELD THAT:- The undisputed facts of the case are that the appellants are engaged in the manufacture of excisable final products i.e., Electric Storage Batteries and parts thereof and have availed CENVAT credit in terms of Rule 3 of CCR of 2004. Further, the department did not dispute the taking of CENVAT credit by the appellants and the demand of CENVAT credit is not on the ground that Polypropylene Co-Polymer (PPCP) is an ineligible input. It is also a fact that the appellants while clearing PPCP to molding manufacturers/molders, have undertaken reversal of CENVAT credit under Rule 3(5) of CCR of 2004. It is not the case with the department that PPCP were not used in the manufacture of the final products. In the above factual matrix of the case, it is not found that there is a requirement under CCR of 2004, for reversal of credit taken on input services used in relation to those inputs, which are subsequently removed as such by treating the same as ‘trading’ activity in terms of Rule 6(3)(i) of CCR of 2004.
The Co-ordinate Bench of the Tribunal in the case of self-same appellants i.e., Exide Industries Vs. Commissioner of Central Excise [2018 (4) TMI 655 - CESTAT MUMBAI] have held that the proposal of department for confirmation of the adjudged demands under Rule 6(3)(i) of CCR of 2004 is not sustainable.
The impugned order dated 30.06.2016 passed by the Commissioner of Central Excise & Customs, Belapur does not stand the legal scrutiny. Therefore, the adjudged demands along with interest and imposition of penalty on the appellants, in the impugned order is not legally sustainable and thus is liable to be set aside - Appeal allowed.
1. ISSUES PRESENTED AND CONSIDERED
1.1 Whether, for the period prior to 01.03.2013, any amount relatable to CENVAT credit on inputs cleared "as such" (including SAD component) was legally recoverable under Rule 3(5) of the CENVAT Credit Rules, 2004 in the absence of an express recovery mechanism.
1.2 Whether the explanation inserted to Rule 3(5) of the CENVAT Credit Rules, 2004 by Notification No. 3/2013-CE (NT) dated 01.03.2013, making Rule 14 applicable for recovery of amounts payable under Rule 3(5), could be applied retrospectively to clearances made prior to 01.03.2013.
1.3 Consequentially, whether the demand of the SAD-related amount, interest and penalty confirmed in the impugned order could be sustained.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1 & 2: Recoverability of amounts under Rule 3(5) prior to 01.03.2013 and temporal operation of the 2013 explanation
(a) Legal framework as discussed
2.1 The Tribunal examined Rule 3(5) of the CENVAT Credit Rules, 2004, which prescribed the obligation to pay an amount equivalent to the CENVAT credit taken when inputs are removed "as such", and the subsequent insertion of an explanation by Notification No. 3/2013-CE (NT) dated 01.03.2013, providing that if the manufacturer fails to pay the amount payable under sub-rules (5), (5A) or (5B), such amount shall be recovered in the manner provided in Rule 14 of the CENVAT Credit Rules, 2004.
2.2 The Tribunal noted that, as recognised in earlier decisions, prior to 01.03.2013 there was no specific recovery mechanism prescribed in Rule 3(5), 3(5A) or 3(5B), and that the 2013 explanation explicitly linked such recovery to Rule 14 only prospectively from 01.03.2013.
2.3 The Tribunal relied upon its own earlier decision in GKN Driveline (India) Ltd., wherein it had been held that the recovery mechanism introduced by the explanation inserted by Notification No. 3/2013-CE (NT) cannot operate retrospectively and that, when there was no recovery mechanism before 01.03.2013, no recovery could be effected under Rule 14 for that prior period. The same view was noted as having been followed in subsequent Tribunal decisions.
(b) Interpretation and reasoning
2.4 The Tribunal accepted the appellant's contention that, during the period August 2010 to November 2011, though Rule 3(5) obligated payment of an amount when inputs were cleared as such, there was no enabling provision prescribing how such amount was to be recovered in case of non-payment. The requisite linkage to Rule 14 was provided only by the 2013 explanation.
2.5 Based on the reasoning in GKN Driveline (India) Ltd. and the subsequent consistent line of decisions, the Tribunal held that the explanation introduced on 01.03.2013 is prospective in nature; it could not be utilised to validate or authorize recovery proceedings for a period prior to its coming into force.
2.6 Consequently, for the period August 2010 to November 2011, any recovery initiated under Rule 14, read with Rule 3(5), in the absence of the then-existing recovery mechanism, was considered legally unsustainable, irrespective of the nature or component of credit (including SAD) involved.
(c) Conclusions
2.7 The Tribunal concluded that there was no valid recovery mechanism in force under Rule 3(5) to recover amounts payable on clearance of inputs as such for the period prior to 01.03.2013, and the explanation inserted by Notification No. 3/2013-CE (NT) could not be applied retrospectively.
2.8 Accordingly, the demand of the proportionate SAD-related amount for the period August 2010 to November 2011, sought to be recovered by invoking Rule 14 read with Rule 3(5), was held to be unsustainable in law.
Issue 3: Sustainability of demand, interest and penalty
(a) Interpretation and reasoning
3.1 Since the very basis for recovery under Rule 14 read with Rule 3(5) for the relevant period was found to be untenable, the Tribunal held that the principal demand itself could not survive.
3.2 The Tribunal, having set aside the confirmation of the principal amount on this legal ground, held that the consequential levies of interest and penalty, being dependent upon the sustainability of the main demand, also could not be sustained.
(b) Conclusions
3.3 The Tribunal set aside the impugned order in entirety and allowed the appeal, with consequential relief as per law.
Non-reversal of cenvat credit availed on imported scrap as per Rule 3(5) of the Cenvat Credit Rules, 2004 - appellant had reversed the cenvat credit availed on CVD portion but not reversed proportionate cenvat credit on SAD amount - HELD THAT:- The issue is no more res integra and considered by the Tribunal in the case of GKN Driveline (India) Ltd. Vs. CCE, Delhi-III [2023 (9) TMI 1131 - CESTAT CHANDIGARH], wherein it is observed 'there was no recovery mechanism under Rule 3(5B) of the Cenvat Credit Rules and the explanation which was introduced vide Notification No. 3/2013 dated 01.03.2013 was from 01.03.2013 vide which it was provided that if the manufacturer of goods or the provider of output service fails to pay the amount payable under sub-rules (5), (5A), and (5B), it shall be recovered, in the manner as provided in rule 14, for recovery of CENVAT credit wrongly taken. This recovery mechanism introduced from 01.03.2013 cannot be made applicable from the retrospective date and it can be only prospective.'
The confirmation of the demand in the impugned order cannot be sustained - appeal allowed.
Issues: (i) whether the goods were correctly classifiable under Heading 8424 as parts of irrigation equipment and eligible for exemption; (ii) whether the department proved clandestine removal and violation of excise accounting and removal provisions; and (iii) whether the demand raised by invoking the extended period, along with penalties and alleged ineligible Modvat credit, could be sustained.
Issue (i): whether the goods were correctly classifiable under Heading 8424 as parts of irrigation equipment and eligible for exemption.
Analysis: The goods were found to be specially designed for drip irrigation use and not ordinary plastic tubes or pipes of general use. Applying the General Rules for Interpretation, Chapter Notes, the HSN explanatory notes on irrigation systems, the BIS standards for irrigation laterals, and the Board circular on plastic parts used in sprinkler irrigation equipment, the goods were treated as parts of a functional irrigation unit. The prior tribunal and Supreme Court decisions on identical goods were also relied upon to confirm the same classification and exemption position.
Conclusion: The goods were held classifiable under Heading 8424 and eligible for the relevant exemption notifications, in favour of the assessee.
Issue (ii): whether the department proved clandestine removal and violation of excise accounting and removal provisions.
Analysis: The Tribunal found that the appellants had filed classification lists, maintained statutory records, submitted RT-12 returns, and produced invoices and reconciliation material showing accounted clearances and accounted sale proceeds. No independent corroborative evidence established unrecorded manufacture, unaccounted removals, or receipt trail for alleged clandestine clearances. In the absence of positive evidence of suppression or deliberate withholding, the allegations under the removal and account-keeping rules were not accepted.
Conclusion: Clandestine removal and alleged violations of the excise procedural rules were not proved, in favour of the assessee.
Issue (iii): whether the demand raised by invoking the extended period, along with penalties and alleged ineligible Modvat credit, could be sustained.
Analysis: Since the goods were held exempt and the clearances were not shown to be clandestine, the foundation for invoking the extended period failed. The Tribunal applied the settled principle that extended limitation requires positive evidence of fraud, suppression, wilful misstatement or contravention with intent to evade duty. It further held that where duty was not legally payable on the final products, the Modvat dispute did not sustain the demand or penalties.
Conclusion: The extended-period demand, Modvat-related objection, and penalties were held unsustainable, in favour of the assessee.
Final Conclusion: The adjudged duty demand and consequential penalties were set aside, and the appeals succeeded.
Ratio Decidendi: Specially designed components of an irrigation system, when shown to be used solely as parts of that functional unit, are classifiable with the irrigation appliance and may not be treated as ordinary plastic goods; in the absence of positive evidence of suppression or clandestine clearance, extended limitation and penalties cannot be invoked.
Clandestine production and removal - polytubes - micro tubes - HDPE pipes - proper calssification of the goods - failure to determine the proper central excise duty levy in respect of the goods cleared - failure to pay the excise duty by making proper debit entry in the Personal Ledger Account and under the cover of central excise duty paying documents such as invoice - failure to file proper returns mentioning production and clearances - failure to properly account for the manufacture and clearance of the excisable goods in the prescribed Central Excise statutory records - eligibility for exemption from payment of Central Excise duty vide Serial No. 20 of the N/N.46/94-C.E. dated 01.3.1994 read with N/N.56/95-C.E. dated 16.3.1995 (Serial No.17) - invocation of extended period u/s 11A(1) of the Central Excise Act, 1944 read with Rule 9(2) of Central Excise Rules, 1994.
HELD THAT:- On careful reading of the classification under the First Schedule to the Central Excise Tariff vis-à-vis the general explanatory notes to HSN, impugned goods viz., polytubes, microtubes, HDPE pipes as well as other goods such as valves, emitters, drippers, micro sprinklers, poly fittings, sand filters etc., forming part of the surface network dripper lines or the underground network distribution lines and branch lines, for carrying water from the control station to the irrigation zone, and spraying/sprinkling such water to the area of irrigation, is appropriately classifiable as part of the appliances used in agriculture, horticulture. Therefore, the impugned goods or appropriately classifiable under heading 84.24 and more specifically under sub-heading 8424.91 of the First Schedule to the Central Excise Tariff Act and not under subheading 3917.00 as they do not remain as simple P.V.C. pipes and fittings.
It is further found that the issue of classification of Drip Irrigation System and its component parts, in identical set of circumstances was examined by the Co-ordinate bench of the Tribunal in the case of M/s Elgi Ultra Appliances Limited Vs. Commissioner of Central Excise, Coimbatore [1999 (7) TMI 422 - CEGAT, CHENNAI], wherein it was held that the HDPE/LDPE tubes/pipes are classifiable under sub-heading no. 8424.91, and the appellants claim for the benefit of exemption under notification No.56/95 dated 16.03.1995 is justified.
Further, the records placed in the case file also indicate that the Monthly Returns in form RT-12s along with Central Excise invoices, RG23A Part-I & II; RG23C-Part I & II, TR6 challans, Modvat accounts covering the entire clearances for the month of November, 1995 had been submitted by the appellants to the Superintendent of Central Excise, Jalgaon Range-II on 05.12.1995 and these have also been assessed finally by the jurisdictional Central Excise authorities, without raising any demand for short-payment or non-payment of duties. Therefore, it is evident that the clearances of the impugned goods were not disputed by the jurisdictional authorities either at the time of the assessment of monthly returns filed by the appellants or on verification of self-assessment made by the appellants, after introduction of self-assessment.
From the records of the case, it also transpires that the jurisdictional Assistant Collector of Central Excise, Jalgaon-I Division in his order dated 15.06.1998 has held that the impugned goods including various parts and components of irrigation system manufactured out of the plastic material, are appropriately classifiable under 84.24/98.06 and are entitled to the benefit of exemption under notification No.69/87; such goods are excluded from the scope of classification under chapter 39 - it appears that the entire issue of classification dispute of the impugned goods claiming that part of the goods were classified under sub-heading 3917.00 in order to claim Modvat credit, when sold to the consumers; and part of the same goods were classified under heading 8424.10 for clearances made without payment of excise duty by availing exemption, when cleared to depots and shop premises, is without examination of the entire facts of the case right from the beginning of the dispute and with utmost disregard to the laid down law on classification, exemption and the circular issued by the CBEC for uniformity in classification and assessment of goods, orders passed by the higher judicial forum.
Thus, it also cannot be said that the excisable goods were removed by the appellants from the factory premises of manufacture, without paying the applicable duty to categorise such removals as non-duty paid or clearances made in a clandestine manner, since the Central Excise authorities had approved the removal of goods under the classification of sub-heading 8424.00, on which the applicable excise duty leviable thereon is ‘NIL’. Therefore, there exists no valid ground for treating the clearances made by the appellants being in violation of Rule 9(1) and Rule 173F of Central Excise Rules, 1944.
The Co-ordinate Bench of the Tribunal in the case of Rajasthan Explosives & Chemicals Ltd., Vs. Commissioner of Central Excise, Jaipur-I [2017 (1) TMI 652 - CESTAT NEW DELHI] involving identical set of facts, have held that the appellants therein have properly recorded the production of goods in RG-1 register and the allegation of clandestine removal have not been proved by the investigation with any independent evidence, and thus the order confirming the duty demand was set aside.
In the present case, the investigation have not produced any document to state that there was clearances of goods for which the payments were received by the appellants to indicate that it was a clandestine clearance - The entire records relating to production/manufacture, clearances of goods having been submitted to the Department periodically, and when the impugned goods were entitled to full exemption from payment of Central Excise duty, there exist no ground for the claim of the Department that the appellants have in suppression of actual production have cleared unaccounted goods with an intent to evade payment of duty, and for confirmation of adjudged demands invoking extended period.
It is found that in the case of Collector of Central Excise Vs. Chemphar Drugs & Liniments [1989 (2) TMI 116 - SUPREME COURT], the Hon’ble Supreme Court has held that there should be evidential record to prove that something positive other than mere inaction or failure on the part of the manufacturer or producer, or conscious or deliberate withholding of information, when the manufacturer knew otherwise, is required to saddle the manufacturer with duty liability for the extended period.
The impugned order dated 24.10.2006 in confirmation of the adjudged demands by invoking the extended period of limitation under Section 11A(2) of the Central Excise Act, 1944 read with Rule 9(2) of Central Excise Rules, 1944 and consequent imposition of penalties on the appellants is not legally sustainable.
The impugned order dated 24.10.2006 passed by the learned adjudicating authority is set aside - Appeal allowed.
TaxTMI 